SEC vote seeks to create roadblock for responsible investment

Major policy changes to address the implications of climate change will happen. The question is when and how bad the damage will be to society and the global economy when the necessary changes are implemented – a topic we explore in our Inevitable Policy Response research.

The financial impacts of rising sea levels and extreme weather events, for example, and the demise of businesses that fail to adapt will all impact the value of investors’ assets. It is clear that investors have a genuine financial interest in engaging with companies to encourage them to adapt.

The EU is advancing policies that will help make the financial system more sustainable – primarily through the EU action plan on sustainable finance.

Similarly, in the UK, other positive signals include the new Stewardship Code, which places systemic risks, collaboration with other investors and stakeholders, and the needs and views of beneficiaries at the heart of good stewardship.

But in the US, it is a different – and concerning – story. While it has been a laggard in its response to climate change, it is now advancing policies aimed at disenfranchising investors who seek to engage with companies directly to encourage them to behave more responsibly. Current policies in the US allow investors to submit proposals for a vote at a company’s AGM. Climate change, human rights and executive compensation are all common themes for shareholder proposals.

The US is now advancing policies aimed at disenfranchising investors who seek to engage with companies to encourage them to behave more responsibly

But yesterday, the Securities and Exchange Commission proposed rules that would create new roadblocks for investors seeking to use the process to elevate critical climate-related and other ESG issues with corporate leaders. The proposal would:

• Increase the dollar value of the stock an investor must hold in order to be eligible to submit a proposal.
• Dramatically increase the portion of the vote a proposal must receive to be resubmitted in subsequent years – it often takes several years for the investor community to appreciate the importance of an emerging ESG topic and integrate the appropriate response to shareholder proposals into their voting decisions. This would have the effect of cutting off discussion of emerging issues before investors have the chance to analyse them and integrate the latest thinking into voting behaviour.
• Undermine investors’ access to independent advice on matters brought to a vote at companies’ AGMs by requiring proxy advisory firms to allow companies to review and comment on voting recommendations before investors see them.

US investors are increasingly stepping up to push the business community to prepare for the economic impacts of climate change and escalating inequality – they are stepping in where government policy has failed. But the US government is now responding by working to silence the voices of responsible investors. These proposed rules are in direct violation of the SEC’s stated purpose, which is to protect investors.

These proposed rules are in direct violation of the SEC’s stated purpose, which is to protect investors

The US is the largest financial market in the world – investors around the globe invest in the US.

And the SEC rule proposal, if adopted, will impact investors globally, undermining their ability to engage effectively on ESG matters.

Now is the time to weigh in with the Commission to demand that it does not go forward with these irresponsible policies.

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