The SEC’s no-action process continues to refine the scope of shareholder proposals which touch on ESG issue and specifically climate change. After expanding the topic and scope of acceptable shareholder proposals under Chair Mary Jo White, the SEC under current Chair Jay Clayton has sought to draw a line on proposals that request specific information on issues – specifically climate change – and those which would prescribe a course of action for companies to take on the issue. Multiple SEC interpretations and Staff guidance have been issued during Clayton’s tenure which stated the Staff would review the Board’s analysis in determining whether a shareholder proposal deals with an issue related to the company’s “ordinary business matters” or whether instead it raises a significant policy issue. The SEC Staff also highlighted several non-exhaustive factors in the Board analysis which have proved helpful in determining whether a proposal should be excluded.
The SEC has further refined its interpretation with respect several shareholder proposals on climate change aimed at energy companies. The proposals ask the company to adopt a greenhouse gas policy that is aligned with the parameters outlined in the Paris Climate Agreement. The proposal at issue was submitted to Exxon by the New York State Common Retirement Fund and Exxon argued the proposal amounted to micromanagement of the company by requesting specific objectives. The SEC agreed, noting that the adoption of the resolution “would micromanage the company by seeking to impose specific methods for implementing complex policies in place of the ongoing judgments of management as overseen by its board of directors.” Similar proposals were rejected at multiple other energy companies, including Chevron and Devon Energy.
At issue is where resolutions requesting disclosure of information regarding climate change meet the “micromanagement” standard that the SEC has appeared to have adopted. It is likely that issue-focused investors will continue to push their issues by adjusting the way they frame shareholder proposals by staying away from specific requests or standard to be met.