It wasn’t too long ago that activist investor groups like Engine No. 1 and Arjuna Capital were using shareholder proposals and proxy contests to push ESG in the corporate world. These groups saw limited success. While some shareholder proposals did pass or settle with favorable outcomes, others died on the vine or were subject to “no-action” letters from the SEC. Since this time, we’ve seen shareholder activism diminish. As ESG matured, there was less need for shareholders to bring proposals as companies began voluntarily establishing ESG programs and reporting. Additionally, anti-ESG pressures led firms like Arjuna to scale back activist practices. Even still, shareholder proposals remain a tool for ESG activists. However, a recent speech from SEC Chairman Paul Atkins indicates that shareholder proposals may be broadly limited under the current SEC. Gibson Dunn writes about the Chairman’s speech in a recent memo:
“SEC Chairman Atkins signaled the SEC’s willingness to take a step that could
significantly alter the landscape for shareholder proposals submitted under Exchange Act Rule 14a-8, by allowing companies (at least, Delaware companies) to exclude precatory/non-binding shareholder proposals. In practice, the vast majority of Rule 14a-8 shareholder proposals are precatory.”
Precatory proposals are non-binding, but make up the majority of shareholder proposals, including those on ESG matters. The SEC is expected to issue “no action” letters on precatory proposals moving forward. Additionally, the Chairman’s speech encouraged corporations to challenge the validity of precatory proposals under Delaware law. This effectively shuts off one avenue of ESG activism and makes it more difficult for shareholders to pressure companies to adopt ESG policies. Now we’ll see how shareholders react to the SEC’s new policy and what tactics they may employ to achieve similar ends.
Our members can learn more about shareholder activism here.
Interested in a full membership with access to the complete range of benefits and resources? Sign up now and take advantage of our no-risk “100-Day Promise” – during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. But it will probably pay for itself before then.
Members also save hours of research and reading time each week by using our filtered and curated library of ESG/sustainability resources covering over 100 sustainability subject areas – updated daily with practical and credible information compiled without the use of AI.
Are you a client of one of our Partners – SourceIntelligence, TRC, Kumi, Ecolumix, Elm Consulting Group International or Impakt IQ? Contact them for exclusive pricing packages for PracticalESG.
Practical Guidance for Companies, Curated for Clarity.
Photo credit: JHVEPhoto – stock.adobe.com
