The SEC recently published its 2021 Regulatory Flexibility Agenda—a list that generally reflects the Chair’s priorities, but doesn’t always translate into action. Notably, the SEC expects rulemaking activity regarding three issues that investors are becoming increasingly vocal about: climate change, diversity, and shareholder proposals.
A recent survey of institutional investors found that climate risk was investors’ highest priority ESG issue and engagement topic. As of April 2021, investors had filed 136 climate-related shareholder proposals with U.S. public companies. More than one-third of those proposals were withdrawn after discussions between proponents and the subject companies. The remaining proposals seek disclosure about climate-related lobbying efforts, annual “say-on-climate” votes, and commitments to reduce greenhouse gas emissions. Median support for the 30 environmental proposals that were voted on through June was 37%; twelve proposals received support exceeding 50%.
The SEC has not announced what form of regulation it will propose for climate disclosure, but the focus seems to be on consistency and comparability—meaning the SEC likely will consider adopting or (less likely) creating standardized requirements. The big question is how broad those requirements will be.
Calls for increased diversity and diversity disclosure—particularly but not exclusively at the Board level—are coming from many sources, including several state legislatures and Nasdaq. As of June 2021, investors had filed 37 diversity-related proposals with U.S. public companies. Ten of those proposals request the specific workforce data that companies already collect to file annual EEO-1 reports with the federal government. These proposals are garnering significant support at annual meetings.
Despite this market pressure and the SEC’s current (very broad) disclosure rule on Board diversity, a recent study determined that at the current rate of change, U.S. public company boards will not mirror the representation of women and minorities in the U.S. population for decades. The SEC is unlikely to mandate quotas like California has done, but more extensive and specific disclosure requirements regarding diversity policies are not out of the question.
Just last year the SEC amended Rule 14a-8 to make it more difficult for shareholders to submit proposals to be included in company proxy statements. The new requirements aren’t effective until January 2022, but the SEC seems poised to review them. A lawsuit challenging the revised rules might make such a review more likely.