News: Proxy pressure at the SEC

Tuesday, August 20, 2024

Proxy pressure at the SEC

Aug 20, 2024

THE BIG IDEA

The U.S. SEC building in Washington.

The U.S. Securities and Exchange Commission is navigating tensions over the shareholder resolution process. | Saul Loeb/AFP via Getty Images

PROCESS OF ELIMINATION — Biden-era changes at the U.S. Securities and Exchange Commission were expected to make it easier for activist investors to seek changes to corporate climate and social policies through the proxy process — but it hasn’t quite shaken out that way.

The SEC blessed companies’ plans to keep shareholder resolutions off of corporate ballots 68 percent of the time this year, according to data gathered by the Shareholder Rights Group. That rate is on par with Trump-era levels and is significantly higher than had been seen since the agency moved in 2021 to ease the path for proposals dealing with “significant social policy.”

The reasons are complicated, but the result is another sign of how both the corporate sustainability landscape has shifted and agencies like the SEC are grappling with legal pressure on their regulatory authority, your host reports.

“That’s all caused the SEC to probably be a little more careful in how they choose to deal with these proposals,” said Sonia Gupta Barros, a law partner in Sidley’s capital markets group and former chief corporate governance counsel in the agency’s Division of Corporation Finance.

Companies have long been able to seek “no-action letters” in which the SEC provides assurance that it won’t take enforcement action against them for excluding shareholder resolutions that are irrelevant, micromanaging or related to “ordinary business operations.”

The number of requests for exclusions spiked this year, and companies may have gotten more strategic in figuring out which ones are most likely to be successful after the SEC recalibrated following the 2021 guidance. And the percentage of exclusions that the agency sustained isn’t outside the historical norm.

“It’s what you would expect after there’s a better understanding from companies of what the parameters are,” Barros said.

But the higher rate of approvals for company requests this year is causing concern in the shareholder activist community, given that it comes as proponents filed a record number of proposals.

Top companies like Wells Fargo, Amazon, Walmart and Goldman Sachs were cleared by the SEC to exclude proposals aimed at climate action and “living wages,” for example, which were viewed as efforts to micromanage — a rationale that increased this year.

The agency declined to comment.

“The SEC is aware of the decline in support and maybe they think the pendulum swung too far in one direction,” said Marc Goldstein, head of U.S. research at the proxy advisory firm Institutional Shareholder Services.

Proxy proposals related to climate and social issues rarely receive majority support, and they’re nonbinding even when they do. But the process is seen as an important way for investors to raise issues and provide a check on corporate leadership.

Companies and advocates have long had gripes over the process, and tensions flared this year when Exxon sued activist investors to make a point about the “flawed” system. That case was dismissed, but other litigation related to the proxy process remains active.

Goldstein said to expect ESG proponents to adjust to the SEC’s shift, just as companies adapted to the 2021 changes.

“Proponents are getting more sophisticated and will adjust, too,” Goldstein said. “They’ll continue to have conversations with companies and the big asset managers and pension funds. Even with the trends of declining support, it’s not that investors completely stopped supporting all of these proposals. I think a lot of proponents are willing to negotiate to address the underlying issues.”

AROUND THE NATION

HILLBILLY STEEL — The Biden administration wants to turn Sen. JD Vance’s hometown steel plant into a green energy success story — the kind of “win-win” job-creating and emissions-cutting project it hopes can serve as a model nationwide.

That is, if Vance and former President Donald Trump don’t take a wrecking ball to the “green new scam” that is the Inflation Reduction Act should they win the White House in November, Scott Waldman reports for POLITICO’s E&E News.

The same facility that Vance credits for lifting his grandparents into the middle class is still running today — fueled by coal that leaves its Middletown, Ohio, neighbors with black soot on their lawns and cars most mornings. The Biden administration wants to change that with a $500 million grant to help the plant’s owners convert it to run on hydrogen and natural gas that would cut emissions by 90 percent and support 200 permanent and 1,200 construction jobs.

“Consumers and companies around the world are demanding cleaner, greener products — made with less pollution, made with recycled materials, built to last,” Energy Secretary Jennifer Granholm said when she visited the plant in March to announce the grant. “What you do here in Middletown, we'll be looking at how we can replicate that in places all across the country.”

Middletown voters are torn, to the extent they’re aware of the grant and the IRA in general. But at least some conservatives there are open to the Biden-Harris pitch of transforming historical manufacturing into a key part of a carbon-free future.

“I don't know if that’s going to influence how I vote,” said Gary Hines, a former worker at the plant who voted twice for Trump. “I’ve got to listen to what they both say, but I do think it's a wise thing. I do think it'll be good, I think it’s needed.”

WASHINGTON WATCH

MINE GAMES — Jose Fernandez, the U.S. undersecretary of State for economic growth, energy and the environment, is leading a group of 14 countries and the EU looking to diversify their supply chains and gather critical minerals including lithium, cobalt and nickel.

It’s part of a push to accelerate deployment of clean technologies and promote responsible mining and refining — and a chance to “derisk” from China, which Fernandez argues is cutting its mineral prices to fight the U.S. effort.

Here’s a snippet of the conversation between Fernandez and our Doug Palmer.

It seems like the administration has two or three big goals in regards to critical minerals: One is to ramp up the use of electric vehicles, which require vastly more minerals like cobalt, natural graphite, lithium, manganese and nickel. Another is to reduce our dependence on China for those same minerals. And a third goal is to source critical minerals from places that adhere to high labor and environmental standards. How hard does that third goal make it to achieve the first two goals?

I think we start from a competitive advantage. We've got friends that no one does, better friends that are the envy of the world.

Our clean energy goals cannot be achieved without access to critical minerals. … And so what we're trying to do is to diversify the supply chain. And our starting line is behind China's. They are ahead of us. What we are trying to do, though, is to use those competitive advantages, the private sector, our allies and partners, to catch up.

I think we've done a very good job in starting that race and the [State Department’s] Mineral Security Partnership is intended to take advantage of what we believe are our competitive advantages, and one of them is not only our allies and partners, but also our private sector adhering to high ESG principles.

So when you say you think there's a contradiction perhaps, it actually is not. It’s a competitive advantage. Countries that I talk to, producing countries, want our investment. They do not want investment that will flout environmental rules, labor laws [and cause] environmental damage that would make countries choose between environmental degradation and economic growth.

I’ve heard you say that China owns, mines or processes about two-thirds of all critical minerals. I realize the exact amount varies by mineral, with some higher and others lower. But do you expect the United States to get to the point where it can source all of its critical mineral needs from outside of China?

No, that’s not the objective. It’s not to decouple. It’s to derisk. What we want to do is what you would do at home. … You buy from a number of grocery stores and create competition. If we create competition, then we have a chance to create a race to the top. We’ll be competing on benefiting consumers and benefiting producers.

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YOU TELL US

GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. Join us every Tuesday as we keep you in the loop on the world of sustainability.

Team Sustainability is editor Greg Mott and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, jwolman@politico.com and aprang@politico.com.

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