The US proxy season is getting into full swing. But hanging over the process this year looms the threat of proposed changes by the US Securities and Exchange Commission (SEC) that would curb shareholder rights by, among other things, increasing the amount of stock needed to file a resolution from $2000 to $25,000 and raising the thresholds for re-submitting shareholder proposals year-on-year.
The regulator has, in many investors’ eyes, already begun moving the goalposts over the past 18 months, becoming harsher on ESG requests in its no-action rulings – the mechanism by which companies seek permission to omit shareholder proposals from going to the vote at annual meetings.
Last year, many resolutions calling on companies to set carbon emissions targets – including one at US oil giant Exxon – were excluded from ballot papers with the blessing of the SEC, which deemed them to be in breach of the micromanagement rule (14a-8(i)(7)).
Earlier this month, US lobby group the Business Roundtable (BRT) wrote to the SEC asking it to introduce even higher re-submission thresholds for proposals than those being considered.
On the whole, though, BRT, which is backed by the CEOs of the US’ largest companies, said it was “highly supportive” of the regulator’s plans, and commended it “for its extensive efforts in pursuing thoughtful and comprehensive reform on this topic”.
But despite the increasingly hostile shareholder environment in the US, ESG resolutions are still coming thick and fast.
Climate risk and disclosure
Blackrock, Vanguard and JP Morgan have all been called out this year for their lack of support for climate change resolutions, with resolutions from US faith-based investor Mercy Investments and SRI firm Boston Trust Walden asking them to review and report on their voting record.
The trio’s alleged lack of support for climate resolutions is particularly stark when viewed against the bold pledges of their CEOs last August, when they signed up to a ‘Statement on the Purpose of a Corporation’ from US lobby group the Business Roundtable (BRT). Among other things, the statement commits them to “protect the environment by embracing sustainable practices across our businesses”.
As You Sow, a US non-profit, is asking Blackrock explain how it plans to fulfil that BRT statement, which also commits it to supporting communities, being transparent and conducting “effective engagement with shareholders”, in a proposal that BlackRock is fighting to exclude from the ballot.
And it’s not the only big player to receive a resolution requesting it to flesh out its BRT commitments: JP Morgan Chase, Citi Group, Goldman Sachs and Bank of America are all facing similar proposals from Harrington Investments. JP Morgan (whose CEO Jamie Dimon chaired the BRT when the statement was put out) has successfully excluded the resolution, convincing the SEC that it has already “substantially implemented” the commitments – despite being the world’s largest financer of fossil fuels. It’s a move Harrington Investments is challenging at the SEC, claiming it didn’t get the usual 30-day window to respond to the verdict. Citi and Goldman are also hoping to strike the proposal off the ballot, but Bank of America – which argued that the request broke micromanagement rules at the SEC, and was too vague – was unsuccessful at getting it excluded.
As well as rejecting the BRT and climate voting resolutions, JP Morgan will attempt block two others: one on reducing the greenhouse gas emissions associated with its lending activities and one on its financing of Arctic and Canadian tar sands projects.
As You Sow has already withdrawn a proposal on emissions linked to lending at Wells Fargo after it agreed to report to shareholders on its “progress in evaluating and measuring greenhouse gas emissions associated with its financing activities” with the “intent to use this knowledge to inform its efforts to set Science-Based Targets” over the coming year.
Wells Fargo has also managed to exclude a proposal asking it to assess the feasibility of becoming a ‘public benefit corporation’ (a company whose charter includes goals beyond maximising shareholder value), arguing that it has already ‘substantially implemented’ the request by commissioning an independent report on the topic in response to the same resolution last year.
Finally, this week sees a shareholder in NorthWestern Corp take the South Dakota-based energy firm to the District Court in Montana in a bid to get his proposal on ceasing coal-fired electricity generation on the company’s ballot. The case is expected to be heard this week.
Climate lobbying looks to be once again a key focus of resolutions in 2020.
BNP Paribas has filed resolutions on the topic at US fossil fuel giants Exxon and Chevron and US airlines Delta Air Lines and United Airlines. Exxon is currently seeking to omit that proposal (along with several others on climate, including one co-filed by the UK’s Church Commissioners and As You Sow, asking how the US oil giant plans to align its business with the Paris Accord). Earlier this month New York State Comptroller, Thomas DiNapoli told RI that unless Exxon shifts its behaviour on climate engagement, it’s “very likely” that the State’s $210bn pension fund will vote against its directors for a second year.
In New York City, Comptroller Scott Stringer has again filed a climate lobbying resolution at General Motors (GM) – the one last year was backed by 29% of shareholders.
Speaking on a RI webinar last year, Millicent Budhai, Director of Corporate Governance at New York City spoke of the difficulty of engaging with GM and its rival Ford Motors.
Ford will also face another resolution on its direct and indirect lobbying activities, filed by the Unitarian Universalist Association.
US private prison CoreCivic, which suffered a credit downgrade over widespread divestments by banks, has avoided a resolution calling for annual reporting on the deaths of prisoners and detainees.
The Human Rights Defense Center, which filed the proposal, said it was forced to withdraw it because it didn’t have the resources to fight CoreCivic’s attempts to exclude it via the SEC.
The tech giants
As You Sow has also withdrawn a proposal, this time at Facebook. It has called on the social media titan to begin a “new era of responsible operation” after a number of scandals have thrown it into the spotlight in recent years, including Russia’s alleged use of the network to influence the 2016 US election. As You Sow told RI it had withdrawn the resolution as it is “continuing to dialogue” with the company, but it has two further resolutions outstanding with Facebook: one on splitting Mark Zuckerberg’s CEO and Chair roles and the other on adding civil and human rights expertise to the board.
Fellow Californian tech giant Alphabet is also being urged by shareholders to nominate an employee representative to its board by 2021. That proposal was filed by the UK’s Greater Manchester Pension Fund and Washington-based union-affiliated manager CtW Investment Group.
US gun manufacturer Sturm, Ruger & Co. is facing a proposal asking it to publish a report with the results of a human rights impact assessment. The gun maker, which last year was accused of inaccurately defending its record on gun safety in an SEC filing, is seeking to strike the proposal from the ballot.