At a time when the climate crisis and other systemic risks loom over the economy, the U.S. Securities and Exchange Commission’s 3-to-2 vote today amending its rule on shareholder proposals would make it harder for investors to manage the financial risks associated with these trends.
The SEC vote to revise Rule 14a-8 sharply limits the number and type of shareholders eligible to file proposals for votes at corporate annual meetings. And it makes it tougher for shareholders to resubmit a proposal in subsequent years.
The biggest impact of the revisions to rule 14a-8 will be to deprive the vast majority of investors from the right to file proposals. According to the SEC’s own analysis -- data analysis not made public until a month ago – three-quarters of shareholders at 99 percent of the companies in the 500 S&P will be ineligible to file shareholder proposals under this new rule.
"The SEC vote to revise the rule governing shareholder proposals would restrict the rights of small and medium shareholders. The vast majority of 13,000 comments the SEC received on this rule expressed strong opposition. Even large asset managers opposed it. Yet the SEC went ahead and issued the rules with only minor changes,” said Rev. Kirsten Snow Spalding, Senior Director of the Ceres Investor Network on Climate Risk and Sustainability. “Shareholder proposals have long been a main vehicle for investors to communicate their concerns to corporate management and hold them accountable for creating and protecting long term value. This new rule upends that system and threatens a key tool for managing risks within the capital markets, which depend on investors having confidence in the information they receive from companies.”
Two of the five SEC commissioners voted against the rule change, expressing in their dissent that the limitations harm shareholder democracy. That is also the opinion of a large number of investors in the Ceres Investor Network.
Indeed, of more than 13,000 comments submitted to the SEC while the commission was considering the revision, the vast majority opposed the proposed changes to the rule on numerous grounds including an unfair curtailment of the rights of smaller investors to file proposals. In addition, a number of investors, including the Council of Institutional Investors, contend that the SEC failed to follow procedural requirements by, among other things, failing to estimate the economic damage (lost benefits) from the reduced number shareholder proposals.
“When the SEC raises the filing thresholds purposely to limit speech of all but the wealthiest investors, then the SEC not only undemocratically advantages speech of the wealthy over that of the Main Street investor, but also disadvantages the less wealthy classes of women and people of color through reduced access to the proxy process,” said investor Christine Jantz, CEO of Jantz Management LLC.
The rule was voted in only a month after the Commodity Futures Trading Commission’s Climate-Related Market Risk Subcommittee issued its final report, which warned that climate change “poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy.” The SEC’s new rule dilutes investors’ ability to assess how companies are responding to climate risk, and a host of other material environmental, social and governance (ESG) risks.
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Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy. For more information, visit ceres.org and follow @CeresNews.