S&P Global Market Intelligence: SEC proposed rule would have blocked 614 ESG resolutions since 2010, data shows 

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Author: Esther Whieldon

Since 2010 more than 600 environmental, social and governance-related resolutions likely would have never advanced under a newly proposed rule by the U.S. Securities and Exchange Commission, according to data the Sustainable Investments Institute shared with S&P Global Market Intelligence.

The SEC in November 2019 proposed to increase the amount of support a shareholder resolution required to be reconsidered in the years following an initial vote. Rather than resolutions needing at least 3% support the first year, 6% the second year, and 10% the third and subsequent years after an initial vote to be reconsidered, the SEC would raise those thresholds to 5%, 15% and 25%, respectively. The agency estimated the changes would cut the number of shareholder proposals by 7%.

While the rule has yet to be finalized, the Sustainable Investments Institute, or Si2, compiled a database of ESG resolutions voted on from the beginning of 2010 through Nov. 18, 2019. Si2 found that 614 ESG-related resolutions, or about 30%, of the 2,019 proposals voted on at company annual meetings over that period would not have been eligible for resubmission. That total is almost three times the number of resolutions — 206 resolutions — that could have failed existing threshold requirements over that time, according to Market Intelligence's analysis of the data.

Of the 614 potentially impacted resolutions, political activity, climate change and human rights issues would have taken the biggest hit.

Companies are coming under increased pressure from investors to disclose how ESG risks could impact their bottom line, and they are addressing those risks and opportunities. But groups such as the U.S. Chamber of Commerce and Business Roundtable have pushed for reforms to the shareholder resolution process.

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Investor Voice: SEC’s Proposed Rule Changes Muzzle Shareholders and Shield CEOs From Accountability

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“The shareholder proposal rule is the bedrock of effective corporate engagement in the United States,” said Bruce Herbert, chief executive of Investor Voice.  “For over 70 years, the shareholder engagement process has been a vital tool for stockowners to propose good ideas involving sustainability, profitability, and governance; to hold CEOs accountable for mismanagement; and to mitigate risk by addressing issues like climate change and human rights.” 

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NY State Comptroller DiNapoli Statement on Proposed SEC Rule Changes

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"The SEC's proposals are two of the most significant actions to restrict shareholder rights in the SEC’s history. There is no credible evidence to support the need for these proposals, and if adopted, they would undermine corporate accountability, entrench managements’ opposition to shareholder proposals and increase costs for investors. These proposals are contrary to the SEC's mission to protect investors and our financial markets. Along with other investors, I will continue to voice my opposition to these actions and my support for greater corporate accountability."

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New York City Comptroller Scott M. Stringer on Proposed SEC Rule Changes

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"The proposed U.S. Securities and Exchange Commission changes will compromise the independence of our contracted proxy advisers, impose limits on shareowner proposals and therefore further insulate corporate management from accountability to shareowners. If implemented, these actions would be a shameful gift to corporate executives at the expense of shareowners.”

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Council of Institutional Investors: Fact Sheet on Proxy Advisory Firms and Shareholder Proposals Nov. 5, 2019

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Most public companies do not receive any shareholder proposals. On average, 13% of Russell 3000 companies received a shareholder proposal in a particular year between 2004 and 2017. In other words, the average Russell 3000 company can expect to receive a proposal once every 7.7 years. For companies that receive a proposal, the median number of proposals is one per year.

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AS YOU SOW: As Shareholder Support for Climate Change and other Environmental, Social, and Governance Issues Grows, SEC Votes to Restrict Shareholder Voice

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“The SEC has been unable to point to any demonstrable problem with the current shareholder system or make a case for how its proposal to limit shareholder rights will improve company value,” said Danielle Fugere, president of As You Sow. “To the contrary, this proposed rulemaking has the potential to increase shareholder and company risk, particularly regarding growing climate concerns. We don’t believe that it will withstand public or legal scrutiny.” 

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