Take Five: SEC Raises the Bar for Resolutions

A selection of the major stories impacting ESG investors, in five easy pieces. 

Investors felt the impact of new priorities at the US regulator, despite its empty chair.

Regulator in reverse  – Paul Atkins’ confirmation hearing by the Senate Banking Committee has not yet been scheduled, but the absence of a new chair is not stopping the US Securities and Exchange Commission (SEC) from reversing many of its positions of the past four years, with negative consequences for sustainable investors. Acting Chair Mark Uyeda distanced the agency from its “deeply flawed” rule on climate-related financial risk disclosures, calling for litigation to be paused pending an internal review – and prompting a sharp rebuke from Commissioner Caroline Crenshaw, citing longstanding investor demand. The SEC then rescinded Staff Legal Bulletin 14L, which had restricted issuers’ scope to exclude shareholder resolutions, replacing it with new guidelines that tip the scales back in the direction of management, setting tests for filings in terms of ‘ordinary business’ and ‘economic relevance’. Further, the regulator invited firms to make no-action requests in light of the new guidelines even though the official deadline for excluding resolutions had passed – giving them an opportunity to avoid proxy votes on ESG-related issues. For good measure, separate new SEC guidance this week warned shareholders against asserting their intention to vote against management in order to influence decision-making.

Diverse perspectives – Further good news for the upper echelons of US corporates came in the form of a statement on diversity factors from Institutional Shareholder Services (ISS), which lessened the likelihood of votes against chairs and other directors on grounds of homogeneity and groupthink risk at upcoming AGMs. “ISS will indefinitely halt consideration of certain diversity factors in making vote recommendations with respect to directors at US companies under its proprietary Benchmark and Specialty policies,” said the proxy voting firm, referencing the recent executive order issued by US President Donald Trump on diversity, equity and inclusion (DEI) policies. Among a number of large asset owners it has become standard practice to vote against the reappointment of boards below certain levels of gender or ethnic representation, including sovereign wealth fund Norges Bank Investment Management, which sets a 30% gender-based threshold. “Diversity will likely bring additional perspectives and approaches to the board’s discussions and ultimately improve the quality of its decision-making process,” it has argued. It remains to be seen how many asset owners will take matters into their own hands, rather than relying on the benchmark policies of proxy advisors, and how many will agree with Richard Gnodde, Vice Chair of Goldman Sachs, who this week backed his bank’s decision to drop a similar policy regarding client boards because it had “served its purpose”.

Mixed messages – Activist hedge fund Elliott Management launched an assault on BP, building up an almost 5% stake with the intention of forcing the UK-headquartered oil and gas firm to ‘pick a lane’ by ejecting its renewable energy assets. It was described in Global Capital as a “bitter blow to hopes that green finance can make a meaningful difference in the battle against climate change”. If sustainable investment is to be any more than a meaningless platitude, the publication reasoned, it has to be able to support the transition of big polluters, rather than dot the landscape with a few windmills. One might argue that BP never really more than dabbled in renewable energy, and certainly its commitment to a net zero trajectory has sometimes seemed cavalier. But this is not wholly supported by its US$4.9 billion spend on energy transition assets as recently as 2022. And there may be a valid argument that the holders of BP’s US$59 billion of outstanding bonds have failed to ‘deny the debt’ to leverage their influence. Equally, it’s hard (but not impossible) to imagine the circumstances that recently delivered outsized profits being repeated, justifying the production expansion collectively planned by big oil. As this week’s feature illustrates, the policy environment has played a critical part in the asset valuations, across the energy sector, especially in the US, giving mixed signals to investors. BP will need to send a clear one at its investor day on 26 February.

Bolder, simpler, faster – Europe proved it could match the US in sending mixed signals with the release of its 2025 Work Programme, heralded by European Commission (EC) President Ursula von der Leyen as a roadmap for “a more competitive, resilient, and growth-oriented Europe”. Notwithstanding the less-than-enthusiastic reception for its first omnibus package on sustainability, the programme promises at least two more, as well as a revision of the Sustainable Finance Disclosure Regulation in Q4 2025, which leaves investors relying for longer than expected on interim guidance from the European Securities and Markets Authority on green fund names. Other plans of interest to sustainable investors include a trimming of the Carbon Border Adjustment Mechanism, revision to the REACH Regulation impacting chemical pollution, several measures on food and water security, and an Industrial Decarbonisation Accelerator Act aimed at hard-to-abate sectors. The latter will combine with a Clean Industrial Deal – also due for release this quarter – which should give investors a clear idea how Europe intends to balance competitiveness with sustainability. Even so, many eyes will still be fixed on the release of the first omnibus package at the end of this month, to see if more gradualist approaches to reforming sustainable finance laws have been taken on board.

Overshoots and under-delivers – One further element of Europe’s 2025 Work Programme worth noting is a planned update to its European Climate Law, which will commit the bloc to a 90% emissions-reduction target for 2040. Details on how this will be achieved must wait given that Europe was one of many major economies to have missed Monday’s deadline for the submission of new nationally determined contributions (NDCs) to the UN Framework Convention on Climate Change, as predicted in last week’s blog. Thirteen countries made the deadline, if you include the US, which intends to leave the Paris Agreement, while its northern neighbour, Canada, delivered its NDC two days after the cut-off. As the deadline passed, it was reported that new scientific research suggests we’re already in a two-decade overshoot of the 1.5°C target limit for climate change. When the Paris Agreement was signed, this was a level the world was not projected to reach until 2045. As well as Europe and China, notable absentees from the list included Azerbaijan, host of COP29 last December, having spent much of the run up to last year’s summit exhorting other governments to get a move on. No doubt it will have marked the revised September deadline on its calendar.

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