Morningstar’s Stewart on the investor impact of SEC rule changes
As new SEC reforms tighten engagement rules for US stocks, Lindsey Stewart, director of Institutional Insight at Morningstar, outlines the long-term impact on investors
Earlier this month, SEC chairman Paul Atkins announced a series of changes which increase the threshold for investors to propose, access, and vote on shareholder resolutions whilst strengthening the power of boards to ignore them.
Among other things, the SEC confirmed that it will no longer act as final arbiter in shareholder disputes, with individual states now being put in charge. This means that going forward, asset managers or owners wishing to file a climate resolution will have to navigate different rules at state-level, depending on where the investee company is based.
Unprecedented changes
For long-term observers of US financial markets, these reforms did not come out of the blue. Last year, the SEC had already signalled that it would pause substantive review of most no-action requests. This has already resulted in a stark drop in shareholder resolutions being filed, with environmental resolutions in particular dropping to 75 filed in 2026, compared to 150 in 2024.
But the latest measures go beyond that, argues Stewart. “Some people will still have been surprised by the idea that the SEC wants to completely dismantle the shareholder proposal process as it currently exists and delegate it entirely to the states,” he argues.
The scale of change is historically unprecedented, he argues, with the new rules repudiating a set of shareholder rights which had existed since shortly after the Pearl Harbor attack, he highlights. “It’s quite an extraordinary thing that the SEC clearly believes that being the federal arbiter of shareholder proposals is outside of its authority when it has acted in that capacity for over 8 decades.”
Litigation and competition
Asset owners who may have previously supported resolutions at US-listed firms will now have to rethink their approach, Stewart believes: “How are they going to communicate concerns and priorities to the boards of companies in the US if, in some cases, the avenue of filing shareholder proposals may be completely closed off?”
This is likely to result in stronger opposition to director elections or re-elections, he predicts. In the absence of other means to channel opposition, there could also be an increase in litigation, he predicts.
Indeed, during the latest proxy season, six investors including some major asset owners brought forward lawsuits against investee companies who had excluded their shareholder proposals.
Among others, four NYC public pension funds sued telecoms firm AT&T in February 2026 after the company stopped publishing equal opportunity reports. Similarly, New York State comptroller Thomas di Napoli sued wholesale retailer BJ's Wholesale Club Holdings earlier this year over its refusal to include a shareholder resolution on deforestation risks.
These changes risk triggering a race to the bottom whereby companies deliberately settle in states with a more lenient approach to shareholder rights, Stewart warns. “We will have to see what happens, but I don’t think it’s an encouraging time for advocates of shareholder rights and conventional corporate governance norms,” he argues.
However, a new commitment by Microsoft appears to be countering this trend. The firm announced that it will continue to accept shareholder proposals at its annual meeting next year, despite the SEC changes.
Too big to divest
Despite these changes to shareholder rights, there appears to be little appetite from investors to reduce their exposure, Stewart highlights.
A recent Asset Owner Survey conducted by Morningstar among more than 500 respondents shows that more than a third of asset owners have either increased or are planning to increase their allocations to the US, while only 9% plan to cut their exposure.
“There’s certainly a lot of interest in the asset owner community around the level of exposure they want geographically to the US and in particular, say, to the tech sector,” Stewart said before cautioning: “I don’t think asset owners have an appetite for making large changes to their US-focused allocation. They are certainly aware of a lot of emerging risks on the geopolitical side, but also sort of on the investment and valuation side.”
Among the factors shaping asset owners’ approach to the US, the current US administration is listed as a key reason for more than 50% of survey respondents, while more than a third express concern about regulatory uncertainty.
Stewart believes that against this backdrop, the latest changes are “deeply unhelpful” for investors, with the risk of getting it wrong lingering over them. “It is simply too big a market to be making a radical change of investment allocation,” he acknowledges, adding: “If you reduce your allocation and then the US market goes on a tearing valuations rise, rationally or otherwise, you’re going to have some explaining to do to your beneficiaries in your investment committee.”
But while investors choose to remain invested in the US, they would do well to brace themselves for further changes. “It would not surprise me if this is not the last radical action proposed from the SEC,” he believes.
