Last month, an interesting question was posed on our Q&A Forum of importance to anyone conducting double materiality assessments (DMAs). DMAs involve communicating with stakeholders on their views of the importance of myriad ESG topics. Shareholders/investors are, of course, one category of stakeholder. However, communications with shareholders/investors are in many instances governed by the SEC (for companies subject to Commission jurisdiction). And there’s the rub –
Can outreach to shareholder/investors soliciting their input to a DMA be considered “solicitation” under SEC regulations?
John Jenkins provided his thoughts:
“Rule 14a-1 is broad, and any communication to security holders ‘under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy’ is encompassed within its definition of the term ‘solicitation.’ But that still leaves a lot of room for engagement with shareholders about topics that they are interested in without violating the proxy rules.
I think there’s a very good argument that, in most situations, general off-season engagement with shareholders on these topics is likely not to be regarded as solicitation. There’s no meeting looming, there are no specific items on the agenda, etc. There’s also safety in numbers – many, many companies engage with their shareholders on various topics outside of proxy season without filing any sort of proxy materials. That suggests that neither the companies involved nor the SEC find this kind of ordinary course engagement particularly troubling.”
ESG/sustainability leaders, staff and advisors: Once again, a situation arises where ESG/sustainability management intersects with US securities regulatory risks. While John suggests outreach to shareholders for DMA input as “general off-season engagement” may not be solicitation, it must be done within certain guardrails. Seeking input from a shareholder that has shown interest in ESG by submitting an ESG-related proposal (or is planning one) may be particularly tricky. Your securities counsel may become your new best friend.
Our members can learn more about shareholder engagement here.
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