The role of SEC regulation in advancing shareholder activism in 2022February 23, 2022 – Westlaw Thomson Reuters
Morris F. DeFeo, chair of Herrick's Corporate Department, authored an article for Westlaw Thompson Reuters examining how recent Securities and Exchange Commission initiatives may limit issuers' leeway to exclude shareholder proposals relating to environmental, social and governance matters. In it, he discussed several measures from the SEC that affect how public companies address ESG matters, "including the impact of climate change on their financial condition and operating results."
DeFeo described the changing narrative around ESG matters, noting that ESG matters, for many years, were considered "irrelevant to, or even in opposition to, the financial performance of a company." Over time, a growing number of investors have placed greater importance on ESG matters in considering whether to invest in a company and holding corporate managers and directors accountable. "[P]erhaps more significantly, both private sector and public sector ESG-related funding has grown dramatically and shows every sign of continuing. For example, the increase in ESG-focused funds and other investment vehicles, the strong performance of these funds in 2020 and 2021, the significant increase in cash flowing into the ESG sector from investors, and political developments will continue to enhance the focus on ESG."
DeFeo also provided an update on current and upcoming SEC rules, including exclusions to shareholder proposals and disclosures, adding momentum to shareholder activism. He concluded, "Issues for which solutions are long overdue, such as pay disparity, lack of diversity, and the inequities in inclusiveness and opportunity, have become more painfully apparent because of COVID-19. Investor focus and activism on social issues (along with environmental and governance matters), including through challenges to board elections, scorecards and voting recommendations, will continue to place substantial pressure on companies to address ESG concerns."