Proponents have filed at least 429 shareholder resolutions on environmental, social and sustainable governance issues for the 2020 proxy season, up from 366 filed at this time in 2019. A total of 322 were pending as of February 21. Securities and Exchange Commission (SEC) staff have allowed the omission of 26 proposals so far in the face of company challenges; companies have lodged objections to at least 63 more that have yet to be decided. Proponents have already withdrawn slightly more proposals than they had last year at this time—78, compared with 71 in mid-February 2019 and 62 in 2018. Withdrawals generally indicate that the proponents and management have reached an agreement.

Annual totals are down from an all-time high of just under 500 in 2017 and about 460 in each of the subsequent two years. The proportion of resolutions going to votes has fallen in each of the last two years, only 187 in 2019 (41 percent of the total), while the proportion of withdrawals has risen (44 percent of the total in 2019). Companies omitted just 12 percent in 2019 (56 proposals) after successful SEC challenges, down from a high of 77 three years earlier. (Bar chart)

Corporate political activity makes up the largest single category (18 percent), while those on the environment (mostly on climate change) account for another 21 percent. Roughly even slices of 9 percent to 13 percent come from those about board diversity and oversight, decent work, human rights and sustainability. About 7 percent relate to diversity in the workplace, 5 percent are from conservatives and the remaining 3 percent concern other issues. (Pie chart)

Key Recent Developments

Proposed new proxy voting rules: On Nov. 5, 2019, after a 3-2 party line vote, the SEC proposed far-reaching changes to the shareholder proposal process regulated by Rule 14a-8 of the 1934 Securities and Exchange Act. It would make it harder to file resolutions, particularly for smaller investors, and substantially raise the bar for how much support a proposal must receive to be resubmitted. A companion rule would impose new restrictions on the activities of proxy advisory firms, including requirements for pre-publication consultation with companies about reports to the advisors’ clients. (A history of efforts to restrict advisors is on the Harvard Law School Governance blog here.)

Reaction—The proposed rules have sparked a backlash from shareholder proponents and many institutional investors. Opponents to the changes include the Council of Institutional Investors (whose members manage $29 trillion in assets), the Principles for Responsible Investment ($90 trillion) and the SEC’s own Investor Advisory Committee, which recommended the commission revise and republish the proposed rules to make sure they comply with the SEC’s guidelines. The advisory committee and others were particularly skeptical about the adequacy of the economic analysis offered in the rules. Many of the proponents covered in this forecast helped launch a new website, the Investor Rights Forum, which aggregates material analyzing and opposing the changes. Many investors view these rules as a direct attack on shareholder rights in response to the growing support for environmental and social proposals. As proposed, the new rules would particularly limit resolutions on political spending that have seen increasing support from investors at large, as well as those on climate change and other environmental issues, sustainability and human rights. But corporate groups like the Business Roundtable and the National Association of Manufacturers have seen their long-held aspirations realized in the rulemaking and are lobbying hard for the changes, calling them necessary modernizations.

(All comments to the SEC can be viewed online. They are divided into comments on the shareholder proposal rules and on the proxy advisors changes. Si2’s comment presents an analysis that found about one-fifth of resolutions would not be eligible for resubmission, and explored the differential impact in dominant topic areas.)

Looking ahead—A 60-day comment period on the rules ended on February 4 and final rules are likely this spring. Investor groups are preparing themselves for legal challenge to the changes, with the ultimate result likely to be determined by which party wins the election in November.

Changing SEC interpretations: The SEC has been shifting its interpretation of what may be included in shareholder resolutions and issued interpretive bulletins in 2017, 2018 and 2019. These changes have had their most significant impact on climate change proposals that ask companies to measure and report on their greenhouse gas emissions.

Mutual fund voting: The huge mutual funds that have influential stakes in nearly every corner of the American financial markets continue to pay more attention to proxy voting on environmental, social and sustainable governance issues, which has pushed the overall support levels higher than ever before. But critics are contending that mutual funds still should do more to integrate environmental and social assessments into their proxy voting. Morningstar, the mutual fund ratings firm, published an analysis that documents growing support from funds for proposals about reputational risk, gender pay equity and diversity, and corporate political spending.