Investor Advocates for Social Justice (IASJ) is deeply disappointed in the Securities and Exchange Commission (SEC)’s final rulemaking on the Shareholder Proposal Rule 14a-8, which was released today. 

“Especially at this moment, this rule change is out of touch with the multiple crises facing our society, including climate change, racism, economic inequality, and worker health and safety. The rulemaking encourages companies and investors alike to ignore the corporate role and responsibility to address critical environmental, social, and governance (ESG) issues that are integral to the well-being of society and limits our ability as shareholders to raise this issues before companies,” said Mary Beth Gallagher, Executive DIrector of Investor Advocates for Social Justice.  

As faith-based investors, IASJ has used the 14a-8 Rule and process to engage with portfolio companies that are not only exposed to significant risks such as litigation, reputational harm, or stranded assets, but also whose business activities cause adverse impacts to individuals, employees, and communities. Proposals filed by IASJ Affiliate investors have initiated hundreds of constructive dialogues with corporate leadership over the years and led to meaningful commitments to address issues of concern, such as climate disclosure, water stewardship, and human rights. 

The most significant changes are: 

• In order to file a shareholder proposal, shareholders are required to own: $2,000 in shares for 3 years, $15,000 for 2 years, or $25,000 for 1 year. 
• Shareholders may not aggregate shares to meet filing requirements
• In order to re-file the same shareholder proposal, it must gain 5% of shareholder support the first year, 15% the second year, and 25% the third year. 

When this rule will take effect: 

• New resubmission thresholds and other changes will go into effect 60 days after the publication in the Federal Registrar. 
• Investors who currently are eligible to submit proposals under the current $2,000 threshold/one-year minimum holding period, but currently do not satisfy the new requirements, will continue to be eligible to submit proposals through the expiration of the transition period that extends for all annual or special meetings held prior to January 1, 2023.

This rulemaking will undermine a process that creates shared value for investors, companies, employees, suppliers, and communities. IASJ proposals often bring critical issues like human rights, labor rights, racial justice, and climate change to the attention of company boards and investor peers. Many of the proposals IASJ Affiliate investors file and support raise issues which may not yet be on the radar of companies or other investors, for example, a proposal filed on emerging surveillance technology that may undermine immigrants rights or further racial injustice. Strict re-filing thresholds that would bar some shareholder proposals from the proxy further insulates corporate executives and boards from investors with concerns about ESG issues and reduces corporate accountability to all stakeholders. Last year, the Business Roundtable released a Statement on the Purpose of a Corporation, which defines a fundamental commitment not only to shareholders, but to customers, employees, suppliers, and communities. This year, it also released a statement on the importance of addressing climate change at the scope and pace required by the goals of the Paris Agreement. IASJ appreciates these statements and believes accountability to all these stakeholder groups is necessary. Our engagements and shareholder proposals seek increased information about how corporations meet this commitment to delivering value to all stakeholders, for example, through a proposal on human rights due diligence filed for the 3rd year at Tyson Foods. 

Throughout IASJ’s 45 year history of engagement, long-term faith-based institutional investors have played an important role in communicating concerns to companies, identifying emerging risks, and promoting meaningful changes to corporate policies and practices that further the social purpose of a corporation. IASJ is concerned that the new Rule released by the SEC today will limit these tools and benefits, weakening corporate accountability, and placing communities and the environment at greater risk.