SEC Limits on Shareholder Proposals Survive Activists’ Suit (1)

The SEC can keep 2020 rules that activist investors say stop some environmental, social and governance proposals from getting votes at companies’ annual meetings, a federal judge ruled Thursday.

The Securities and Exchange Commission acted appropriately when it adopted the shareholder proposal submission standards aimed at small investors during the first Trump administration, Judge Reggie B. Walton of the US District Court for the District of Columbia said in an opinion.

Walton’s decision to toss a lawsuit challenging the rules ended four years of legal limbo for the regulations, which are backed by companies. The regulations boosted the amount of stock investors need to file proposals and increased the level of shareholder support required to resubmit plans voted down previously, among other actions.

Shareholder advocates Interfaith Center on Corporate Responsibility and As You Sow, along with investor James McRitchie, who runs a website on corporate governance, sued to overturn the rules in 2021. The challengers, who often submit ESG proposals or help file them, argued the rules were arbitrary and beyond the SEC’s authority. The agency under presidents Joe Biden and Donald Trump disputed the challengers’ claims.

“The Court must conclude that the Commission considered the information available to it and reasonably explained its decision in weighing the cost-benefits of its Final Rule and its impact on shareholder-proponents,” Walton said in his opinion.

Walton’s ruling harms investors and companies, but it won’t stop shareholders who have worked under the regulations amid the litigation, said the Interfaith Center on Corporate Responsibility, As You Sow, and McRitchie.

“By limiting shareholders’ ability to bring important issues to companies and fellow shareholders, the amendments—and the decision upholding them—will only serve to hurt shareholders and companies alike,” the challengers of the rules said in a joint statement. “Despite this decision, shareholders will continue to engage with corporations on their environmental and social impacts.”

An SEC spokesperson declined to comment.

Tougher Rules

The 2020 rules require a shareholder to have at least $25,000 invested in a company for a year to file a proposal for an annual meeting. The ownership threshold drops to $15,000 at two years and $2,000 at three years.

The regulations before 2020 let investors submit proposals if they owned at least $2,000 or 1% of a company’s securities for a year.

The 2020 regulations also increased the level of investor support needed to resubmit a proposal that’s voted down at an annual meeting. A new proposal now must secure at least 5% of investor votes for a shareholder to refile it, up from the previous 3% level.

The SEC under Democratic Chair Gary Gensler in 2022 proposed new limits on companies seeking to block shareholder proposals. But the plans, which stalled at the agency, sidestepped the 2020 requirements behind the Interfaith Center on Corporate Responsibility lawsuit, and the litigation continued.

The 2020 rules are separate from guidance the SEC released in February to ease companies’ efforts to stop votes on some ESG proposals.

The case is Interfaith Center on Corporate Responsibility v. SEC, D.D.C., No. 1:21-cv-01620, opinion issued 6/5/25.