SEC Decisions Keep Climate and Social-Responsibility Proposals on Shareholder Ballots

SEC Rejects Major U.S. Banks' Attempts to Exclude Shareholder Proposals on Climate Change and Indigenous Rights

In recent decisions, the U.S. Securities and Exchange Commission (SEC) denied requests from several major U.S. banks to exclude shareholder proposals that called for disclosures on climate change strategies and their exposure to related risks. The SEC ruled that these proposals must be put to a shareholder vote, as documented in the agency's no-action request database.

These requests came from banks seeking to use the SEC’s no-action process to avoid shareholder proposals addressing indigenous rights, but so far, these efforts have also been unsuccessful. Traditionally, companies wishing to exclude shareholder proposals from their proxy ballots approach the SEC, which often provides relief, but in these recent cases, the SEC sided with shareholders.

The banks filed these no-action requests between December and January, and the SEC has issued responses to most of the requests in recent weeks.

These rejections occurred despite a change in leadership at the SEC and updates to the staff bulletin governing the no-action request process. The SEC's decisions also follow a previous year where, under the prior administration, the agency had increased the number of proposals it allowed to be excluded, citing concerns over "micromanaging" corporate boards.

Climate Proposals Remain on the Ballot

The climate-related no-action requests came from four major banks - Bank of America, Goldman Sachs, Morgan Stanley, and Wells Fargo - who aimed to exclude proposals requesting disclosures on their clean energy supply ratios. Over the past two weeks, the SEC has denied attempts by Bank of America, Goldman Sachs, and Wells Fargo to exclude these proposals. Morgan Stanley has yet to receive a response.

The proposals, which ask banks to disclose their ratios of low-carbon energy funding compared to fossil fuels, were once again submitted by New York City Comptroller Brad Lander. This marks the second year the proposals were put forward. Last year, Citigroup, JPMorgan Chase, and the Royal Bank of Canada agreed to the proposal, but it failed to garner more than 29% support at any of the other banks' annual meetings.

In its no-action letter, Goldman Sachs argued that Lander’s request sought to micromanage their operations by specifying a method for disclosure. Letters from Bank of America, Morgan Stanley, and Wells Fargo similarly claimed that the proposals would interfere with "ordinary business operations." The banks contended that these requests should be excluded under Rule 14a-8, which governs the no-action process.

However, the SEC disagreed, stating that it could not concur with the view that these proposals were excludable. The agency told Bank of America and Wells Fargo that the proposal did not relate to their ordinary business operations and did not seek to micromanage the companies.

SEC’s Response:

"Based on the information you have presented, the Company has not demonstrated that the Proposal relates to its ordinary business operations. In addition, in our view, the Proposal does not seek to micromanage the Company."

A report from BloombergNEF in January highlighted that while global banks had improved their clean energy financing ratios, the sector is still far behind the pace needed to reach net-zero emissions.

JPMorgan Faces Further Scrutiny

While JPMorgan has already disclosed its clean energy supply ratio, the bank still awaits a decision on whether it will be allowed to exclude a shareholder proposal requesting annual disclosures on its net-zero activities. The proposal also asks the bank to disclose its memberships in net-zero organizations and any corporate actions related to net-zero goals.

In its no-action letter, JPMorgan argued that it had already "substantially implemented" the proposal and that it dealt with ordinary business operations. The letter stated:

"As demonstrated by [JPMorgan’s] existing public disclosures, the Company already discloses its net zero activities. Therefore, the Company has satisfied the Proposal’s essential objective, and its existing disclosures regarding its net zero activities compare favorably with the Proposal’s request."

Indigenous Rights Proposals Stand

In addition to climate proposals, the SEC ruled that Citigroup and Wells Fargo must hold votes on shareholder proposals focused on the effectiveness of their Indigenous Peoples’ rights policies. Both banks faced similar proposals during the previous year's proxy season, with modest investor support.

Citigroup had argued that it had already met the conditions of the proposal, which was submitted by a group of investor nuns, by releasing a report on its Indigenous Peoples' rights practices in the previous year. However, the SEC responded on March 7, stating that based on the information presented, Citigroup's disclosures did not substantially implement the proposal.

Wells Fargo similarly argued that it should be allowed to exclude the proposal based on a recent update to the SEC's staff bulletin. The update reinstated prior guidance, stating that the SEC would determine the excludability of a proposal based on how economically significant the portion of business affected by the proposal is.

Wells Fargo claimed the proposal only related to a small part of its business - less than 5% of its total assets, net earnings, and gross sales - and therefore should be excludable. The SEC, however, rejected this argument in a response issued on March 5.

Statements from Shareholder Advocates

Sister Susan Francois, lead filer of the Citi resolution and a member of the Sisters of St. Joseph of Peace, welcomed the SEC's decision, emphasizing the importance of shareholder participation in addressing Indigenous rights. In an emailed statement, she said:

"We are delighted that the SEC has backed shareholders and allowed the vote to go ahead on our resolution, which aims to assess the bank’s effectiveness in mitigating risk to investors when it comes to the impacts on Indigenous Peoples and their lands."

Despite Citigroup and Wells Fargo's unsuccessful attempts to exclude Indigenous rights proposals, JPMorgan submitted a no-action letter on March 7 seeking to exclude a similar proposal. The bank argued that the Indigenous rights proposal from United Church Funds had already been substantially implemented and related to ordinary business operations. Last year, 30% of JPMorgan's shareholders voted in favor of a proposal requiring disclosures on Indigenous rights issues.

Implications for Corporate Governance

These recent decisions by the SEC highlight its ongoing trend of supporting shareholder rights in environmental, social, and governance (ESG) issues. With the SEC maintaining a firm stance on the importance of shareholder participation, companies may face increased scrutiny regarding their climate and social policies, especially in areas such as Indigenous rights and climate-related disclosures. These rulings suggest a shift toward greater transparency, accountability, and responsiveness to the growing demand for corporate sustainability and social responsibility in the banking sector.