Shareholder Proposals and the Debate over Sustainability Disclosure

Abstract

The SEC’s proposed climate disclosure rule has generated substantial controversy. Among the concerns raised by commentators is that the rule is unnecessary because investors can obtain sufficient climate-related disclosure through private ordering.

We examine one mechanism for private ordering – the shareholder proposal rule. We empirically analyze shareholder proposals requesting environmental and social disclosures during the 2021 and 2022 proxy seasons. Contrary to some assertions, we find that investors submitted hundreds of these proposals, many of which received substantial levels of investor support. We further note the significant number of proposals that are settled and withdrawn, indicating that the issuer committed to providing the requested disclosure.

We conclude that there is substantial investor demand for greater sustainability disclosure. In modifying the mandatory disclosure regime, the SEC should look to shareholder proposals as a source of guidance and seek to complement these private ordering efforts.

Keywords: SEC rule, mandatory disclosure, private ordering, shareholders, investor support, corporate sustainability, capital markets, ESG, public companies, sustainability disclosure, EU regulatory mandates, climate-related disclosure, Rule 14a-8, shareholder proposals

JEL Classification: G18, G28, G23, G32, G38, K22