In the Nov. 3 bulletin, SEC staff indicated that shareholder proposals “squarely raising human capital management issues with a broad societal impact” and proposals that request “companies adopt time frames or targets to address climate change” are no longer likely excludable.
Proposals that the staff previously viewed as excludable because “they did not appear to raise a policy issue of significance for the company may no longer be viewed as excludable,” the SEC noted, singling out human capital management issues.
In the past, SEC staff has excluded proposals that requested companies adopt time frames or targets to address climate change on micromanagement grounds. Going forward, the SEC said it “would not concur in the exclusion of similar proposals that suggest targets or time lines so long as the proposals afford discretion to management as to how to achieve such goals.”
On “economic relevance,” the shareholder proposals that raise issues of broad social or ethical concerns related to the company’s business may not be excluded, even if the relevant business falls below the economic thresholds. The “economic relevance” exception permits a company to exclude a proposal that “relates to operations which account for less than 5% of the company’s total assets at the end of its most recent fiscal year, and for less than 5% of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business,” the SEC noted.
Danielle Fugere, president and chief counsel at Berkeley, Calif.-based shareholder group As You Sow, said shareholders care deeply about human capital and climate issues and want to see action from companies.
Proposals related to human capital management topped the list of E and S proposal topics filed in 2021, with 133 proposals, up from 77 the previous year, according to ISS data. Climate change-related proposals were the second-most prevalent proposal type with 89 proposals filed, up from 58 the previous year, and a record 11 climate-related proposals made it onto proxy statements and earned majority support in 2021, ISS found. Of the 133 human capital proposals, 35 made it on the ballot and eight were passed.
Of the 89 climate proposals, 25 made it to a ballot as of June 30.
“With those majority votes, shareholders are sending a strong signal that they expect action from companies on climate, they expect companies to be transitioning, along with the rest of the economy toward net-zero, and taking advantage of the opportunities that exist so companies that are not changing or not being responsive are less likely to be successful down the road,” Ms. Fugere said.