ANALYSIS: SEC Rule to Upset Environmental Shareholder Proposals

The SEC’s proposed rule on climate-related risks would require publicly traded companies to disclose information regarding their climate change risks and emissions in their Form 10-K. Shareholders have been targeting these topics for some time, so they’re logical starting points for the SEC’s first ESG disclosure-based rule. Proposals related to climate risks and emissions have consistently made up the majority of environmental shareholder proposals since at least 2018 (which saw an uptick in environmental shareholder proposals after President Trump withdrew from the Paris Agreement).

But if the new rule guarantees investors access to company information concerning climate risks and emissions, environmental shareholder proposals are likely to find new areas of focus.

Year to date, nearly 90% of environmental shareholder proposals have requested reports on climate-related risks or methane/greenhouse gas emissions—up by about 10 percentage points from 2021. And this year’s 56 environmental shareholder proposals have already surpassed the 52 seen in 2018.

The SEC’s final rule—no matter its form—will address company climate risks and emissions.

Provided that those disclosures become mandatory, the number of shareholder proposals on climate-related risks and emissions is likely to decrease because companies will already be required to disclose this information. Shareholders will instead focus on gaining clarity on specific environmental disclosures (rather than requesting general reports on these topics). For example, shareholders may ask companies to report on the accuracy the environmental data included in their disclosures.

Whether environmental proposals will shift by next proxy season depends largely on the final rule’s release date and implementation timeline. If the SEC releases the rule before proxy season and it’s implemented sometime thereafter, companies will need to prepare for shareholder proposals requesting information on how the company will meet the new disclosure regime.

The content of environmental shareholder proposals may not be the only shift once the rule is in effect: The success rates of these proposals might improve. If there’s a legal obligation to report emissions and climate-related risks, shareholder proposals that expand upon those baseline disclosures are more likely to succeed.

Bloomberg Law subscribers can find related content on our ESG Practice page, as well as our Practical Guidance: Shareholders page. Data accessible on the Bloomberg Terminal at BI PROXY <GO>.

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