Climate-related issues have become a heightened level of concern at the federal government level since the Biden administration joined the Paris Agreement in a bid to stem the impacts of climate change, and the administration has stepped up its efforts. to achieve a significant national reduction in greenhouse gas (GHG) emissions. Since climate change can have a direct and indirect impact on a company’s current value and future prospects, the SEC is pursuing actions that strongly signal its intention to require public companies to disclose a broader range of climate-related risks to potential investors.

In addition, in accordance with Rule 14a-8 of the Securities Exchange Act, activist shareholders have submitted an increasing number of proposals regarding environmental, social and governance (ESG) matters to be included in public company proxy statements and to be voted on. at annual meetings of shareholders. Many of these proposals seek to require public companies to disclose information about the risks of climate change or take action to address them. Traditionally, companies have relied on SEC staff’s legal interpretation of certain exceptions to Rule 14a-8 to obtain “no enforcement” assurances as the basis for excluding such shareholder proposals from being made. examination in a declaration of power of attorney. On November 5, 2021, the Division of Corporation Finance (Division) canceled three of these Staff Legal Bulletins (SLBs) and issued a new SLB (No.14L (CF)) to replace them, which significantly complicates the exclusion. enterprises. from a proxy a climate-related shareholder proposal based on the “ordinary business exception” (Rule 14a-8 (i) (7)), or the “economic relevance exception” (Rule 14a -8 (i) (5)).

The ordinary business exception allows a company to exclude a shareholder proposal on a matter relating to the ordinary business operations of the company. The Commission has stated that the application of this exception involves two central considerations: 1) the purpose of the proposal; and 2) the extent to which the proposal micromanages the business by delving too deeply into issues of a complex nature on which shareholders, as a group, would not be able to make an informed judgment. The new SLB indicates that the Division previously focused on assessing the importance of a policy issue to a particular company, rather than examining whether the proposal raised an important policy issue. In the future, staff will no longer take a company-specific approach to assessing the importance of a policy issue under Rule 14a-8 (i) (7). Rather, it will examine whether the proposal raises issues with a broad societal impact, so that they transcend the ordinary activities of the company.

Further, Division staff explain that in its recently canceled SLBs, the concept of micromanagement has been extended beyond the Board’s policy guidelines to the point that earlier guidelines may have been interpreted to mean that any limit to the discretion of the company or the board of directors constituted micromanagement. Going forward, in line with Commission guidance, staff will assess companies’ micromanagement arguments recognizing that shareholder proposals seeking details, or promoting deadlines or methods, do not in themselves constitute a micromanagement. Rather, Division staff would expect the level of detail included in a shareholder proposal to be consistent with the detail needed to enable investors to assess an issuer’s impacts, progress toward goals, risks or other strategic issues appropriate to shareholder input.

Additionally, in assessing whether a proposal addresses issues “too complex” for shareholders, as a group, to make informed judgment, division staff say they can take into account the sophistication of investors in general. on the issue, the availability of data and the robustness of public discourse and analysis on the subject. Staff may also consider references to well-established national or international frameworks when evaluating proposals regarding disclosure, goal setting and timeframes as indicative of topics that shareholders are well equipped to assess.

Division staff note that, while operating under canceled SLBs, many of the shareholder proposals that they felt could be micromanaged-out required companies to adopt deadlines or targets for fight against climate change. Under the new guidelines, staff indicate that they would not accept the exclusion of similar proposals suggesting targets or timelines, as long as the proposals leave management to the discretion of how to achieve those targets. According to division staff, its approach in the new SLB is in line with the Commission’s views on the ordinary business exception, which is designed to preserve management discretion over day-to-day business, but does not preclude shareholders to provide high-level guidance on the major strategic issues of the company. .

The exception relating to economic relevance allows companies to exclude from a proxy statement a shareholder proposal that “relates to transactions representing less than 5% of the company’s total assets at the end of its term. most recent financial year and less than 5% of its net profit and gross sales for its last financial year, and is not otherwise significantly related to the activities of the company. (Emphasis added). In analyzing the applicability of this exception, the Division will place more emphasis on the last clause of the provision (underlined above). not be excluded, even if the economic thresholds of five percent of rule 14a-8 (i) (5) are not met.