New Ruling Opens Door for Increased Shareholder Activism on Climate

New Ruling Opens Door for Increased Shareholder Activism on Climate

Investor advocates are hailing a U.S. Securities and Exchange Commission (SEC) decision Tuesday that will make it easier for shareholders to request climate change risk disclosure from public companies.

A wave of shareholder activism has been growing in recent years, with investors increasingly filing resolutions requesting information about the financial risks companies face from environmental and social issues, such as climate change.

But the SEC allowed companies to reject these resolutions and keep them from reaching a shareholder vote through what's called a "no-action" request. Until Tuesday, a risk evaluation was deemed to fall within a company's ordinary course of business operations and was therefore not considered appropriate for a shareholder vote. 

"In those cases in which a proposal's underlying subject matter transcends the day-to-day business matters of the company and raises policy issues so significant that it would be appropriate for a shareholder vote, the proposal generally will not be excludable under Rule 14a-8(i)(7) as long as a sufficient nexus exists between the nature of the proposal and the company," the SEC wrote in a bulletin Tuesday.

Ceres, the investor network and advocacy group, praised the decision. "We think we now have SEC leadership that is really focused on the rights of investors who need disclosure about all kinds of risks, not just climate change risk," Jim Coburn, Ceres' senior manager of investor programs, told Wednesday.

Coburn is hopeful the move will help investors bring more resolutions to shareholder votes. A favorable outcome for a resolution would involve a negotiation between the company and shareholder, with the company agreeing to the demands and the resolution withdrawn. The company would then report on its progress of its commitment.

In the 2009 proxy season, U.S. and Canadian investors filed nearly 70 shareholder resolutions with an environmental focus, such as making companies measure and manage their greenhouse gas emissions or develop and share climate change strategies. This was an 11 percent increase over 2008.

Of the resolutions filed in 2009, 31 were positively resolved, including a 51.2 percent majority vote at utility IdaCorp. That led to the Idaho-based company agreeing to set greenhouse gas reduction goals by the end of the year. The IdaCorp resolution was the first environmentally-driven resolution to get a majority vote in 30 years, according to Michael Passoff, associate director of NGO As You Sow, the resolution's lead filer.

Other big-name companies that have bowed to shareholder pressure on change their environmental policies include Home Depot, Chevron and McDonald's.

The new SEC rule could carry implications for the insurance sector in particular since risk evaluation resolutions were always tossed out before because risk management is at the heart of the industry, which was considered to be within its day-to-day business.

"Companies shouldn't wait for investors to file resolutions to address the climate change issue," Coburn said, noting the many business opportunities generated by climate change, such as leadership and efficiency.

Good faith efforts to address climate change may also help companies narrow their exposure in other ways. A federal appeals court, for instance, has reinstated a class-action lawsuit against several chemical, energy and fuel companies over their greenhouse gas emissions. The plaintiffs claim those emissions contributed to climate change and made Hurricane Katrina more powerful, which led to the destruction of the plaintiffs' property.

Image CC licensed by Flickr user James Jordan.