The 2022 proxy season reflects the ascendance of support for ESG shareholder proposals, along with policy changes at the SEC that both support and undermine these proposals.

The controversial 2020 amendments to the shareholder proposal rule have become legally effective with the 2022 proxy season. Pending litigation by the Interfaith Center on Corporate Responsibility, As You Sow, and James McRitchie seeks to overturn those amendments. The court case could potentially be decided in time to affect the current proxy season. The requirements of that rulemaking, which steeply increased thresholds required to file or resubmit proposals, have thwarted some proposals that would have been filed in the current season.

In addition, the season is a “shakedown cruise” for complicated and sometimes vague new requirements of those amended rules for proponents. Proponents now must offer to meet with a company, representatives of proponents must obtain sufficient documentation of authorization to act on the proponent’s behalf, and the one-proposal rule applies to both representatives and proponents.

At the same time, the new Staff Legal Bulletin 14L, issued on November 3, 2021, combined with other actions of the SEC staff, has reset the no-action process. Swept away are complicated new “add-on” requirements established between 2016 and 2020 about the potential for boards of directors to override the legal basis established by the Commission for defining proposal exclusions on “ordinary business” and “relevance” of proposals to companies. As a result, proponents that meet the new thresholds expect fewer effective efforts to block advisory proposals on issues like climate change, sick leave, and human rights. The Staff Legal Bulletin restored the Commission’s interpretations of micromanagement and relevance, making it clear that proposals that genuinely address a significant social or environmental issue facing a company will not be excludable on the kinds of subjective tests that led to so many exclusions from 2016 to 2020.

It is too early to say how the bulletin will affect proposal outcome this year. Some companies have decided not to file no-action requests given the clarity of the new bulletin; others have filed no-action requests that seek workarounds to override the clear benchmarks and guidance set forth in the bulletin and even seek ESG-hostile interpretations that would exclude many proposals that are core to investor interests in this era of mainstreamed ESG. Despite the special focus of the new staff legal bulletin on climate change proposals, there are numerous no-action challenges pending on climate change-related proposals, continuing to assert both “micromanagement” and “substantial implementation” arguments.

Sometime during the proxy season, we also will likely see the heavily anticipated release by the Commission of proposed mandatory disclosure rules on climate change and human capital management. Voting during the proxy season will undoubtedly provide further evidence of investor support for disclosure and improved performance on these issues – and therefore support Commission action.