February 3, 2020

“Proxy Advisor” & “Shareholder Proposal” Regs: Comments Are In!

With the comment period for the SEC’s proposed rules on regulating proxy advisors and the shareholder proposal process closing today – February 3rd – let’s take a peek at some of the comment letters submitted so far on these topics – available here and here, respectively.

First, among other things, T. Rowe Price has asked the SEC to refocus on proxy infrastructure – e.g. end-to-end vote confirmation – and to go back to the drawing board.  That’s similar to recent recommendations from the SEC’s Investor Advisory Committee – I blogged last week on our “Proxy Season” Blog that the Committee wants the SEC to revisit its priorities and re-do the proposals.

Some letters focus primarily on the proposal dealing with regulation of proxy advisors (see this letter from Value Edge Advisors, Nell Minow), while others focus primarily on the proposal dealing with the Rule 14a-8 shareholder proposal process (like this one from First Affirmative) – and some address both (e.g., Neuberger Berman).

The Council of Institutional Investors issued a press release criticizing the proposals and then submitted two letters, one on the regulation of proxy advisors and another on the Rule 14a-8 shareholder proposal process, each is 65 pages long.  Here’s an excerpt from CII’s press release:

The two proposals are the most significant attempt by the SEC to limit the voice of shareholders since the Commission was created in 1934. They would tighten regulation of proxy advisory firms and shareholder proposals in ways that CII believes are fundamentally flawed and unnecessary. If adopted, both proposals would introduce complexity and micromanagement in proxy voting and in shareholder-company engagement processes that have worked well for decades. CII urges the SEC to withdraw both proposals and focus instead on festering problems in the proxy voting system.

Here are a few other letters worth noting:

Boston Trust Walden (signatories include, among others, As You Sow, Mercy Investment Services, NYC Comptroller, Trillium Asset Management)

Principles for Responsible Investment (sign-on letter – signatories include, among others, BMO Global Asset Management, ClearBridge Investments, Legal & General Investment Management, MFS Investment Management, New York State Comptroller, Wellington Management Company)


Washington State Investment Board

Aside from traditional comments to the SEC, at least one asset manager has criticized the proposed rules in a letter to clients – here’s a client letter from Daniel Loeb’s Third Point (comments on rule proposal on pg 4).

As reported in the NY Times and Reuters, in a speech last week, SEC Commissioner Roisman defended the proposals and said that some of the comments are based on misinformation but he is “open to changing his mind” on the direction of the proposals.

And, even though the comment period closes today, comments will continue to roll in…

CalPERS and CalSTRS Report on Climate-Related Financial Risk

CalPERS has issued its first report on climate-related financial risk of its public market portfolio, including the fund’s alignment with the Paris Agreement and California climate policy goals and the exposure of the fund to long-term risks.

Among information included in the report is a summary of public market exposures and anticipated climate-related financial risks in sectors noted by the TCFD as most exposed to climate risks and opportunities.  The report also provides an analysis of how CalPERs work on climate change is aligned with the Paris Agreement and California climate policy goals and it outlines some of CalPERS engagement activities.  Engagement activities have included meeting in person with company management and in some cases board members about climate risk.

CalSTRS also filed its first report on climate-related financial risk under California Senate Bill 964.  CalSTRS’ report, titled “Green Initiative Task Force“, includes additional content compared to prior reports in that it says the report analyzes CalSTRS climate risk exposure and describes how it supports California’s climate goals.  The report also is structured to align with the TCFD framework of recommended climate-related financial disclosures – governance, strategy, risk management, and metrics and targets.

The reports also summarize CalPERS and CalSTRS proxy voting on environmental proposals during the 2019 proxy season – each fund typically supports proposals asking for improved environmental risk reporting unless it believes that the company already provides adequate disclosure about these risks.  In 2019, CalPERS and CalSTRS each supported 54% of environmental proposals.

As noted in the reports, California Senate Bill 964 requires CalPERS and CalSTRS to publicly report this information every three years until January 31, 2035.  Because this was CalPERS first report, in the report CalPERS states that it welcomes the California legislature’s feedback.  So, let’s check back in three years and see how the report has evolved.  In the interim, CalSTRS report says that it will provide an annual update highlighting its low-carbon transition activities.

Our February Eminders is Posted!

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Lynn Jokela