US firms lose appetite for ‘no action’ efforts on ESG proposals following SEC shift

Far fewer US firms are seeking to exclude shareholder proposals on environmental and social issues this proxy season, with 76 challenges filed so far compared with 103 at the same time in 2022 – a drop of around 30 percent.  

This was one of the findings in the latest annual Proxy Preview report, the comprehensive overview of the US proxy season compiled by non-profits the Sustainable Investments Institute (Si2) and As You Sow in collaboration with proxy advisory Proxy Impact. 

Companies can petition the US Securities and Exchange Commission for the regulator’s blessing to exclude shareholder proposals by appealing to rules governing the process. If successful, these “no action” letters provide assurance to companies that the financial watchdog will not pursue the matter if the firm omits it from the agenda of its annual shareholder meeting.       

Under the administration of former President Trump, the SEC increasingly allowed companies to exclude shareholder proposals on ESG issues – particularly emissions reduction targets – on the basis of appeals to the rules around ordinary business, micromanagement and substantial implementation.  

Since President Biden came into office, however, the balance of power has tipped towards investors and away from companies. This was crystallised with the introduction of new guidance and the proposal of new rules around “no action” letters.   

That shift was reflected in a dramatic fall in the number of proposals firms were permitted to exclude. Responsible Investor reported in April last year that the SEC had supported just 15 percent of the 159 “no action” requests from companies, a drop of 34 percentage points from 2021.  

This year’s Proxy Preview report, which was released on Wednesday, revealed that just 12 proposals have been omitted so far this season, six of which were filed by right-wing US think-tank the National Center for Public Policy Research.  

Bumper year for E&S proposals  

Overall, the report revealed that the 2023 proxy season is on course to eclipse last year’s record-breaking tally of 627 environmental and social proposals, with 542 filed so far.  

Unsurprisingly, climate change is the biggest single topic filed on with 122 proposals, of which 72 focus on emissions.  

One of the new proposals on emissions has been filed at Chevron and Exxon, and asks the US oil and gas giants to recalculate their baseline emissions to discount reductions arising from divestment or transfer of assets, a process referred to as “re-baselining”. 

Worker rights are also an area that is attracting greater attention. Today a proposal on freedom of association goes to the vote at Starbucks. Other areas filed on include fair pay and treatment at work and paid sick leave.  

Reproductive rights moving up the agenda 

This proxy season has seen 30 shareholder proposals filed on reproductive rights, more than doubling the 2022 total. All were filed in co-ordination with Rhia Ventures, a US impact fund focused on women’s reproductive and maternal health, which also was involved with proposals on the issue last year at US retailers TJX, Lowe’s and Walmart. 

The 2023 proxy season comes in the wake of the US Supreme Court’s decision last May to overturn the landmark 1973 Roe vs Wade ruling, ending women’s federal right to abortion.

One of this year’s proposals was filed at Mastercard. It called on the US payment giant to disclose how it is managing risks and costs associated with sharing customer information that could be used by state enforcement agencies to prosecute those seeking access to reproductive health services. 

That proposal, which was also filed at American Express, has now been withdrawn from Mastercard following successful engagement.  

Dorrit Lawsen, co-CEO of non-profit Change Finance, told RI that following a series of “very productive conversations”, Mastercard made the “credible case that, because of their role in the credit card ecosystem, they are not in possession of the types of data we are most concerned about”. 

“Based on everything we learned during the engagement, we concluded that there was nothing to be gained by continuing to pursue a vote.”   

Racial justice remains key issue  

Last year, there was a huge increase in the number of proposals on racial justice, with 91 filed. Seventy-nine have been filed this year. Most call for racial justice audits, a proposal that emerged in the 2021 proxy season following the killings of George Floyd and Breonna Taylor, and growing awareness of the Black Lives Matter campaign. 

Racial justice audit proposals have already prompted a flurry of commitments, including from the likes of Amazon, and secured majority support at eight companies last year – a trend that also looks set to continue.