SEC Increases Exclusion of Proposals - 2023-2025

In order to help companies decide whether a proposal passes these tests, the SEC has developed a process to allow companies to ask the SEC in advance whether a proposal must be included in the meeting materials. The “no action” process is an informal review process through which the SEC staff advises companies and their investors on whether the SEC staff would likely recommend enforcement action if a company fails to include a submitted shareholder proposal on its annual proxy statement. The staff grants the company’s request if it finds some basis to agree with the company’s arguments that the proposal is excludable under one of the elements of SEC Rule 14a-8. It denies the request if it is unable to concur with the company’s arguments.

SEC Rule 14a-8 is intended to exclude trivial, irrelevant, and inappropriate shareholder proposals, thus minimizing the burden on companies. The no action process is a structured, time-tested process that adds an additional layer of objective scrutiny to company decisions regarding whether to include or exclude proposals, which serves to protect investors’ interests. If an investor disagrees with the no action decision by the SEC, the investor can submit a letter in opposition, but it does not have legal recourse against the SEC. Without Rule 14a-8 and the no action process, an investor only has the option to sue the company under federal law if it disagrees with a company’s decision to not place a proposal on the proxy, which would add delays, and significant costs for both parties.

The SEC staff periodically recalibrates its interpretation of the rules of the no action process to reflect current issues of concern to investors and companies. For example, in 2021, the SEC staff issued an interpretive bulletin, Staff Legal Bulletin 14L, which clarified ordinary business and micromanagement rules in a manner that allowed some environmental and social proposals to reach the proxy that might not have qualified in a prior interpretation. However, following market response and criticisms, the staff tightened up its interpretations of micromanagement and excluded many proposals on social and environmental issues that had previously been allowed, even with the new bulletin remaining in place. From November 1, 2023 to May 1, 2024 the SEC staff supported company requests for exclusion of proposals roughly 68% of the time, similar to the average exclusion rate during the first Trump administration, from 2017-2020, which was 69%.

In the 2025 proxy season, the staff again tightened its interpretation of the micromanagement rule, excluding, for example, proposals on lobbying disclosure that had previously been permissible since at least 2011. On February 12, 2025, the SEC staff signified that it is taking a more restrictive posture on proposals that request specific forms of disclosure or actions by companies. SLB 14M issued on that day revoked SLB 14L and altered staff interpretations of the micromanagement, ordinary business and relevance exclusions. The new interpretations led to an increase in the exclusion of environmental and social proposals, and fewer such proposals appearing on proxy statements. Of particular note in SLB 14M is a shift in interpretation of micromanagement from SLB 14L’s focus on the interest and capacities of shareholders to understand and vote on an advisory proposal, and toward an evaluation as to whether the proposal seeks a specific method, strategy or outcome that the staff views as more appropriately determined by the board or management.

When Public Sentiment Drives Shareholder Strategy

How headlines, hashtags, and media cycles are reshaping proxy season

Do public opinion and media narratives really influence shareholder proposals? A new study says: yes, and in some cases, that influence is financially material.

Analyzing proposal volumes and public discourse, the authors find that:

• Increased public salience of corporate issues (like AI ethics, reproductive rights, or climate impacts) correlates with a rise in ESG-focused proposals;

• These proposals are more likely to receive broader investor support when they align with media attention and reputational risk;

• And when companies respond constructively, firm value tends to improve.

📉 Sentiment as an Early Warning Signal

For investors, public opinion is often a precursor to regulatory or reputational risk. Think of social movements that preceded litigation, consumer backlash, or regulatory intervention—public scrutiny often arrives before the balance sheet feels the impact.

This study confirms that investor engagement is increasingly attuned to reputational signals and that media awareness serves as a “soft metric” for materiality.

“In today’s democratized information environment, companies can no longer operate behind closed doors, shielded from public scrutiny. Shareholders, armed with public sentiment data, are increasingly willing to hold management accountable. This new reality underscores the importance of transparency and responsiveness in maintaining investor trust and long-term value creation. ”

These insights have significant implications for both corporate leaders and investors. For management, the warning is: ignoring public sentiment can lead to increased shareholder activism and leadership turnover. For investors, our findings highlight the effectiveness of acting with the public’s voice in leading to corporate change.

Refer to the original article here.

Shareholder Voting and Corporate Governance

Why shareholder voting isn’t just symbolic—it’s structural

It’s easy to take shareholder voting rights for granted. But according to David Yermack (2010), voting is not just a procedural ritual—it’s a foundational component of corporate accountability.

Yermack’s comprehensive review of governance literature demonstrates that strong voting rights correlate with better corporate outcomes, including:

• Lower CEO entrenchment,

• Greater board independence,

• More responsive management,

• And ultimately, improved long-term firm performance.

These effects are especially visible in firms where shareholders have actively used proposals or majority voting to reshape governance policies. This article reviews recent research into corporate voting and elections. Regulatory reforms have given shareholders more voting power in the election of directors and in executive compensation issues. Shareholders use voting as a channel of communication with boards of directors, and protest voting can lead to significant changes in corporate governance and strategy. Some investors have embraced innovative empty voting strategies for decoupling voting rights from cash flow rights, enabling them to mount aggressive programs of shareholder activism.

🛠️ Voting Rights as Investor Tools

Proposals to declassify boards, require majority voting for directors, or separate the CEO and chair roles aren’t just governance “theater.” They are functional tools that:

• Enable greater transparency,

• Shift power away from entrenched insiders,

• And reinforce the board’s accountability to long-term owners.

⚠️ A Warning Against Restriction

Yermack cautions that undermining shareholder voting mechanisms—whether by limiting proposal access or weakening vote influence—reduces a key market check on managerial behavior.

As policymakers revisit the rules around 14a-8, Yermack’s work offers a timely reminder: Shareholder voting is governance. Curtailing it risks undercutting the integrity of the capital markets themselves.

📚 Further Reading- Shareholder Voting and Corporate Governance

The Role of Shareholder Proposals in Corporate Governance

Luc Renneboog, Peter G. Szilagyi, July 27, 2010

This paper offers evidence on the corporate governance role of shareholder proposals by simultaneously investigating the selection of target firms and the proposal outcomes in terms of voting success, implementation, and stock price effects. Using 2,436 proposals submitted between 1996 and 2005, a sample of 1,961 target and nontarget firms, as well as extensive controls for governance quality, we make several contributions to the literature. First, we find that shareholder proposals tend to be targeted at firms that both underperform and have generally poor governance structures. The results show that regardless of the proposal objectives, submissions are more likely to be made against firms that (i) use antitakeover provisions to entrench management, (ii) have ineffective boards, and (iii) have ill-incentivized CEOs. More detailed analysis reveals that target selection is largely driven by governance concerns irrespective of the sponsor type. Overall, these findings provide very limited basis to the claim that activists such as union pension funds pursue self-serving agendas. . . .

[T]he paper provides clear evidence that the market views shareholder proposals as a relevant device of external control. The stock price effects are most fundamentally driven by the target firm’s prior performance and governance quality. At the same time, they are strongest for proposals that win a majority vote as well as pass, which indicates that the market anticipates voting success reasonably well. Nonetheless, while voting outcomes and implementation rates have improved dramatically over time, the market returns are strongest during stock market peaks when there is a high premium for good governance.

Read full paper

The Value of Environmental and Social Proposals

Evidence of sustainable value raised in environmental and social proposals

Shareholder proposals frequently address risks due to environmental issues that can be highly costly to companies and their investors when they ultimately materialize in the near- or long- term. Consider that the shareholder value of BP plummeted by 55% after the explosion of the Deepwater Horizon oil rig, from $59.48 per share on April 19, 2010 to $27 per share on June 25, 2010. Climate change-induced changes in severe weather such as drought and flooding, as well as regulatory responses and constraints in various markets worldwide, has been documented to threaten substantial financial risks to the banking, mining, industrials, transportation, agriculture and real estate sectors. Bringing greater transparency to the management of such risks has been the subject of shareholder proposals in these sectors.

Corporations also face risk related to social issues such as disruption of the business or supply chains due to human rights abuses workforce health and safety scandals or failures to protect the online safety of children. The growth in environmental and social shareholder proposals over the last several years also reflects concern that certain issues threaten the economy as a whole and large swathes of investment portfolios.

“Informed investors are often early movers on addressing risks that ultimately prove to be quite material, and even existential, to their investments. As an example, proposals filed by members of the Interfaith Center on Corporate Responsibility ICCR) against predatory lending in the early 2000s at AIG and other companies.43 At the time, these proposals might have been characterized as merely addressing social risks yet they foreshadowed the banking crisis driven by such predatory practices that proved to be very expensive for AIG and the other companies, and for society in the housing crisis and bank bailouts that followed.”

Shareholder proposals also mirror public sentiment. A recent study of companies in the Russell 3000 Index found that negative public sentiment about a firm on both financial and broad sustainable investing aspects are significantly related to the number of shareholder-sponsored proposals, with the impact of news sources being slightly stronger than social media in affecting the number of shareholder proposals. The study also found a strong association between the number of shareholder proposals on the ballot and director turnover and forced turnover of CEOs at the firm, finding one additional shareholder proposal is associated with a 10.9% increase in director turnover and a 24.8% increase in forced CEO turnover, both to the mean. The study not only found association between these factors; it also was able to demonstrate causal evidence that negative sentiment around corporate practices that are not sustainable leads to increased shareholder dissent.

Climate Shareholder Proposals Show Real Market Value

Climate-focused proposals boost shareholder wealth

For years, critics dismissed climate-focused shareholder proposals as distractions—“political,” “non-financial,” or simply too speculative. But a major 2024 study by Berkman, Jona, Lodge, and Shemesh turns that argument on its head. Published in the Journal of Corporate Finance, the study rigorously analyzed thousands of environmental shareholder proposals (ESPs) filed between 2006 and 2021 across Russell 3000 companies—and found a clear signal: markets reward climate proposals.

📈 Filing Climate Proposals? Markets Notice.

The researchers measured stock price reactions around proxy filing dates and found that climate-related proposals generated significantly positive abnormal returns—stronger than proposals tied to other environmental issues. These returns weren’t just random noise: the researchers used regression discontinuity methods around voting thresholds to isolate causal effects. Their results indicate that:

• Climate proposals were more likely to elicit supportive action from management when markets reacted positively.

• This suggests that boards recognize the economic substance behind these proposals, not just the optics.

🌎 Why This Should Reshape the ESG Debate

The paper undercuts the idea that ESG is separate from financial materiality. Climate risk—in the form of emissions exposure, stranded asset concerns, supply chain volatility, and regulatory pressure—has real and quantifiable value implications. Shareholder proposals targeting these concerns are not niche or ideological; they are market signals of unmanaged risk.

For institutional investors, this research strengthens the argument that voting in favor of well-constructed climate proposals isn’t just a values move—it’s a fiduciary imperative.

📘 Read the study: Berkman et al. (2024), The Value Impact of Environmental Shareholder Proposals

How Retail Investors Shaped Corporate Governance

Many corporate governance policies that today are viewed widely as best practice were initially driven by the shareholder proposals of small individual “Main Street” investors—not large institutions—and then expanded to common adoption by markets.

Going back to the 1940’s, a small, dedicated group of individual investors have played a leading role in the filing of governance-related shareholder proposals that received high levels of investor support and drove many reforms covering a range of governance topics. These reforms have enhanced capital markets by strengthening the ability of boards to oversee shareholder interests and by addressing power imbalances between investors and company boards and management, proof that many constructive ideas have come from smaller individual investors.

It has driven many reforms covering a range of governance topics, including eliminating staggered director terms, reducing supermajority voting thresholds, requiring an independent board chair, eliminating dual class voting, requiring shareholder approval of bylaw amendments, requiring majority voting in uncontested director elections, and proxy access for shareholder director candidates. The governance-related proposals of individual investors attracted, on average, 47.8% shareholder support between 2005 and 2018, and accounted for a large portion of the passed proposals, an indication that these proposals were receiving widespread support from larger investors. Many of these issues were also adopted by major investors in their proxy voting guidelines and corporate engagements, by market exchanges, and by companies— compelling evidence that constructive ideas have come from these smaller individual investors.

Some examples of corporate governance policies that today are viewed widely as best practice and that were initially driven by shareholder proposals and then expanded to common adoption by companies and markets, include:

• ƒ  Independent Directors and Board Recruitment: Shareholder proposals have encouraged norms such as independent directors constituting a majority of the board, independent board leadership, transparency of board recruitment and qualifications, and annual elections for all directors. For example, in 2013, shareholders submitted approximately 70 proposals requesting the adoption of a policy requiring that the company’s board chair be an independent director.

• ƒ  Electing Directors by Majority Vote: Shareholder proposals have encouraged electing directors by majority vote, rather than by plurality—a radical idea a decade ago when shareholders pressed for it in proposals, and now the norm at 90% of large-cap U.S. companies.29 In 2011, Apple was one of 58 companies the California Public Employees Retirement System urged to adopt majority rather than plurality voting, which more evenly balances power between the company and its investors.30 The proposal had majority support from shareholders at Apple and many other companies.

• ƒ  “Say-on-pay”vote requirements: Now mandated by the Dodd-Frank Act—say on pay vote requirements originally resulted from shareholder proposals. The Say-on-Pay vote asks investors to vote on the compensation of the top executives of the company—the CEO, the Chief Financial Officer, and at least three other most highly compensated executives (“named executive officers”).

Shareholder Proposals: Bridging Governance and Regulation

How policy-aligned proposals shape ESG credibility and investor confidence

In a rapidly evolving ESG policy landscape, shareholder proposals are no longer just investor opinions—they are tools that anticipate and influence regulatory alignment. A 2025 study by Luca and Clement dives into this shift, analyzing how proposals that reflect emerging regulatory frameworks (like the SEC’s climate disclosure rules or Europe’s CSRD) can enhance a firm’s ESG profile and attract institutional capital.

The researchers reviewed dozens of U.S. and European proposals filed between 2017–2024 and linked them to outcomes such as ESG ratings trajectory, portfolio inclusion by ESG-screened funds, and net changes in institutional shareholding.

📌 The Key Finding: Regulatory Synergy Works

Proposals that mirror emerging policy trends (like requests for Scope 3 emissions disclosure or alignment of lobbying practices with stated climate goals) were:

• More likely to be implemented, especially in companies facing global investor pressure;

• Associated with improvements in third-party ESG credibility scores;

• Positively correlated with increases in long-horizon institutional investment, especially from European funds that screen for regulatory preparedness.

🧠 Why This Strategy Is Working

Boards that engage with these proposals are hedging regulatory risk and building investor trust. Instead of waiting for mandatory compliance, these companies use shareholder proposals as a way to “pre-comply” with known regulatory shifts, creating more agile, resilient governance frameworks.

The research supports what sophisticated investors already practice: well-crafted ESG proposals are strategic, not burdensome. They build credibility with regulators, appeal to allocators, and reduce uncertainty.

For more, access the full publication here.

Shareholder Activism Pays Off- Costs vs. Long-term Value

New data confirms: shareholder engagement creates long-term value

Legal fees, data analysis, proxy solicitation, engagement staff—it makes some forms of shareholder activism costly to the investors who undertake it I am everyone happy Friday good to see everyone thank you for being flexible with the time. But a groundbreaking study by Gantchev (2013) used a sequential decision-making model to ask the real question: Is it worth it?

The answer: Yes—especially when targeted at governance reform or capital misallocation.

Gantchev’s study modeled the full lifecycle of activist campaigns, accounting for costs at every stage. He found that successful engagements (those that resulted in changes to capital policy, board structure, or leadership) produced net benefits to shareholders—even after subtracting all expenses.

💡 The Key Takeaway

The most effective campaigns were those that:

• Chose targets wisely — companies with weak governance and clear value gaps;

• Had staying power — persistence across multiple years increased both implementation and performance impact;

• Focused on fundamentals — especially capital return policies, entrenchment, and board effectiveness.

🧨 Why This Matters in 2025

Critics of shareholder proposals argue they are wasteful, confrontational, or harmful to management discretion. But Gantchev’s data suggests the opposite: When activism is data-driven and focused, it’s one of the most value-accretive tools investors have.

That makes recent attempts to raise the resubmission thresholds for proposals all the more concerning. If fewer proposals can be filed or resubmitted, many campaigns would never reach the performance-inflecting stage.

📎 For more: “The Costs of Shareholder Activism”

CalPERS and the Power of Pension Fund Activism

What long-term investors taught Wall Street about board accountability

When most people think of shareholder activism, they picture hedge funds pressuring companies for quick wins. But some of the most influential and enduring corporate governance reforms in the U.S. have been driven not by hedge funds, but by public pension funds—and the gold standard of this strategy is CalPERS.

In a landmark study by Del Guercio and Hawkins (1999), researchers analyzed CalPERS’ campaign strategy targeting underperforming companies with entrenched governance structures. Their findings? Engagements initiated by CalPERS led to statistically significant improvements in both firm performance and governance in the years following proposal filings.

📌 What Made the CalPERS Model Work?

• It focused on long-term economic value, not just market optics.

• Proposals were filed at companies with governance red flags: staggered boards, golden parachutes, poor oversight.

• CalPERS used its public accountability and reputational leverage to demand reforms—like board independence, executive pay realignment, and improved disclosure.

What’s more, many of these proposals never even required a shareholder vote to drive change. The reputational pressure alone often pushed boards to act.

🧭 Why It Still Matters Today

In a world increasingly focused on ESG performance and systemic risk, the CalPERS model offers a blueprint for responsible, credible, and effective shareholder engagement. These campaigns weren’t speculative—they were laser-focused on fixing structural weaknesses that posed financial and reputational risk.

Pension funds still rely on Rule 14a-8 to elevate concerns at annual meetings. Without that right, the gains of the last 30 years—like improved director accountability and board independence—could easily erode.

🔗 Learn more from the 1999 Landmark Study- The Motivation and Impact of Pension Fund Activism

The History of SEC rules and Shareholder Proposal Regulation

During the United States’ first century, corporations had small numbers of investors and were largely controlled by shareholders through deliberations and voting that took place at in-person shareholder meetings. As the US economy grew, and corporations had to bring in large amounts of capital from thousands of investors, shareholder meetings went from in-person affairs to being conducted by proxy, and management solicited blanket voting authority based on little or no information. Ownership and control were largely divorced, and corporate abuse of the proxy, which frustrated the free exercise of the voting rights of stockholders, was rampant. Section 14 of the Securities Exchange Act of 1934 addressed this concern by authorizing the SEC to regulate proxy solicitation.

The SEC adopted the predecessor to SEC Rule 14a-8 in 1942, recognizing that shareholders need notice of proposals to be made by fellow shareholders. One court explained that, “the rationale underlying this development was the Commission’s belief that the corporate practice of circulating proxy materials which failed to refer to the fact that a shareholder intended to present a proposal at the annual meeting rendered the solicitation inherently misleading.” SEC Staff reiterated this purpose, explaining that “[t]he Senate Banking and Currency Committee recognized the need to provide not only for disclosure of matters management planned to present, but also for shareholders to be given ‘reasonable opportunity to present their own proposals and views to fellow security holders.”

Thus, SEC Rule 14a-8 advances the overall Securities Exchange Act’s goal of shareholder democracy—a central purpose of the 1934 Act in reaction to weakening shareholder control and increasingly concentrated corporate power in professional managers. Shareholder democracy stands for the principle that, in return for access to the securities exchanges, the law provides that corporations would incur a corresponding duty to give the shareholders fair suffrage. Referring to 14a-8, one recent judicial decision noted that “[t]he Commission enshrined this edict in its regulations, believing that “fair corporate suffrage” required that all shareholders receive notice of such matters when their proxies are solicited.”

The Role of Investors in Supporting Better Corporate ESG Performance

For over half a century, the shareholder proposal process has served as an effective way for investors to provide corporate management and boards with insights into their priorities and concerns regarding corporate governance, policies and practices.  The process has resulted in numerous important changes to corporate governance in the U.S.  Examples include:   

• Resolutions were the impetus behind the now standard practice – currently mandated by major US stock exchanges’ listing standards — that independent directors constitute at least a majority of the board, and that all the members of the following board committees are independent: audit, compensation, nominating and corporate governance.

• In 1987 an average of 16 percent of shareholders voted in favor of shareholder proposals to declassify boards of directors so that directors stand for election each year. In 2012, these proposals enjoyed an 81 percent level of support on average. Ten years ago, less than 40 percent of S&P 500 companies held annual director elections compared to more than two-thirds of these companies today.

• Electing directors in uncontested elections by majority (rather than plurality) vote was considered a radical idea a decade ago when shareholders pressed for it in proposals they filed with numerous companies. Today, 90 percent of large-cap U.S. companies elect directors by majority vote, largely as a result of robust shareholder support for majority-voting proposals

• A proposal that built momentum even more rapidly and influenced the practices of hundreds of companies in the last few years is the request for proxy access. Resolutions filed by the New York City Comptroller to allow shareholders meeting certain eligibility requirements to nominate directors on the company’s proxy ballot achieved majority votes at numerous companies. As a result, since 2015, at least 400 companies have adopted proxy access bylaws.

• “Say-on-pay” vote requirements — now mandated by the Dodd-Frank Act — also resulted from shareholder proposals.

• Shareholder proposals or related engagements played a key role in moving close to 160 large companies (including more than half of S&P 100 companies) to commit to disclosure and board oversight of their political spending with corporate funds.

• Since 2009, 85 companies have agreed to issue sustainability reports as result of shareholder resolutions. According to the G&A Institute, 81 percent of S&P 500 companies published sustainability reports in 2015 compared to just under 20 percent in 2011.

• The first resolution requesting that companies source deforestation-free palm oil that went to vote was in 2011 and received 4.2 percent support. By 2016 more than 20 companies had responded to similar resolutions and protected their brands’ reputations by committing to source deforestation-free palm oil produced by workers free from human rights abuses.

• Shareholder proposals have led to wide-scale adoption of international human rights principles as part of corporate codes of conduct and supply chain policies, protecting companies from legal and reputational risk.

• A substantial majority of large companies have sexual orientation nondiscrimination policies largely as a result of hundreds of shareholder proposals. A 2016 analysis by Credit Suisse found that 270 companies which provided inclusive LGBTQ work environments outperformed global stock markets by 3 percent annually for the previous six years.

 The impact of investor influence strategies 

The evidence reveals that investor efforts to engage companies on ESG-related risks and opportunities are associated with better shareholder returns: 

• Academic research on corporate social responsibility engagements with US public companies over the period between 1999-2009 shows that after successful engagements, companies experience improved accounting performance and governance.

• An examination of private engagements conducted by fund manager Hermes demonstrated financial outperformance associated with investor engagement rather than stock picking.

• An analysis of the stock performance of 188 companies placed on the ‘focus list’ for ESG engagement by California Public Employees’ Retirement System (CalPERS) found that these companies performed significantly better than their peers (15.27 percent above the Russell 1000 Index) over a 14-year period.

• Evidence from collaborative dialogues involving 225 investment organizations over the period between 2007-2017 shows that after “successful” engagements (as defined by a set of pre-determined criteria and scorecards) have occurred, target companies experience improved profitability (as measured by return on assets), while unsuccessful engagements demonstrate no change.

• Research from Harvard Business School indicates that filing shareholder proposals is effective at improving the performance of the company on the focal ESG issue, even though such proposals nearly never received majority support. Proposals on material issues are associated with subsequent increases in firm value.

Read the original article here.

US Sustainable, Responsible and Impact Investing Trends 2018

US SIF

Since 1995, when the US SIF Foundation first measured the size of the US sustainable and responsible investment universe at $639 billion, these assets have increased more than 18-fold, a compound annual growth rate of 13.6 percent.

Through surveying and research undertaken in 2018, the US SIF Foundation identified:

• $11.6 trillion in US-domiciled assets at the beginning of 2018 whose managers apply various environmental, social and governance (ESG) criteria in their investment analysis and portfolio selection, and

• $1.8 trillion in US-domiciled assets at the beginning of 2018 held by institutional investors or money managers that filed or co- filed shareholder resolutions on ESG issues at publicly traded companies from 2016 through 2018

After eliminating double counting for assets involved in both strategies, the net total of SRI assets at the beginning of 2018 was $12.0 trillion.

Read the full report here.

ESG factors as a good signal for future risk

Jane Jagd, Bank of America

What if we told you how to avoid stocks that go bankrupt?

We think you would listen. Environmental, Social & Governance (ESG) factors are too critical to ignore, in our view. In our earlier report ESG: good companies can make good stocks, we found that ESG-based investing would have offered long-term equity investors substantial benefits in mitigating price risk, earnings risk and even existential risk for US stocks — ESG would have helped investors avoid 90% of bankruptcies in the time frame we examined. Our findings were encouraging enough to warrant a closer look. We here assess how US corporations, regulators and investors are positioned for ESG, and how the market is responding.

ESG is the best signal we have found for future risk

Prior to our work on ESG, we found scant evidence of fundamental measures reliably predicting earnings quality. If anything, high quality stocks based on measures like Return on Equity (ROE) or earnings stability tended to deteriorate in quality, and low quality stocks tended to improve just on the principle of mean reversion. But ESG appears to isolate non-fundamental attributes that have real earnings impact: these attributes have been a better signal of future earnings volatility than any other measure we have found.

US corporates may be behind the curve . . .

Despite empirical evidence of its efficacy, ESG is not drawing much enthusiasm from US corporates. Among companies participating in our survey at our March 2017 BofAML US Investor Relations conference, almost half of the survey respondents indicated they have no resources dedicated to ESG initiatives, and no intentions of implementation. Globally, the theme is burgeoning: ESG-related regulations have doubled since 2015; over 6,000 EU member state companies will be required to publish disclosures; and 12 global stock exchanges require written ESG guidance – but not one is in the US!

. . . but investors are ahead of it & PE multiples are responding

In our May survey of BofAML institutional clients, 20% cited using ESG, well above the estimated 5% of float that corporations believe is held by ESG-oriented investors. In another investor survey, 66% raised issues on sustainability disclosures, and 85% called for improved disclosure in filings. And the investment industry is changing to accommodate governance: for the first time ever, FTSE Russell ruled out the addition of zero voting rights stocks, citing “concerns raised by shareholders.” The market is listening: shareholder-friendly companies have seen significant multiple expansion — and we see strong signs that this re-rating continues.

Read the full text here.

Historic Context for Retail Investor Rights

James McRitchie, Editor, CorpGov.net

While at one time, ownership of a single share of stock came with the right to submit a proposal without restriction as to number or subject, in 1983 the SEC decided it made sense to impose a modest but low submission requirement, setting the threshold at $1,000 held for at least one year. The SEC raised this to $2,000 in 1998, “to adjust for inflation” but did not raise it higher “in light of rule 14a-8’s goal of providing an avenue of communication for small investors.” (File No. S7-25-97)

A study of 286 shareholder proposals submitted between 1944 and 1951 found that 137 or 47% were submitted by the Gilbert brothers. (The SEC Proxy Proposal Rule: The Corporate Gadfly, p. 830 av) The fact that three families submit a disproportionately high number of proposals is not historically unusual.

Without early ‘gadflies’ like the Gilberts and Wilma Soss, shareholders would not have the right to file proposals, vote on auditors, or have executive pay disclosed and there would be even fewer women directors.

Read the full text here.

Understanding ESG Incidents: Key Lessons for Investors

Pax World Fund, Dec 2017

Sustainalytics conducted a quantitative analysis of their incident dataset, reviewing 29,000 company activities around the world that generated undesirable social or environmental effects. They found that incidents are increasing, some industries are more exposed than others, and some regions are more exposed as well. These activities can impact company share price, so asset managers and owners can benefit from applying incidents analysis in their portfolios.

Read the full text here.

From Sustainability to Business Value

Pax World Fund, Feb 2018

ING interviewed 210 finance executives in US-based large-cap and mid-cap companies about the importance of sustainability to corporate strategies. They found that over 80% of firms are embedding sustainable thinking into their business growth plans and that nearly half reported that sustainability concerns actively influence their growth strategies. The firms with the most robust sustainability strategies tend to have had better revenue, borrowing and credit-ratings outcomes. 

Read the full text here.

Shareholder Proposals and trouble at Bayer's Acquisition

In 2016, shareholder John Harrington, the president of Harrington Investments Inc., filed a proposal at Monsanto regarding health risks from the company’s flagship weedkiller Roundup. The proposal noted “an increasing number of independent studies assessing the toxicity of glyphosate, the active ingredient in Roundup, associate it with cancer, birth defects, kidney disease, and hormone disruption, causing world-wide concern about its safety”. The proposal requested a report assessing the effectiveness and risks associated with the company’s policy responses … to the impact of recent reclassification of glyphosate as “probably carcinogenic,” and quantifying potential material, financial risks or operational impacts on the Company in the event that proposed bans and restrictions are enacted.

On its 2016 vote, the proposal received 5.3% voting support. Refiled in 2017, it still only received 5.5% support. Yet, this relatively small group of shareholders proved to be prescient in identifying a material issue.

Only two months after Monsanto was acquired by the German pharmaceutical company Bayer in June 2018, a jury granted a $289 million award in a suit alleging public health threats and cancer of a plaintiff caused by Roundup. This news sliced billions of dollars from Bayer’s valuation. Bayer’s market capitalization has descended steeply in the following months, from $99.1 billion as of August 10, 2018 (the date of the jury verdict), to $64.8 billion as of November 20, 2018 and after losing another jury verdict, $56.2 billion by May 24, 2019.

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