Activist Investors Use SEC’s Shift to Press Companies on Climate and Social Agendas

When it comes to pushing for clean energy and environmentally responsible policymaking, publicly traded companies talk a big game. Their actions don’t match the rhetoric, though.

That’s the takeaway offered by a report from sustainability advocacy organization Ceres. Ceres’ research found that 90% of companies listed in the S&P 100 view climate change as a threat to their industries, but only around half of them have lobbied in the last three years for the adoption of policies consistent with the goals of the Paris Agreement. The report indicated that roughly a third of the companies in the index actually lobbied against some policies considered to be aligned with the global climate pact.

What recourse do shareholders have if they want companies to start walking the walk on environmental and social issues? Reformers are looking hopefully to a policy shift by the Securities and Exchange Commission as an avenue to get these issues on corporate agendas through shareholder proposals.

Rule 14a-8 of the Securities Exchange Act establishes the conditions under which companies can exclude shareholder proposals from proxy votes. About a year ago, the SEC issued guidance to narrow the exceptions for “ordinary business” and “economic relevance.” The agency specifically said companies would not be allowed to exclude proposals related to issues of “broad societal impact,” such as climate change. Additionally, the guidance clarified that even if such proposals didn’t meet the standards of economic relevance to a company, they couldn’t be excluded from proxy statements.

The change has had a demonstrable impact on the kinds of shareholder proposals that are avoiding exclusion, according to an Intelligize analysis. Our research found that the SEC rejected more than twice as many requests from companies to nix environmental and social proposals in 2022 as it did a year earlier. Similarly, the number of proposals that were allowed to be excluded fell by more than half year over year.

Interestingly, we also determined that even though more environmental and social proposals popped up on proxy statements this year, they had a lower success rate when put to a vote than they did in 2021. Just nine environmental and social shareholder proposals were approved altogether in 2021 and 2022.

(For additional details, check out our just-published report, E&S Shareholder Proposals After the

SEC’s Policy Shift)

If you want a template for what battles over alignment issues like the ones Ceres discovered may look like in the coming years, consider the famous proxy fight at Exxon Mobil last year. Despite opposition from the oil giant, shareholders ultimately approved a proposal calling for the company to report on its lobbying activities in relation to the objectives of the Paris Agreement. Meanwhile, shareholders voted at the company’s annual meeting to add three representatives from activist investment firm Engine No. 1 to the Exxon Mobil board of directors.

Going forward, the SEC’s accommodating position will almost certainly lead to even more growth in environmental and social measures proposed by corporate shareholders. That doesn’t ensure more of these proposals will survive proxy votes – far from it. But they will spark more scrutiny of companies’ lobbying activities and the justifications behind their policy positions. For activists, that’s a win in and of itself.