SEC Staff Revise Policy for Excluding Shareholder Proposals: Climate Change Proposals Likely to Increase

October 29, 2009

On Oct. 27, 2009, the SEC’s Division of Corporation Finance issued Staff Legal Bulletin No .14E (CF) that addresses three topics related to shareholder proposals under Rule 14a-8.

Leading off, SEC staff members modified their prior approach to “proposals relating to risk” under Rule 14a-8(i)(7).[1] One effect of this SLB is likely to be an increase in permitted shareholder proposals addressing climate change and other environmental, social and corporate governance (ESG) issues. In the past, staff members have allowed companies to exclude shareholder proposals relating to environmental, financial or health risks if the proposal “focused on a company engaging in an internal assessment of the risks and liabilities that the company faces as a result of its operations … .” On the other hand, “To the extent that a proposal … focused on a company minimizing or eliminating operations that may adversely affect the environment or the public’s health, [the SEC staff] have not permitted companies to exclude these proposals under Rule 14a-8(i)(7).”

Going forward, staff members will instead “focus on the subject matter to which the risk pertains or that gives rise to the risk.” A proposal will not be excludable if:

  • The 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; and
  • A sufficient nexus exists between the nature of the proposal and the company.

The SLB states that when determining whether the subject matter raises significant policy issues and has a sufficient nexus to the company, staff members will apply the same standards they apply to other types of proposals under Rule 14a-8(i)(7).[2] More specifically, they will analyze these proposals similarly to the way they analyze proposals requesting the preparation of a report, the formation of a committee, or the inclusion of disclosure in an SEC-prescribed document.

The SLB goes on to provide what appears to be helpful guidance for proponents of ESG proposals by signaling that “a proposal that focuses on the board’s role in the oversight of a company’s management of risk may transcend the day-to-day business matters of a company and raise policy issues so significant that it would be appropriate for a shareholder vote.”

This change in approach appears well-suited to proponents of climate change and other ESG-related proposals. This conclusion is shared by activists who have already hailed this change in course by the SEC staff as a victory for shareholders.

“The issuance of the bulletin at this time means that many shareholder resolutions, most of which are filed in November, can now expressly inquire into the issues of greatest concern and interest to investors, namely the financial risks associated with an array of issues, from climate change, to subprime lending, to other major social and environmental issues.” – Sanford Lewis, Investor Environmental Health Network

“Investors will now be able to expressly inquire about the financial implications of critical issues such as climate change.” – Mindy Lubber, President of Ceres, a coalition of investors, environmental groups and other public interest organizations

Companies that have excluded these types of proposals in the past will need to quickly reevaluate their approach for the upcoming proxy season. In particular, an assertion that a particular proposal would involve an internal assessment of risks and liabilities by the company will no longer justify exclusion of the proposal.

Companies arguing that these types of proposals should be excluded will need to show that the “proposal’s underlying subject matter involves an ordinary business matter to the company,” or spell out some other basis for excluding the proposal. Not only will the new SLB serve as a basis for including more ESG proposals in public company proxy statements, it would appear to permit those proposals to expressly request that companies undertake risk/liability assessments regarding these topics.[3]

McGuireWoods LLP regularly assists large and small public companies in connection with disclosure and compliance matters under the federal securities laws, including climate change and GHG emissions disclosure matters, and we are actively engaged in monitoring developments in these areas. Our Climate Change Practice Group comprises seasoned practitioners and consultants from our environmental, energy, corporate and securities, capital markets, litigation and government relations departments.


1. The other issues addressed in the SLB relate to (1) shareholder proposals that focus on succession planning for a company’s chief executive officer and (2) the manner in which shareholder proponents and companies can notify the Staff that they will be submitting correspondence in connection with a no-action request.

2. “The determination as to whether a proposal deals with a matter relating to a company’s ordinary business operations is made on a case-by-case basis, taking into account factors such as the nature of the proposal and the circumstances of the company to which it is directed.” See Exchange Act Release No. 40018 (May 21, 1998); see also, e.g., Lowe’s Companies, Inc. (Feb. 1, 2008).

3. “The fact that a proposal would require an evaluation of risk will not be dispositive of whether the proposal may be excluded under Rule 14a-8(i)(7).” See Staff Legal Bulletin No .14E (CF).