US SRI investors resist business groups’ petition on shareholder proposals

Socially responsible investors in the US are planning to defend themselves against efforts by several of the country’s leading corporate lobby groups to undermine their ability to get environmental, social and governance-related proposals onto the agenda at company annual general meetings.

According to Timothy Smith, director of ESG Shareowner Engagement at Walden Asset Management, next month’s meeting of the US Forum for Sustainable and Responsible Investing (US SIF) will be in part devoted to formulating a response to a petition that the Securities and Exchange Commission (SEC) recently received from the Chamber of Commerce, the American Petroleum Institute and others.

The petition urges the SEC to increase “significantly” the support threshold required before shareholder proposals that have already been rejected can be resubmitted. In their petition, the lobby groups took aim at ESG-related proposals in particular, calling them a waste of shareholder resources and a distraction to company management.

The petition followed a speech by SEC Commissioner Daniel Gallagher last month that dismayed the SRI sector in which he said the volume of shareholder proposals – most of which are ESG-related – undermined the proxy voting system. It also came after an earlier op-ed by the Wall Street Journal ’s Edward Knight suggested similar restrictions; Andrew Behar, CEO at advocacy group As You Sow, called it “acoordinated rhetoric storm” to curb shareholder rights.

Walden’s Smith said that due in part to a huge workload caused by the Dodd-Frank financial regulation, the SEC would very likely be too busy to officially address the petition. “To date the SEC has only been able to implement half of the legislation, so it has a great deal still on its plate.”

“At the same time, we still need to send a strong signal that such an attack on shareholders’ rights is not acceptable and that there would be tremendous pushback by investors,” Smith added.

A former chairman of US SIF, Smith currently serves on its public policy committee. The US SIF is scheduled to hold its annual meeting between May 19 and 24 in Washington.

According to Smith, options include letters responding to the petition to the SEC as well as letters to Commissioner Gallagher and the SEC’s other four commissioners presenting a “factual rebuttal of the misleading facts and interpretations in his speech”.

Yet even if the petition were taken up by the SEC, Gallagher, a Republican, would have to convince two other SEC commissioners to support it. That seems unlikely since three commissioners, including SEC Chairwoman Mary Jo White, are Democrats. Also, one of the Democratic commissioners, Luis Aguilar, recently came out in strong support of shareholder resolutions at US companies.