A Legal Framework for Impact

By Frank Sherman

Sustainable investing has not only become mainstream in recent years; it is now recognized as a mark of prudent investment practice. US-SIF reported last year that sustainable investing in the US increased 42% over the previous two years and now represents one in three dollars of the $51 trillion in total assets under professional management. A Morgan Stanley study found that, while the market experienced extreme volatility and recession in 2020, funds focused on “on environmental, social and governance (ESG) factors, across both stocks and bonds, weathered the year better than non-ESG portfolios.” Yet there are still those who challenge the legal basis for and prudence of incorporating ESG investment strategies.

SGI members who are institutional investors, pension fund trustees, asset managers, or      investment advisors must put their clients’ or beneficiaries’ interests before their own. Despite having been debunked many times, the myth that the fiduciary duty to act in the best interest of a client excludes ESG and socially responsible investing still exits. In a 2019 SGI webinar, Frank Coleman of Christian Brothers Investment Services (CBIS), referenced a 2005 study by law firm Freshfields, Bruckhaus, Deringer LLP which found investors could incorporate financially material ESG issues as part of their fiduciary duties. The Freshfields report contributed to the launch of the Principles for Responsible Investment (PRI). Frank also described a 2015 Freshfields report, Fiduciary Duty in the 21st Century, which clarified that ESG integration is not just permissible but required for many fiduciaries. Since its publication, financial regulators in Brazil, France, EU, Ontario, South Africa and UK have clarified ESG requirements in legislation.

However, these studies found that a fiduciary’s duty to account for the sustainability impact of their investment activity is limited to the extent that it impacted the financial performance of the assets. In other words, their fiduciary duty requires consideration of how sustainability issues affect the investment decision, but not how their investment decisions affect sustainability issues. Too many investors still approach ESG investing from a defensive posture, considering risk management alone.

Since the publication of the 2015 Freshfields report, the adoption of the UN Sustainable Development Goals and the Paris Climate Agreement have significantly raised awareness within the investment community of global sustainability challenges. The third generation of responsible investors are beginning to measure, account for, and integrate the real-world sustainability impact of their investment activity. A third Freshfields report issued last week, The Legal Framework for Impact, considers the role of the investor as an active agent in shaping the world around us, rather than as a spectator betting on the side lines. This detailed, global, legal analysis demonstrates that investors should feel empowered to set impact goals and measure progress against them. It also highlights what must change to ensure that the rules that govern our financial system foster a truly sustainable economy.

SGI members have always considered the positive and negative impacts of their investments on people and the planet. We have been exposing tools to our members to help them assess these impacts. Investors, like all business actors, are expected to respect human rights as outlined by UN Guiding Principles on Business in Human Rights. Last year, the Investor Alliance for Human Rights published an Investor Toolkit on Human Rights for asset owners and managers to address risks to people posed by their investments. This spring, Ceres joined a number of other investor coalitions to launch the Paris Aligned Investment Initiative providing recommendations on key actions and methodologies for asset owners and managers to achieve net zero GHG emissions by 2050 across their portfolio.

So it is now clear that investors must look beyond the financial returns to understand the ESG impacts of their portfolios have on the real world around them—the world their beneficiaries live in.

“Human trafficking does not stop during a pandemic”

Today, the U.S. State Department issued its 2021 Trafficking in Persons Report. The annual report is a critical tool to monitor and assess efforts to eliminate human trafficking. As investors, we expect companies, in the course of their human rights due diligence, to act based on the report’s identification of salient risks to people in their operations and supply chain.

“We document 11 countries where the government itself is the trafficker. For example, through forced labor on public works projects or in sectors of the economy that the government feels are particularly important,” Secretary of State Antony Blinken said during a news conference. Those countries include: Afghanistan, Burma, China, Cuba, Eritrea, North Korea, Iran, Russia, South Sudan, Syria, and Turkmenistan.

If there is one thing we have learned in the last year, it is that human trafficking does not stop during a pandemic.”

acting Director of the Office to Monitor and Combat Trafficking in Persons Kari Johnstone

I’d highlight a few things from this year’s report:

  • For the first time, the report draws a link with systemic racism in the United States and abroad, connecting discriminatory policies to the perpetuation of human trafficking. “If we’re serious about ending trafficking in persons, we must also work to combat systemic racism, sexism and other forms of discrimination,” Blinken said.
  • The report underscores the pandemic’s effect on trafficking. Women and children were severely affected by the pandemic, according to the report, along with those facing food and economic insecurity.
  • The chapter concerning the United States recognizes a shortcoming here at home: “There was a continued lack of progress and sustained effort to comprehensively address labor trafficking in the United States.”

The report categorizes countries of the world with regard to their adherence to the standards of the Trafficking Victims Protection Act (TVPA) of 2000. Each country is tiered according to compliance:

  • Tier 1 (those governments who fully comply with the TVPA’s minimum standards)
  • Tier 2 (while not fully complying, governments with significant efforts to bring themselves into compliance with those standards)
  • Tier 2 watch list (not fully complying along with a significant absolute number of trafficking victims, or a failure to increase efforts, or a determination that the country is in fact committed to making significant progress in the coming year)
  • Tier 3 (those governments who do not fully comply with the minimum standards and are not making significant efforts to do so)
  • Special cases (countries where a civil or humanitarian crisis makes gaining information difficult).

Remember that tier 1, which includes the United States, is simply compliance with the minimum standards. A tier 3 designation means that the U.S. can restrict assistance or withdraw support for the country at global funding organizations like the International Monetary Fund. This year, the State Department downgraded Malaysia and Guinea-Bissau to Tier 3.

The report intends to offer “homework” to governments based on their tier. The image above lists the countries of the tier 2 watch list, tier 3, and special case categories. The report includes a country by country analysis of human trafficking.

To read about a previous year’s TIP Report, please see the 2020 edition here and the 2019 here.

Follow the Money

Multiple crises over the past year reminded us that our global economy and our democracies are unjust and fragile. With decades of lobbying and political spending, companies have contributed to the breakdown of trust in the system by distorting elections, policymaking, law enforcement, and citizens’ ability to hold power to account.

Why do industries like meatpacking enjoy little oversight under both Democrat and Republican administrations? A recent report from the nonprofit advocacy group Feed the Truth suggests a disquieting answer. The report documents how the largest companies in the U.S. food system invest a significant sum in lobbying and campaign donations, all but guaranteeing a friendlier regulatory environment.

Corporate political spending and lobbying are possibly the major factors obstructing progress on critical policy issues including the climate crisis, corporate tax loopholes, fossil fuel subsidies, pharmaceutical pricing, minimum wage, worker rights, and youth tobacco use. Companies impede legislators and regulators from acting on evidence and for the common good. The 2010 Citizens United court ruling only exasperated corporate political influence.

Investors try to address this. For example, SGI members led or co-filed 10 political spending or lobbying resolutions.

When It comes to political spending on elections, we rely on guidance from the Center for Political Accountability (CPA). CPA, collaborating with the Zicklin Center for Business Ethics Research and Wharton School of Business at the University of Pennsylvania, developed a model code of conduct. They apply that code and produce an annual report on political spending disclosure.

Capturing information on corporate lobbying is more difficult. Generally, it comes in three streams:

  1. Corporations directly employ lobbyists for matters of concern on the federal, state, and local level. The laws regarding disclosure vary in each jurisdiction making it difficult to track. For example, e-cigarette maker Juul admitted to Congress that it lobbies in 48 states, but try to gather all that data on your own.
  2. Corporations also make payments to trade associations that lobby on their behalf without specific disclosure or accountability. The US Chamber of Commerce has spent more than $1.6 billion since 1998.
  3. Corporations make payments to 501(c)(4) social welfare nonprofits and 527 political organizations, often referred to as “dark money,” that can create legal and reputational risk for companies. Ohio utility FirstEnergy is under investigation for funneling $60 million through a dark money 501(c)(4) group called Generation Now that was used for bribery. In another example, the Rule of Law Defense Fund is a social welfare group that helped organize the protest before the January 6th riots and is an arm of the Republican Attorneys General Association (RAGA).

While corporate and traditional PAC direct donations to politicians have strict limits, company payments to trade associations and 501(c)(4) social welfare nonprofits for lobbying have no restrictions. This means companies can give unlimited amounts to third-party groups that spend millions on lobbying and undisclosed grassroots activity. Thus, shareholder proposals for lobbying disclosure capture indirect spending through trade associations or social welfare groups.

The CPA-Zicklin Index found that, among companies listed in S&P 500, only 18% fully disclose their contributions to 501(c)(4) advocacy groups, only 24% fully disclose their contributions to trade associations, and only 30% fully disclose their donations to 527 political organizations. So there is a long way to go.

In the wake of January’s attack on the U.S. Capitol and the pause imposed by some companies on their political donations, prospects for a change in the status quo may be improving. In February, ICCR asked companies to consider ending political spending on elections. This proxy season, shareholders sent a clear message for more disclosure and alignment of corporate political spending and lobbying.

This post is in a series that exams the outcome of the 2021 proxy season. For a complete list of SGI resolutions from 2021, please visit this page.

COVID-19 Pandemic Challenges Traditional Pharma Model

From the beginning one thing was clear: the COVID-19 pandemic will end only when everyone, everywhere has access to vaccines and life-saving treatment. Even as we struggle here in the U.S. to vaccinate people of color and those who are reluctant, billions of people elsewhere have been suffering through a pandemic with no access to vaccines, even as there are significant surpluses here and elsewhere in the world.

To be fair, the pharmaceutical industry deserves praise for producing safe and effective COVID-19 vaccines so quickly. Developing a vaccine takes an average of 10 years — if it works at all. Despite decades of well-funded research, there are still no vaccines for HIV or malaria. We now have multiple, highly effective COVID vaccines, all developed in less than a year.

These vaccines are the product of innovative research dating back several decades, spurred by unprecedented public investment. Operation Warp Speed has provided more than $10 Billion in support of vaccine makers for the development and expansion of manufacturing capacity. Another $825 million has been given in support of monoclonal antibody therapies. As of March, U.S. commitment to the CT-Accelerator stood at $6 billion. In April, President Biden pledged another $2 billion to the international COVAX effort.

Amid such vast public investment, pharma companies pursued monopolistic deals with the fruits of taxpayer-funded innovation, rather than volunteering to share their know-how for the next great task facing humanity: getting those vaccines to everyone, everywhere, at the lowest cost possible, as quickly as possible. This traditional business model based on public funding followed by IP protected monopolistic practices is finally facing financial, legal, and reputational risks.

Alongside other ICCR members, SGI members participated in a campaign to challenge companies to disclose how public investment into COVID-19 vaccines and therapeutics figured into global pricing & access strategies. This is important, because drugs don’t work if people can’t afford them. The increasing trends of the rise of coronavirus variants combined with our collective failure to mask up and maintain social distance suggests that Covid-19 will become an endemic condition, much like the flu. Billions of us likely will need the vaccine each year.

This is not an issue that only rests with governments. Corporations have an important role to play in ensuring equitable access to affordable, quality care. Recent shareholder resolutions asked pharma companies to account for their role in our collective fight against the Coronavirus. Many other shareholders agreed yielding votes in excess of 30%. As a recent article in Responsible Investor asked: “[S]hould middle/low income countries have to rely on the paternalism of well-meaning NGOs and donors when the pharmaceutical industry has it within its power to play a pivotal role in ending this global scourge?”

Fast Food – Slow (but steady) Momentum

As some of the most recognizable, cultural icons that dot the American (and global) landscape, it’s hard to go without seeing a growing drive-through line or an ad for a new product at a local chain restaurant. SGI members have engaged fast food and other consumer based companies on a variety of issues for years.  

In the fast food sector, oftentimes we are urging companies to make improvements that some of their competitors have already made and are now expected. After a resolution is filed, a withdrawal generally means progress. Or at least, movement. 

SGI members have been involved in a campaign led by Ceres and FAIRR, targeting fast food companies to improve their meat sourcing. These chosen companies are vulnerable to impacts of climate change, water scarcity, and other threats due to protein production. A FAIRR report states, “agricultural emissions, including those from meat and dairy, are on track to contribute approximately 70% of total allowable GHG emissions by 2050, creating an 11 gigaton mitigation gap required to stay under the 2°C threshold.” Of the six companies engaged in this campaign, SGI members lead on three: Wendy’s, Restaurant Brands International (RBI), and Yum! Brands. 

After slow movement from Wendy’s, investors filed a resolution asking for a report on whether and how the Company plans to measure and reduce its total contribution to climate change, including emissions from its supply chain, and align its operations with the Paris Agreement’s goal of maintaining global temperature increases well below 2°C. This increased disclosure and target setting would not only be beneficial in reducing the company’s climate impacts but benefit consumers and shareholders. 

The proposal was withdrawn as Wendy’s has committed to pursue Science Based Targets (SBT) for Scope 1, 2, and 3 emissions. Yum! Brands has been committed to the SBT process since a shareholder proposal in 2019 and has approved 2030 targets, including reducing GHG emissions by 46%, required to keep global warming to 1.5°C. RBI has also recently committed to the SBT process.

This is just a first step for these companies. As investors increasingly look for climate disclosure and transparency on environmental issues, setting SBT has become a trusted benchmark in addressing the climate crisis. Investors are encouraged by the move towards stronger climate targets and will use this momentum to continue this campaign working with these companies on water impact and water use. 

Pay and Wealth Disparity: Still our greatest social challenge

By Frank Sherman

Sister Sue Ernster’s (Franciscan Sisters of Perpetual Adoration) proposal on racial equity & starting pay at the Walmart AGM earlier this week obtained strong shareholder support for a first-time resolution (12.5% of total shares or 27% of independent shares voted). Congratulations to Sue and the many ICCR co-filers.

I’m reminded of Father Mike Crosby’s 2015 campaign on income disparity. At that time, President Obama called the growing pay & wealth gap in our country “the greatest social challenge of our time“…. and it hasn’t gotten better since then. We didn’t get very far back then after the SEC’s sided with the companies, permitting them to omit our proposal from the proxy based on the “ordinary business” exclusion.

Starting in 2011, the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 required companies to include disclosure of the total compensation of the top 5 paid executives in their annual proxy statements. Shareholders are allowed to cast a non-binding advisory vote for or against these pay packages (“say-on-pay”). Very few companies “failed” their say-on-pay vote in recent years. A failure occurs if the company does not obtain majority support from shareholders for the executive compensation proposal.

The tide may be shifting. Twice as many say-on-pay proposals failed this year as in previous years, including some companies that had never had a failure in these resolutions. As You Sow’s Rosanna Landis Weaver does great work digging through the fine print of the “Compensation Discussion and Analysis” section of each company’s proxy statement with an annual report on the 100 Most Overpaid CEOs. A recent NEI article on CEO compensation (A Promising Start To The Challenge Of Excessive CEO Pay) notes that support for pay packages among S&P 500 firms fell to an average of 87%, down 3 percentage points from 2020 and 2019, and down 4 points from 2016 to 2018. It references a report from the Institute for Policy Studies (Pandemic Pay Plunder: Low-Wage Workers Lost Hours, Jobs, and Lives. Their Employers Bent the Rules – to Pump up CEO Paychecks) which found that 51 of the S&P 500 firms with the lowest median worker wage revised their pay rules in 2020, so that median worker pay fell 2%, while CEO pay rose—by 29%.

Investors pushed corporations to tie their pay packages to stock performance (…to better align management pay with investor returns) in the early ’90s. Little did they know that this would be used by companies to successively ratchet up CEO, and as a result, the rest of management’s, comp packages every year to a level that makes U.S. CEOs stand out on the global stage.

The Dodd–Frank Act also required companies to disclose the ratio of CEO compensation to the median compensation of their employees. The rule has only been in effect since 2017, but the SEC allows companies “substantial flexibility” in the calculation of the ratio, making it difficult for investors and society to make meaningful comparisons.

Of course, CEO’s know that their pay relative to the median pay of their workers is out of control. But even if they wanted to change this (and I’m not sure many “want” to do so), they are reluctant to be a first mover on restructuring pay because it would “negatively impact retention and make them less competitive”.

As we complete the next draft of SGI’s strategic plan and think about our engagement focus for the 2022 season (which starts this summer), I believe pay disparity has to be high on our list. I hope you concur.

FSPA begins compensation project as it joins the Fight for $15

By Sister Sue Ernster, Vice President & Treasurer/CFO, FSPA


In appreciation of our valued partners in mission and in support of the actions of ICCR, SGI and Raise the Wage Act of 2021, FSPA has partnered with Wipfli consultants to begin a compensation project that will ultimately raise our organization’s minimum wage to $15 in 2021. 

According to the Franciscan Sisters of Perpetual Adoration (FSPA) Leadership Team, “This isn’t just about economic justice. We recognize our partners in mission serving on staff are gold. We’re advocating for livable wages and we want it to start at home. We’re investing in our partners as they help us carry forward our mission.” The FSPA Merged HR Team note that all wages are evaluated annually, which will continue after the new minimum wage is in place.

FSPA stands with ICCR calling on the federal government to “implement a mandatory minimum wage of at least $15 per hour as a floor, with an eye towards establishing a living wage standard.” ICCR’s 300-plus faith and values-based institutional investors view the management of their investments as a catalyst for social change. In addition, the Leadership Conference of Women Religious Region 9, of which FSPA is a part of, is also advocating for living wages. This is in line with Pope Francis’ Easter message of solidarity with movements that support workers’ dignity through changing economic structures, including consideration of a universal basic wage.  

As our compensation project and advocacy for a living wage intersects with our commitment to unveil our white privilege. Throughout 2021, guided by our Dismantling FSPA Racism Team, we will work to raise awareness of our participation in systemic racism, analyze our congregation’s anti-racist vision and act authentically for racial equity.

FSPA recently took the lead in advocating for racial and economic justice by filing a shareholder resolution (see our exempt solicitation) with Walmart, calling for a higher starting wage — intersecting our compensation project and advocacy with our 2018 commitment to unveil white privilege. Walmart’s low starting wages are not aligned with the its professed values of respect for the individual and promoting healthy communities or its commitment to sustainability. Boosting wages for the lowest paid employees, which are disproportionately people of color, would advance Walmart’s stated commitment to racial justice. Remedying systemic racism provides everyone with tangible benefits. Wages are the most important element of employee compensation, according to Walmart Associates, and the negative effects of lower wages undermine their ability to serve the customer.

Our community is also growing our impact investing. Our 2020 Seeding a Legacy of Healing initiative will usher in a second round of seeding grants including the Apis & Heritage Capital Partners, whose mission  is to attack the racial wealth gap to restore dignity and status to the American Worker. A second investment in the Religious Communities Impact Fund will benefit the economically poor, especially women and children, concentrating on those who are unserved or poorly served through traditional financial sources.

As Pope Francis says in Evangelii Gaudium (The Joy of the Gospel), “The dignity of each human person and the pursuit of the common good are concerns which ought to shape all economic policies” (#203). The dignity of each person can be recognized through fair wages.

Socially Responsible Investing requires effort

Tariq Fancy, BlackRock’s former chief investment officer for sustainable investing, made a startling confession in a recent USA Today editorial:

In essence, Wall Street is greenwashing the economic system and, in the process, creating a deadly distraction. I should know; I was at the heart of it.

Fancy went on: “In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community.”

It’s quite an indictment from a significant voice in the ESG sector, but, based on my personal experience working for Seventh Generation Interfaith for the past several years, I do not believe that it conveys the whole truth of the matter.

Yes, there are asset management firms that over-hype their ESG product. They slap an ESG label on a fund that screens out certain sectors and perhaps speak to a few companies about their climate actions and sell it at a higher price than non-ESG products. A recent Wall Street Journal article reported 43% higher fees for ESG products in one class of assets. Visit a grocery store, and a higher-priced item with a “Naturally Raised” or “Fresh” label may attract more consumers, even if neither quality is in any measurable sense true. The old Latin adage holds: Caveat Emptor! Buyer beware!

When we look under the hood, so to speak, at many ESG funds, there are reasons to be concerned.

Even as investors demand ESG investments, those funds labeled ESG may not always reflect investor preferences in their proxy voting. Last month, a study from Robeco Asset Management and the Erasmus University of Rotterdam School investigated a decade of proxy voting data, and concluded that large, passive asset managers vote the least in favor of ESG proposals. Further, PRI signatories in the U.S. did not even vote their proxies as well as other U.S. firms that did not describe themselves with an ESG label. Fiona Reynolds, CEO at PRI, recently responded to the report with a commitment to take action. Reynolds went on to give an unusual warning: “being a PRI signatory should not be the only due diligence test for investors.” 

Asset owners who rely on negative screens and “ESG” funds can be misled. Vincent Deluard of StoneX authored a recent report entitled “The ESG Bubble: Saving the Planet and Destroying Societies.” Deluard points to blind spots in customary ESG screens. He notes, “companies with a high ESG rating pay a much lower tax rate than their less virtuous peers.” As well, he observed that “ESG funds are biased against humans: the 15 most highly-rated companies employ just 1.9 million workers, versus 5.1 million for the 15 worst-rated ones.” He concludes: “By channeling more money towards these (already wealthy) companies, ESG funds are unconsciously worsening the social and political crisis associated with automation, inequality, and monopolistic concentration.”

While Deluard’s study can cause suspicion of all ESG products, there are hopeful signs on the horizon. Last week, acting SEC chair Allison Herren Lee spoke to the proxy voting issue, saying, “We know investors are demanding ESG investment strategies and opportunities, but funds may not always reflect those investor preferences in their voting” and suggested that the SEC may need to take action on proxy voting disclosure. Further, Gary Gensler, the nominee to lead the Security and Exchange Commission, has indicated that he favors greater ESG disclosures, and the SEC as a whole is making ESG a priority. Most importantly, there are firms that do the hard work. For an asset owner, asking good questions of an asset manager can help discern if the firm is committed to doing this work. [We will soon have a blog post that examines some good questions to ask.] 

The faith community, with ICCR leading the way, has pioneered socially responsible investing for fifty years. Many asset managers and advisors who are ICCR members are not doing the greenwashing that Mr. Fancy called out. And SGI members recognize their fiduciary responsibility and power of ownership to change the system for the better. SGI members create value by improving the conduct of portfolio companies and, at the same time, create real world impact for people and planet.

Investor Engagement by a Novice

By Judy Sinnwell, OSF Dubuque

A year after retiring to Mount St. Francis in July 2015, the president of our congregation asked if I would facilitate the formation of what came to be the Sisters of St. Francis-Dubuque SRI Working Group. My previous ministry experience was elementary education-administration, adult formation, licensed health practitioner and after-school tutoring in the rural south. Saying ‘yes’ acknowledged that the topic would be interesting and that the ‘working’ part of the label would have me personally engaged in a significantly new arena addressing life’s meaning and purpose.

And so it has! Especially in recent years, as active ownership has effectively increased its voice and influence in the investment arena. Belonging to a faith- and values-based investor coalition, Seventh Generation Interfaith based in Milwaukee, provided education, professional resources, and mentoring in this important work, which for the Dubuque Franciscans, is a way of keeping our congregational mission alive.

One thing I became aware of in those first years was the annual general meeting, the AGM, which a company has for shareholders to weigh in on important company matters. Being a co-owner enabled me to file a shareholder resolution, challenging the company to make improvements in its governance, environmental and social practices. It seemed to be the right thing to do when we had the chance; but at times, it felt a bit intimidating. Recently, that was my experience as a co-filer on a resolution presented at the Tyson Food Inc. annual meeting.

The resolution asked for human rights due diligence in Tyson’s meat packing sites across the country. Iowa has several Tyson sites; one is in Waterloo, where Rath Packing Co. once had a positive reputation and provided a level of economic mobility for Blacks who migrated from the South until it was shut down in 1985. Learning about workers’ conditions during the COVID pandemic in Tyson’s Waterloo plant, where our congregation provided staff at two elementary and a central high school, became a concern and made this an obvious focus of our shareholder action.

When the resolution was made public and the AGM date was nearing, Investor Advocacy for Social Justice (a sister coalition to SGI) began to build awareness among the press and all shareholders who would have a proxy vote on the proposal during the meeting. Reporters from the Des Moines Register and Reuters contacted me for comment, specifically interested in the fact that ‘nuns’ were engaged with a national company; and the Iowa connection because of the negative news that had been previously reported about the Iowa Tyson site and COVID. Their news coverage educated readers about the broad impact of shareholder action. Each request also made me very aware that this experience was not something I anticipated when I agreed to facilitate a group investment effort five years previous!

Was it worth it? Definitely! Yes! Taking the chance to be the voice for marginalized sisters and brothers had to be done. It’s who we are as Dubuque Franciscans. And it stretched me. The support of faith-based and value-based organizations like SGI and IASJ made this possible as an investor. It’s what the world needs right now as one way to reclaim the commitment to the common good and the dignity of the individual person in the economic arena.

Shareholder Resolution Timeline

We often get questions on deadlines associated with the shareholder resolution process. Because SEC rules can be difficult to read, I have outlined the Shareholder Resolution Timeline. This won’t answer all the questions, but will hopefully make the process a little more digestible.

When companies do not engage with their shareholders on salient ESG issues, or they make insufficient progress, shareholders can resort to filing a resolution to be included in the company’s proxy statement and to be voted on at the company’s next annual general meeting (AGM). While the SEC approved several changes to the 14a(8) shareholder resolution process in the final months of the Trump administration, the timeline did not change. 

According to the SEC, a proposal “must be received at the company’s principal executive offices not less than 120 calendar days before the release date of the previous year’s annual meeting proxy statement. Both the release date and the deadline for receiving rule 14a-8 proposals for the next annual meeting should be identified in that proxy statement.” Thankfully, a company’s proxy statement is required to state the deadline for resolution submissions for the following year.

After a proposal is filed, the company has 14 days to ask the proponent to fix any procedural requirements (e.g. proof of ownership, word count) if they are not met. The proponent then has 14 days to resolve those issues. If the proponent does not respond or resolve the issues, the company can appeal to the SEC to exclude the proposal. The company cannot omit the resolution without giving the proponent a chance to resolve the issues, or without an appeal to the SEC.

The company has up to 80 days before its proxy is printed to challenge the proposal via a no-action request to the SEC. The company is required to provide a copy of the no-action submission to the proponents and will be published on the SEC website. After a company files a no-action request, such as substantial implementation or micro management (full list for potential exclusion, here), the proponent can appeal this challenge to the SEC. The SEC’s timeline on this decision is usually driven by the company’s proxy printing; however, the SEC does not have to wait for the proponent’s appeal, and can make a decision at any time. Because of this, it is recommended that the proponent inform the SEC on their plans to respond, and submit their appeal to the SEC as soon as possible, generally within 30 days of receiving the no-action.The SEC no longer has to respond to the company’s no-action request in writing, but rather can post their advice to their website on whether the proposal can be omitted from the company’s proxy. 

Oftentimes after a no-action request is submitted by the company, the proponents decide to withdraw the proposal, usually after they reach a mutual agreement with the company. While the proponent can withdraw their proposal any time up until the day of the shareholder meeting, we generally try to withdraw before the company’s proxy statement is printed. It is sometimes preferable to withdraw the proposal before the SEC sides with the company allowing it to omit the proposal, if the company’s no action arguments are compelling.

If the proponent does not withdraw the proposal, and the SEC does not rule in favor of the company to omit it from the proxy statement, the company has to send a management statement to the proponent. The statement, typically referred to as the company’s opposition statement, must be sent at least 30 days before the proxy is printed, recommending shareholders vote either for or against the shareholder proposal. If the statement of opposition makes any arguments that are false or misleading, the proponent can ask the company to make the appropriate changes. If the company makes any flagrant errors, the proponent can write to the SEC to challenge the statement, though the SEC does not have to respond to this challenge.

In preparation of the annual general meeting (AGM), the proponent has a few opportunities to “build the vote” by informing other shareholders why they should vote in favor of the proposal. 

  • The proponent can write and publish a Proxy Memo, detailing more information on why they filed the resolution, and why voting for the resolution is necessary. This memo is usually published on the proponent’s website and distributed to other shareholders through partner organizations.
  • The proponent can also file an Exempt Solicitation. Similar to a proxy memo, it expands on the proposal and argues why other shareholders should vote in favor of the proposal. This document must be reformatted by a third party to be uploaded to the SEC Electronic Data Gathering, Analysis, and Retrieval (EDGAR). It is then distributed to all subscribers to SEC filings for that company and is publicly available. This generally reaches more shareholders, and asset management firms. 

Leading up to the AGM, to continue to “build the vote,” proponents can also reach out to proxy service companies or firms that prepare company reports and provide proxy voting service on behalf of shareholders. The proponent can also reach out to large asset managers to inform them of their arguments for voting in favor of the resolution, and can promote their proposal through the media to build awareness and support.

After the proposal is voted on at the AGM, the company is required to publish the results of the vote, and other matters discussed, in an 8-K SEC filing within 4 days of the AGM. These filings can be found on the company’s website.

The timeline can be complicated, so you may want to refer to the table below. 

Summarized Timeline: 

120 Days from release date of previous years company proxyDeadline to submit shareholder proposal
14 Days (after submission)Company exclusion based on eligibility or requirements
14 Days (after exclusion) Proponent can resubmit proposal fixing the issues 
80 Days (before proxy is printed) Company challenge to SEC with a no-action request 
ASAP (after No Action request)Proponent to challenge or appeal the no-action request 
Any Time after No Action requestSEC makes a decision on no-action request 
Any Time before AGMShareholder can withdraw proposal 
30 Days before proxy is printed Company issues Management Statement recommending how to vote on the proposal, to be printed in the proxy 
Any Time (usually 6 weeks) before AGMProponent published or files Proxy Memo / Exempt Solicitation 
~30 days before AGMProponent “builds vote” with Proxy Service companies 
4 days after AGMCompany files 8-K with proposal vote results 

See the SEC Bulletin with more information here.