Expanding Shareholder Voice: The Impact of SEC Guidance on Environmental and Social Proposals

Abstract

After a dramatic increase over the past decade, shareholder support for environmental and social (E&S) proposals seems to have waned. In this Article, we examine whether this recent decline is linked to a 2021 shift in the SEC’s policy, which expanded the ability of shareholders to influence E&S corporate decisions. We suggest that this regulatory shift has led to an increase in “prescriptive” E&S proposals, which typically call for more aggressive but costlier E&S policies by companies. Using a combination of supervised and unsupervised machine learning techniques to identify prescriptive proposals, we find that these proposals generally receive less shareholder support and seem to be driving a substantial part of the decline in support for E&S proposals. This decline is observed among the vast majority of institutional investors, including many ESG funds. However, there is considerable heterogeneity in the magnitude of this decrease across different investor groups. By classifying investors according to their ideological preferences over E&S issues, we find that investors with more intense preferences for E&S issues are more likely to support prescriptive proposals, while those at the opposite end of this spectrum are more likely to oppose them. Our results suggest that while investors continue to vote along ideological lines on E&S issues, the financial cost of prescriptive proposals often outweighs the intensity of E&S preferences for most of them.

Keywords: corporate governance, mutual funds, responsible investment, ESG, E&S, pro-social, shareholder voice, SEC, regulation, Rule 14a-8

JEL Classification: G11, G30, K22, M14, G38