Amazon and Comcast executives are trying to block their shareholders from voting on initiatives designed to expose the companies’ investments in the fossil fuel industry during the climate crisis. But a little-noticed new directive from federal regulators may complicate their plans — and give climate activists a new weapon to hold corporations accountable.

The new edict from the Securities and Exchange Commission (SEC) suggests the agency is moving away from blessing companies’ attempts to quash shareholder initiatives pressing corporate management to be more forthcoming about business practices.

Despite opposition from powerful corporate lobby groups, regulators under President Biden’s new SEC Chairman Gary Gensler issued the directive in November. It could have a big impact as corporations move into the annual shareholder meeting season this spring, which is when shareholders can bring forward initiatives to press the companies in which they own stock to change their behavior.

Although not legally binding, such legal guidances explain the views of regulators — and this latest directive represents a potential sea change. For years, the SEC has been allowing company executives’ attempts to shut down these initiatives, arguing that shareholders should not be able to dictate day-to-day business decisions. But the new SEC directive suggests the agency is changing its views in the face of the intensifying climate crisis.

“I think (the directive) will help our case that shareholders have a right to ask companies to provide analysis about decisions made that have a potential material impact on the brand,” said Andrew Behar, CEO of the nonprofit shareholder advocacy group As You Sow. “The companies claim that we are trying to meddle with human resources [and] ordinary business. We just care about them doing one thing in their operations and marketing and the exact opposite in their investing.”

Shareholders Versus Big Business

Faced with governmental inaction, climate activists have increasingly looked to shareholder resolutions as a way to compel emission reductions and greater corporate transparency. While not legally binding, these measures still have power over corporate behavior because companies that resist the resolutions could lose control of their boards or support from key shareholders. Shareholder resolutions are permitted under the Securities Exchange Act of 1934, and they are often brought by shareholders at banks, public pension funds, tech companies, and other major businesses.

Under the law, shareholders of public companies can have their proposals included in corporate proxy statements and brought to a shareholder vote. Just this month, Costco shareholders voted overwhelmingly in favor of a proposal calling on the company to lay out science-based targets to reduce its greenhouse gas emissions.

Last year was a big year for this kind of shareholder activism. Among other victories, shareholders forced Chevron, one of the worst polluters on the planet, to adopt a disclosure policy surrounding its climate-related lobbying activity. And as The Daily Poster reported last year, shareholder pressure also prompted fossil fuel giant Exxon to add activist investors to its board of directors.

Despite the victories, companies have often been successful in defeating shareholder proposals with the help of the SEC — particularly during the Trump administration. The Securities Exchange Act allowed companies to block shareholder proposals for a number of different reasons, most commonly because the proposals were either deemed to relate too directly to day-to-day business matters or pertained to operations that accounted for less than 5 percent of the company’s total assets or net earnings.

In 2017, Trump’s SEC issued new legal bulletins that allowed businesses to exclude proposals dealing with significant social policy issues, provided the companies could demonstrate that the policy issue was not directly relevant to its business. The changes also allowed companies to bar proposals that attempted to place any limits on the company or board, and narrowed the scope of social and ethical issues that shareholders could bring to vote.

Thanks to these new directives, “a number of proposals were challenged successfully and kept off of proxy ballots,” said Rob Berridge and Allan Pearce, respectively the director of shareholder engagement and manager of investor engagement for the shareholder advocacy group Ceres. “Just four years ago, proposals asking for any [greenhouse gas emissions] targets… were being excluded from proxy ballots.”

In 2019, for instance, Trump’s regulators blessed nearly half of corporations’ requests to keep climate-related resolutions off their proxy ballots.

A Big Win Over The U.S. Chamber Of Commerce

But with Joe Biden in the White House and a Democratic majority controlling the SEC, the agency is undergoing changes.

Staff Legal Bulletin 14L rescinded the Trump-era directives expanding the ability of companies to reject shareholder proposals. The bulletin explicitly rejected the exclusion of proposals “squarely raising human capital management issues with a broad societal impact” on the basis that “the proponent did not demonstrate that the human capital management issue was significant to the company.” It likewise rejected the exclusion of proposals that “request companies adopt timeframes or targets to address climate change” as micromanagement.

The new directive is part of a broader shift unfolding at the SEC. As chair, Gensler has promised new climate-related disclosure requirements for companies, and while those requirements are currently stalled amid reported internal debates over their potential scope, the business community is still panicking over the prospect of new regulations.

The U.S. Chamber of Commerce, the nation’s top business lobby, disclosed lobbying lawmakers and regulators on SLB 14L, and has called on the SEC to withdraw the directive.

“SLB 14L creates an unworkable system that is beyond the mission of the SEC,” the chamber wrote to Gensler last November, claiming that “SLB 14L injects uncertainty into the shareholder proposal process, degrades investor protection, and harms competition and capital formation.”

The National Association of Manufacturers also reported lobbying on SLB 14L.

The new directive could be particularly beneficial to Amazon and Comcast shareholders, who are currently trying to compel the companies to report on climate-related brand damage due to incongruities between their public pledges on climate change and the fossil fuel investments in their 401(k) plans.

As You Sow, which is behind the shareholder resolutions Amazon and Comcast are trying to kill, recently released a press release criticizing the companies for their hypocrisy in publicly pledging to combat climate change while also investing in fossil fuels.

“Amazon and Comcast use Vanguard Target Date funds as their default retirement options, resulting in the majority of plan investments flowing into funds holding companies flagged as major greenhouse gas emitters, and involved in Indonesia and Amazon rainforest destruction,” the organization noted.

Thanks to SLB 14L, the corporations may find it more difficult to convince the SEC to allow them to block the climate change disclosure proposals.

“In a broad sense, [SLB 14L] sends a signal that shareholders have the right to ask important and detailed material questions of company boards and executives,” said Behar of As You Sow.

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