SEC moves to streamline ESG proxy voting

11 November, 2021

A ruling by the Securities and Exchange Commission (SEC) could make it easier for investors to express views on environmental, social and governance (ESG) issues through proxy votes.

The SEC last week rescinded three bulletins related to proxy voting in an effort to facilitate shareholders’ ability to propose measures for a vote at company AGMs. This process was “a cornerstone of shareholder engagement”, the SEC said.

The regulator acknowledged that “undue emphasis was placed on evaluating the significance of a policy issue to a particular company at the expense of whether the proposal focuses on a significant social policy”.

The SEC will now focus its approval process for shareholder proposals on the “social policy significance” of issues raised. This will involve consideration of how a proposal impacts society beyond the company involved.

The change in approach means that proposals previously excluded for not being of significance for the company in question will now be considered fully.

The SEC explained: “For example, proposals squarely raising human capital management issues with a broad societal impact would not be subject to exclusion solely because the proponent did not demonstrate that the human capital management issue was significant to the company.”

It also clarified that any proposals that set timeframes or other details – such as energy transition plans – will not automatically be considered to be micromanagement by shareholders. Instead, the regulator’s staff will consider “the level of granularity sought in the proposal and whether and to what extent it inappropriately limits discretion of the board or management”. 

US oil company ConocoPhillips recently attempted to have a shareholder proposal for greenhouse gas emission reductions thrown out by the SEC. However, the regulator denied the request as it “did not impose a specific method” for setting a target or timeframe.

“The staff may also consider references to well-established national or international frameworks when assessing proposals related to disclosure, target setting, and timeframes as indicative of topics that shareholders are well-equipped to evaluate,” the regulator added.

The SEC also clarified that it did not agree with some companies’ attempts to block shareholder proposals through “an overly technical reading of proof of ownership letters”.