A Climate for Change: Meeting Investor Demand for Climate and ESG Information at the SEC

Washington D.C.

Thank you, John [Podesta], and thanks to the whole team here at the Center for American Progress, for hosting me today. I’ve had the honor of serving as Acting Chair of the SEC for nearly two months now, and I appreciate the opportunity to reflect on the enhanced focus the SEC has brought to climate and ESG during that time, and on the significant work that remains. Along with shepherding the agency through the transition and supporting the work of the SEC staff, no single issue has been more pressing for me than ensuring that the SEC is fully engaged in confronting the risks and opportunities that climate and ESG pose for investors, our financial system, and our economy.

Today I want to map out the ways in which we have brought investors’ voices to the forefront on these issues in recent months. The progress to date is a tribute to the hard work of the staff, both in my office and throughout the SEC. I especially want to thank my Senior Policy Advisor for Climate and ESG, Satyam Khanna, who has worked tirelessly and effectively across the agency on these issues. I know climate and ESG is of great interest to CAP as well, and I thank you for your critical work in this area.

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There is really no historical precedent for the magnitude of the shift in investor focus that we’ve witnessed over the last decade toward the analysis and use of climate and other ESG risks and impacts in investment decision-making. That’s not to say that investor focus on issues that also have social or ethical significance is new. In the U.S., we can trace it back to 18th century efforts to align investing with religious principles, and see where it gained traction in the 1960s with respect to Civil Rights, and in the 1970s with respect to environmental issues.[1] But for a long time so-called impact or socially-responsible investing was perceived or characterized as a niche personal interest – the pursuit of ideals unconnected to financial or investment fundamentals, or even at odds with maximizing portfolio performance.

That supposed distinction—between what’s “good” and what’s profitable, between what’s sustainable environmentally and what’s sustainable economically, between acting in pursuit of the public interest and acting to maximize the bottom line—is increasingly diminished. Not only have we seen a tremendous shift in capital towards ESG and sustainable investment strategies, but ESG risks and metrics now underpin many traditional investment analyses on investments of all types – a dynamic sometimes referred to as “ESG integration.” In other words, ESG factors often represent a core risk management strategy for portfolio construction.[2] That’s because investors, asset managers responsible for trillions in investments, issuers, lenders, credit rating agencies, analysts, index providers, and other financial market participants have observed their significance in terms of enterprise value.[3] They have embraced sustainability factors and metrics as significant drivers in decision-making, capital allocation, and pricing.

This last year has helped to clarify why the perceived barrier between social value and market value is breaking down. COVID has driven focus on worker safety. Protests in the wake of the senseless killings of George Floyd and others have driven focus on racial justice. In both of these narratives we can also see connections to climate risk. With COVID, we saw supply chain disruptions similar to that which climate events can cause. We know climate presents heightened risks for marginalized communities, linking it to racial justice concerns. We saw in real time that the issues dominating our national conversation were the same as those dominating decision-making in the boardroom.[4]

Human capital, human rights, climate change – these issues are fundamental to our markets, and investors want to and can help drive sustainable solutions on these issues. We see that unmistakably in shifts in capital toward ESG investing, we see it in investor demands for disclosure on these issues, we see it increasingly reflected on corporate proxy ballots, and we see it in corporate recognition that consumers and investors alike are watching corporate responses to these issues more closely than ever.[5]

That’s why climate and ESG are front and center for the SEC. We understand these issues are key to investors – and therefore key to our core mission. And just as we recognize that these issues do not observe artificial distinctions between society and financial markets, we recognize that climate and ESG transcend other boundaries as well. Geographical boundaries for one. These are global challenges for global markets that demand global solutions. Regulatory boundaries for another. Climate, for instance, is not just an EPA, Treasury, or SEC issue – it’s a challenge for our entire financial system and economy.

And boundaries within the SEC. At the agency, we are taking a holistic look at all of the ways climate and ESG intersect with our regulatory framework, and moving ahead with efforts across our offices and divisions to account for that. In the last couple of months, we’ve taken important steps forward. And we are actively laying the groundwork for more progress to come. I want to take this opportunity to review both where we’ve been and where I hope we are going.

Informing the Markets

The most fundamental role that the SEC must play with respect to climate and ESG is the provision of information – helping to ensure material information gets into the markets in a timely manner. Investors are demanding more and better information on climate and ESG, and that demand is not being met by the current voluntary framework. Not all companies do or will disclose without a mandatory framework, raising the cost, or resulting in the misallocation, of capital. Investors also aren’t getting the benefits of comparability that would come with standardization. And there are real questions about reliability and level of assurance for the disclosures that do exist. Meanwhile issuers are assailed from all sides by competing and potentially conflicting demands for information. That’s why we have begun to take critical steps toward a comprehensive ESG disclosure framework aimed at producing the consistent, comparable, and reliable data that investors need.

Climate Disclosure Directive to Staff. As an important near-term step, earlier this month I asked the Division of Corporation Finance to enhance its focus on climate-related disclosures.[6] In 2010, under the leadership of Mary Schapiro, the Commission for the first time provided guidance to public companies regarding existing disclosure requirements as they apply to climate change matters.[7] Part of what the staff will do now is review the extent to which public companies address the topics identified in the 2010 guidance and comply with current requirements. It’s also important that the staff engage with public companies on these issues and use the opportunity to evaluate the current state of climate disclosure. Much has changed in the last decade – in terms of market practices for gauging ESG-related risks, in terms of the science of climate change, and, unfortunately, in terms of the urgent nature of climate-related risks. And we need to assess how these risks are being analyzed and disclosed by companies now to inform an update to the 2010 guidance – and to inform our policymaking going forward.

Request for Comment on Climate Disclosure. To further inform our policymaking, today I am issuing a statement requesting public comment on climate disclosure.[8]  Of course we already have an extensive public record demonstrating investor desire for the SEC to ensure better disclosure in this space.[9] But, it’s time to move from the question of “if” to the more difficult question of “how” we obtain disclosure on climate. There are important questions to be answered here – what data and metrics are most useful and cut across industries, to what extent should we have an industry-specific approach, what can we learn from existing voluntary frameworks, how do we devise a climate disclosure regime that is sufficiently flexible to keep up with the latest market and scientific developments? Finally, how should we address the significant gap with respect to disclosure presented by the increasingly consequential private markets? Today’s request gets at these and other important questions. I encourage all market participants to weigh in and help us with this important work. I’ve said this before, but it bears repeating: I value engagement with all on these issues, including in particular those who may see them differently. These are complex issues and we will reach the best result through thoughtful engagement across a wide range of perspectives.   

Beyond Climate. As we further our engagement with the market on developing a disclosure framework for climate, we should also consider the broader array of ESG disclosure issues. As I’ve discussed at length before, climate is unique in the potentially systemic nature of the risks it presents.[10] But we must also make progress on standardized ESG disclosure more broadly. That means working toward a comprehensive ESG disclosure framework. In the near term, it should also include considering where we can advance initiatives on a standalone basis now, such as offering guidance on human capital disclosure to encourage the reporting of specific metrics like workforce diversity,[11] and considering more specific guidance or rulemaking on board diversity. 

Another significant ESG issue that deserves attention is political spending disclosure. The SEC is currently prevented from finalizing a rule in this area,[12] but political spending disclosure is inextricably linked to ESG issues. Consider for instance research showing that many companies that have made carbon neutral pledges, or otherwise state they support climate-friendly initiatives, have donated substantial sums to candidates with climate voting records inconsistent with such assertions.[13] Consider also companies that made noteworthy pledges to alter their political spending practices in response to racial justice protests, and whether, without political spending disclosure requirements, investors can adequately test these claims, or would have held corporate managers accountable for those risks before they materialized.[14] Political spending disclosure is key to any discussion of sustainability. 

Protecting Shareholder Rights

While disclosure is key, it only works for shareholders if they can effectively use the information in overseeing their investments. Shareholders exercise oversight of the companies they own and the funds in which they invest through certain fundamental rights – and they are increasingly seeking to exercise those rights to drive corporate decision-making toward sustainable solutions and long-term value creation.

Shareholder Proposals

The shareholder proposal process is a key mechanism for engagement by shareholders with management of the companies they own. Climate change, workforce diversity, independent board leadership, and corporate political spending, as well as other ESG-related issues, are increasingly present on proxy ballots, reflecting investor interest in corporate accountability around these issues. Governance-related proposals have long-dominated shareholder proposals and helped improve corporate governance in significant ways.[15] But environmental and social proposals have been ascendant in recent years, making up more than half of all proposals filed in recent seasons.[16] There has been a marked increase in support for such proposals in the last decade, with average support nearly tripling, and a number of such proposals gaining majority support.[17]

Thus, as has been true for decades, the shareholder proposal process continues to provide an important mechanism for investors to improve corporate governance and advance sustainable long-term strategies at the businesses they own.

Improvements to the Shareholder Proposal Process. The SEC plays a critical role in the shareholder proposal process, with staff in our Corporation Finance Division drawing upon their deep expertise and experience to provide much needed certainty regarding when shareholder proposals may or may not be excluded from the ballot.[18]

Because of the vitally important nature of this function, I have asked the staff to develop proposals for revising Commission or staff guidance on the no-action process, and potentially revising Rule 14a-8 itself. The goal is to bring greater clarity to the no-action relief process, increase the number of proposals on the ballot that are well-designed for shareholder deliberation and votes, and reduce the number that are not. This could involve reversing last year’s mistaken decision to bar proponents from working together and restricting their ability to act through experienced agents.[19] It could also involve reaffirming that proposals cannot be excluded if they concern socially significant issues, such as climate change, just because they may include components that could otherwise be viewed as “ordinary business.”[20] 

Proxy Voting

An equally important component of shareholder democracy is shareholder voting rights. In the modern investing landscape, most shareholder voting is done through the proxy process. And a significant and growing number of those proxies are voted by investment fund fiduciaries on behalf of their investors.[21] In addition, there is increasing demand for opportunities to invest in funds with ESG strategies.[22] However, funds may not always reflect those preferences in their voting. That’s why our rules and guidance should clearly emphasize the importance of voting as part of funds’ and advisers’ fiduciary obligations to their clients. The rules should also help ensure transparency for investors around how their money is voted, and facilitate fair and efficient voting. To that end, I have taken a number of recent actions.

Re-Visiting Commission Guidance on Proxy Voting Responsibilities of Investment Advisers. Out of concern that the Commission’s August 2019 guidance[23] discourages fiduciaries from voting in certain circumstances, I have asked the staff to consider recommendations for enhancing, supplementing, or replacing that guidance to ensure that advisers understand how to weigh competing concerns of all types in deciding whether and how to cast votes on behalf of their clients.

Updating Fund Voting Disclosures. I have also asked the staff to consider updates to disclosures of fund voting decisions – which are filed on Form N-PX – to maximize transparency around fund proxy voting. The adoption of Form N-PX in 2003 was an important step forward in helping fund investors understand how proxies are voted on their behalf.[24] But nearly two decades have passed, and there is much room for improvement, including, for example, potentially greater standardization in these disclosures, structuring and tagging of the data, and more clarity and consistency in the description of ballot issues.

Finalizing a Universal Proxy Rule. Lastly, I have asked the staff to consider whether to recommend that the Commission re-open the comment file on the 2016 universal proxy rule proposal to take into account market developments since then and move towards finalization. That proposal would require the use of universal proxy cards in contested director elections that would, among other things, include the listing of all directors (whether management’s slate or a shareholder’s slate) up for election and better replicate how in-person voting works. This rule proposal represents a common-sense step forward in modernizing our proxy rules and protecting shareholder rights.[25] The proposal has been outstanding for far too long and should be finalized.

Ensuring Accountability

All of the steps I’ve discussed so far will increase corporate accountability to investors through enhanced transparency and through supporting the exercise of shareholder rights. But our Divisions of Examinations and Enforcement provide critical support in fostering corporate accountability. That’s why I’ve taken important steps to leverage the staff’s expertise in those Divisions.

Division of Examination’s Climate and ESG Priorities. This year’s annual examination priorities included an enhanced focus on climate and ESG, including by examining ESG fund proxy voting policies and practices to ensure alignment with investors’ best interests and expectations, as well as examining firms’ business continuity plans in light of intensifying physical and other relevant risks associated with climate change.[26]

Division of Enforcement’s Climate and ESG Task Force. In addition, two weeks ago, we announced the formation of the first-ever Climate and ESG Task Force within the Division of Enforcement.[27] The Task force will work to proactively detect climate and ESG-related misconduct, including identifying any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules and analyzing disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.

Examinations and enforcement are crucial mechanisms to aid compliance with the rules on the books and ultimately to redress violations. ESG is no different than any other subject matter in this regard. Just as we’ve incorporated considerations related to, for example, cybersecurity and Fintech into our exam and enforcement processes as the risks and impacts of those issues became more apparent,[28] we are now doing the same with respect to ESG.

Engaging Across Boundaries

Finally, I want to highlight the importance of engagement and cooperation on these issues. As I mentioned, ESG, and climate risks in particular, do not observe jurisdictional boundaries. That is why I am committed to close regulatory cooperation, both domestically with Treasury and other financial regulators, and internationally through bilateral cooperation and through supporting the important multilateral work being done through IOSCO and the FSB.

International Sustainability Standard Setter. I was particularly pleased to support IOSCO’s recent statement regarding the creation of a Sustainability Standards Board.[29] The SSB represents a promising approach toward the development of an international baseline for sustainability reporting upon which individual jurisdictions could build consistent with their own unique consideration.

Domestic Sustainability Standard-Setter. This also raises the question of a similar standard-setter domestically. One of the most challenging questions for the SEC is how to devise a climate and ESG disclosure framework that is flexible and can efficiently evolve as needed. One potential path that we should consider is the development of a dedicated standard setter for ESG (similar to FASB) under SEC oversight to devise an ESG reporting framework that would complement our financial reporting framework.[30]

Precisely because the risks and opportunities related to climate and ESG cut across all manner of boundaries, the SEC must do its part, in concert with market participants and regulators around the globe, to address these issues. The lack of common benchmarks and standardized language will continue to inhibit to some degree competitive dynamics around managing climate and other ESG risks.[31] Moreover market dynamics alone are not likely to be sufficient to mitigate these risks.[32] These are considerations outside of the SEC’s remit, but I point them out to note that our efforts do not occur in isolation, but rather are part of a broader policymaking landscape. While our efforts at the SEC should and will stay firmly rooted in our mission, we should not put blinders on or operate within silos in addressing this problem. We’ve seen compelling evidence, time and again, of the need to collaborate broadly among domestic and international regulators and with market participants to prevent or minimize global crises – from the Financial Crisis of 2008 to the global pandemic. Climate change and other ESG factors, particularly racial injustice and economic inequality, require us all to come together and see the bigger picture in order for each of us individually to carry out our missions effectively.

(Even) More Work Ahead for the SEC

Having covered a lot of ground today, I still haven’t reached all the places climate and ESG intersect with the SEC’s regulatory mission. Consider for example, ESG funds. We recently issued an investor bulletin to help investors understand the different potential ESG strategies funds may pursue.[33] We are working towards enhanced transparency around proxy voting. But we should consider additional steps such as, for example, an ESG-specific policies and procedures requirement.

In other areas, what steps should we take to enhance the reliability around existing climate and ESG disclosures, including potentially requiring auditor attestation of current voluntary sustainability reporting? And should the PCAOB establish better standards or guidance for how auditors currently address companies’ climate and ESG-related financial statement disclosures? How also do we encourage enhanced transparency by credit rating agencies regarding how they consider ESG factors? This is by no means an exhaustive list. These and other challenges remain.

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Before I close, I want to add a final note. I have focused these remarks on climate and ESG and the intersection of those issues with the SEC’s mission. But climate and ESG, and therefore these remarks, are fundamentally about protecting everyday investors. And so I would be remiss not to mention numerous other core retail investor protection issues on which the SEC should bring significant resources to bear. These include, among others, ensuring that we build strong and clear standards for broker-dealers under Regulation Best Interest, taking a hard look at the effects on retail investors of the continued flow of capital away from public markets,[34] and proceeding with equity market structure reforms including a holistic review of the many factors that affect whether retail investors receive the best execution of their trades. These initiatives are mutually reinforcing: none of these efforts will succeed unless retail investors can have confidence that our markets are safe and secure for them to invest their families’ economic futures.  

There is important work ahead at the SEC, and I look forward to working with new leadership, with my fellow Commissioners, and with the talented agency staff as we tackle these challenges together. This is a pivotal and exciting time at the SEC, and I am privileged to be a part of it.    


[1] See Timo Busch, Peter Bruce-Clark, et al., Impact investments: a call for (re)orientation, SN Business and Economics 1:33 (2021); Morningstar, ESG Investing Comes of Age.

[2] See, e.g., Bank of America/Merrill Lynch, Equity Strategy Focus Point, ESG Part II: a deeper dive (June 15, 2017) (“Prior to our work on ESG, we found scant evidence of fundamental measures reliably predicting earnings quality. If anything, high quality stocks based on measures like Return on Equity (ROE) or earnings stability tended to deteriorate in quality, and low quality stocks tended to improve just on the principle of mean reversion. But ESG appears to isolate non-fundamental attributes that have real earnings impact: these attributes have been a better signal of future earnings volatility than any other measure we have found.”); see also Mozaffar Khan, et al., Corporate Sustainability: First Evidence on Materiality, 91 Acct. Rev. 1697 (2018) (“Using both calendar-time portfolio stock return regressions and firm-level panel regressions we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues.”); Gunnar Friede, Timo Busch & Alexander Bassen, ESG and financial performance: aggregated evidence from more than 2000 empirical studies, 5 J. of Sustainable Fin. and Inv. 210 (2015) (finding that a majority of studies show positive correlations between ESG and financial performance); Robert G. Eccles, Ioannis Ioannou, and George Serafeim, The Impact of Corporate Sustainability on Organizational Processes and Performance, 60 Mmgt. Sci. 2835 (2014) (“[W]e provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance.).

[3] See, e.g., Blackrock, Toward a Common Language for Sustainable Investment (Jan. 2020) (“Our investment conviction is that sustainability-integrated portfolios – composed of more sustainable building-block products – can provide better risk-adjusted returns to investors. With the impact of sustainability on investment returns increasing, we believe that sustainable investment will be a critical foundation for client portfolios going forward.”); Bank of America, 2020 Annual Report (“Research team has found, companies that pay close attention to environmental, social and governance (ESG) priorities are much less likely to fail than companies that do not, giving investors a significant opportunity to build investment portfolios for the long-term. And — through research and our own lived experience — we know that ESG commitments can translate into a better brand, more client favorability and a better place for our teammates to work.”); State Street Global Advisors, The ESG Data Challenge (Mar. 2019) (“Asset owners and their investment managers seek solutions to the challenges posed by a lack of consistent, comparable, and material information. Investors increasingly view material ESG factors as being critical drivers of a company’s ability to generate sustainable long-term performance. In turn, ESG data has increasing importance for investors’ ability to allocate capital most effectively.”); Fitch Ratings, Fitch Ratings Launches ESG Relevance Scores to Show Impact of ESG on Credit (Jan. 7, 2019); Morningstar, Morningstar Formally Integrates ESG into Its Analysis of Stocks, Funds, and Asset Managers (Nov. 17, 2020); see also Mark Carney, Governor of the Bank of England, The Road to Glasgow (Feb. 27, 2020) (“Every major systemic bank, the world’s largest insurers, its biggest pension funds and top asset managers are calling for the disclosure of climate-related financial risk through their support of the Task Force for Climate-related Financial Disclosures (TCFD)”); TCFD Supporters (representing a market capitalization of over $12 trillion and including issuers, credit rating agencies, and index providers as well); Principles for Responsible Investment (PRI) (representing over $90 trillion in assets under management). 

[4] See Tom Zanki, SEC Urged to Upgrade Disclosures on COVID-19, Diversity, Law360 (June 30, 2020) (“Gary Cohn, a former director of the National Economic Council for President Donald Trump, predicted that social matters will be a bigger topic in corporate boardrooms once the economy settles. ‘We are going to switch very quickly to a lot more of these social issues: the hiring practices, the wage scale, living wages, and diversity of the workforce,’ Cohn said. ‘It's here to stay and it's not going anywhere. Outside of the fact that businesses are fighting for survival, this would occupy 95 percent of their time right now.’”).

[6] See Allison Herren Lee, Statement on Review of Climate-Related Disclosure (Feb. 24, 2021).

[8] See Allison Herren Lee, Public Input Welcomed on Climate Change Disclosures (Mar. 15, 2021).

[9] See Sustainability Accounting Standards Board, The State of Disclosure (2016) (analyzing comment letters submitted in response to the Regulation S-K Concept Release and finding that “[d]espite the fact that sustainability disclosure was a relatively minor topic of discussion in the SEC release (covering about four of its 92 pages), two-thirds of the more than 276 non-form comment letters the Commission received in response addressed sustainability-related concerns” and over 80% of those letters called for improved information in SEC filings, with only 10% opposing SEC action on this subject.); Letter from Cynthia A. Williams and Jill E. Fisch (Oct. 1, 2018) (enclosing a petition for rulemaking to the SEC on standardized disclosure related to environmental, social, and governance ESG issues, signed by investors and organizations representing more than $5 trillion in assets under management); see also Climate Action 100+, an investor initiative with 545 signatories representing over $52 trillion in assets under management seeking improved climate performance and transparent disclosure from the world’s largest greenhouse gas emitters.

[10] See Allison Herren Lee, Playing the Long Game: The Intersection of Climate Change Risk and Financial Regulation (Nov. 5, 2020); Federal Reserve Governor Lael Brainard, Strengthening the Financial System to Meet the Challenge of Climate Change (Dec. 18, 2020) (“Climate change could pose important risks to financial stability. That is true for both physical and transition risks. A lack of clarity about true exposures to specific climate risks for physical and financial assets, coupled with uncertainty about the size and timing of these risks, creates vulnerabilities to abrupt repricing events.”); see also Managing Climate Risk in the U.S. Financial System, Report of the Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission (Sept. 9, 2020) (“A central finding of this report is that climate change could pose systemic risks to the U.S. financial system.”).

[11] In addition to workforce diversity, other required metrics should include part time vs. full time workers, workforce expenses, and turnover. See Letter from Human Capital Management Coalition (Oct. 22, 2019) (an organization of 28 institutional investors representing over $4 trillion in assets under management advocating for universal disclosure of those four metrics); Recommendation of the SEC Investor Advisory Committee, Human Capital Management Disclosure (March 28, 2019).

[12] See Consolidated Appropriations Act, 2021, H.R. 133, Pub. Law No. 116-260, Sec. 631 (“None of the funds made available by this Act shall be used by the Securities and Exchange Commission to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.”).

[13] See Bre Bradham, Andre Tartar, and Hayley Warren, American Politicians Who Vote Against Climate Get More Corporate Cash, Bloomberg (Oct. 23, 2020).

[14] See Stankiewicz, supra note 5; see also Tory Newmyer, Activist shareholders pressing companies to disclose more of their political activity after Capitol attack, Washington Post (Feb. 23, 2021); Michael E. Porter and Bruce F. Freed, Companies need to reevaluate the full range of their political spending, Boston Globe (Jan. 26, 2021); Caroline Crenshaw and Michael Porter, Transparency and the Future of Corporate Political Spending, Harvard Law School Forum on Corporate Governance (March 15, 2021); Lucian A. Bebchuk and Robert J. Jackson, Jr., Shining a Light on Corporate Political Spending, 101 Geo. L. J. 923 (Sept. 2012).

[15] See Kosmas Papadopoulos, The Long View: The Role of Shareholder Proposals in Shaping U.S. Corporate Governance (2000-2018), Harvard Law School Forum on Corporate Governance (Feb. 6, 2020) (“Annual director elections, majority vote rules for director elections, shareholder approval for poison pills, and proxy access bylaws are some of the critical governance practices that have become common practice thanks to investor support for shareholder proposal campaigns led by a wide variety of investors—some large; others small.”); see also Vicente Cunat, Mirea Gine, Maria Guadalupe, The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value, 67 J. Fin. 5, 1943 (2012). 

[16] See Peter Reali, Christina Gunnell, and Jennifer Grzech, 2020 Proxy Season Preview, Harvard Law School Forum on Corporate Governance (Apr. 27, 2020) (“The number of E&S proposals and support for them hit an all-time high in 2019, a trend that has continued for three consecutive years. E&S proposals accounted for more than half of all proposal filings in 2019 (55%) and garnered 26.8% support. We expect the 2020 proxy season to see a similar uptick in support for these proposals.”);Sustainable Investments Institute, Fact Sheet: Social and Environmental Shareholder Proposals at U.S. Companies (Jan. 2020) (“The number of shareholder resolutions filed by at U.S. companies on the environmental, social and sustainability impacts of corporate activity has grown by 12 percent in the last ten years, increasing from 407 in 2010 to 457 in 2019. At the same time, average support has increased 40 percent, rising from about 18 percent to nearly 26 percent”); Maximilian Horster and Kosmas Papadopoulos, Climate Change and Proxy Voting in the U.S. and Europe, Harvard Law School Forum on Corporate Governance (Jan. 7, 2019) (“In 2017 and 2018, shareholder resolutions focusing on environmental and social issues made up the majority of all filed shareholder proposals, showing a notable increase relative to resolutions focusing on governance topics compared to prior years.”).

[17] See Kosmas Papadopoulos, The Long View: US Proxy Voting Trends on E&S Issues from 2000 to 2018, Harvard Law School Forum on Corporate Governance (Jan. 31, 2019) (showing average shareholder support for environmental and social proposals in the single digits just after the financial crisis and reaching 24 percent in 2018); Broadridge/PWC, Proxy Pulse, 2020 Proxy Season Review (showing average support for environmental proposals reaching 27 percent in 2020).

[18] Each year the staff in the Division of Corporation Finance reviews hundreds of issuer requests to exclude shareholder proposals from the corporate ballot in the form of request for no-action relief. In most other contexts, the staff may issue no-action relief where requested, but the staff may also simply stay silent. In this context, however, the staff plays a more active role, by either issuing no-action relief or publicly declining to do so.

[19] See 17 CFR § 240.14a-8(b)(1)(vi) (prohibiting the aggregation of shares among shareholder groups to meet eligibility thresholds) and 17 CFR § 240.14a-8(c) (providing that each person may submit no more than one proposal, directly or indirectly, to a company for a particular shareholders’ meeting, preventing representatives from submitting proposals on behalf of more than one shareholder at a given meeting). As I stated at the time the Commission adopted the amendments to Rule 14a-8 last year, I strongly oppose the increases to both the eligibility and resubmission thresholds, and would support revisiting those aspects of the recent amendments as well.

[20] See Amendments to Rules on Shareholder Proposals, Release No. 34-40018 (May 21, 1998) (“However, proposals relating to such matters but focusing on sufficiently significant social policy issues (e.g., significant discrimination matters) generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.”).

[21] See ICI, Investment Company Fact Book (2020) (showing 46.4 percent of US households own funds); see also SEC, Division of Investment Management: Report on Mutual Fund Fees and Expenses (Dec. 2000) (showing that 47% of US households own funds, up from 6% in 1980);

[24] Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies, Release No. IC-25922 (Jan. 31, 2003) (“Investors in mutual funds have a fundamental right to know how the fund casts proxy votes on shareholders’ behalf”).

[25] See Scott Hirst, Universal Proxies 35 Yale J. Reg.  (2018) (showing how the current rules governing contested director elections can lead to distorted outcomes could be ameliorated by finalizing a universal proxy rule).

[28] See, e.g., SEC Office of Compliance Examinations and Inspections, 2019 Examination Priorities (including cybersecurity and digital assets); SEC Announces Enforcement Initiatives to Combat Cyber-Based Threats and Protect Retail Investors, Press Release 2017-176 (Sept. 25, 2017).

[30] There are other alternatives that should be considered here, including the potential for the Commission to acknowledge an existing set of standards as credible or qualifying, similar to the approach the Commission took in acknowledging the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Framework as an acceptable approach for management’s evaluation of internal controls. I look forward to public comment on this issue.

[31] See Report of the Climate-Related Market Risk Subcommittee, supra note 10.  

[32] See Daniel Rosenbloom, Jochen Markard, Frank W. Geels, and Lea Fuenfschilling, Why carbon pricing is not sufficient to mitigate climate change—and how “sustainability transition policy” can help, Proceedings of the National Academy of Sciences of the United States of America, (Apr. 21, 2020); Robert S. Devine, The ‘market’ won't save us from climate disaster. We must rethink our system, The Guardian (Nov. 19, 2020).

[33] See SEC Office of Investor Education and Advocacy, Environmental, Social and Governance (ESG) Funds – Investor Bulletin (Feb. 26, 2021).

[34] This should involve increasing visibility into the private markets, including re-visiting amendments to Form D that the Commission proposed in 2013 to enhance the Commission’s ability to evaluate Rule 506 market practices. See Amendments to Regulation D, Form D, and Rule 156, Release No. 33-9416 (July 10, 2013). It should also involve renewed consideration of updating the accredited investor definition wealth thresholds, including by indexing the wealth thresholds to inflation going forward, an idea with broad-based support. See Allison Herren Lee and Caroline Crenshaw, Joint Statement on the Failure to Modernize the Accredited Investor Definition (Aug. 26, 2020).  

Last Reviewed or Updated: May 5, 2023