SEC ‘no-action’ requests: The issues companies don’t want to discuss
In this 3-part series, Net Zero Investor takes a deep dive into so-called 'no action requests' submitted to the SEC, which disclose a hidden side of engagement
“We are unable to concur in your view that the company may exclude the proposal”, wrote the SEC, in a letter addressed to American truck manufacturer Paccar Inc on March 9.
The proposal being referred to was filed by Calvert Research and Management and took aim at the company’s climate lobbying activities. Paccar did not want to discuss it at its AGM.
If and when public companies like Paccar wish to exclude a proposal from the shareholder meeting, they are required to disclose their intention to the Securities and Exchange Commission (SEC). The SEC’s corporate finance division then responds with a judgement of the given justification. Formally, this is known as a “no action request”.
Since January 2023, over 100 such requests have been sent to the SEC. Of these, 19 were about climate-related shareholder proposals. So, what do companies not want to talk about? And perhaps more importantly, why?
There are three pieces of the puzzle: the proposals, the justifications and the SEC’s judgement. In this three-part series, Net Zero Investor digs deeper into each one. Today: the proposals.
It is worth asking what issues companies are trying to avoid talking about. The list is vast and varied, as the table below shows.
Exxon Mobil wants to avoid discussing the impact of environmental litigation, Amazon and Levi Strauss are not convinced they need to set up new climate governance structures and Comcast Corporation does not want to talk about how it invests its employees’ pension money.
The following issues stand out.
Either directly or indirectly, aligning corporate behaviour to the goals of the Paris Agreement is high on the investor agenda.
In the Paccar example above, Calvert’s apprehension with climate lobbying were motivated by a deeper concern about what that says about Paccar’s misalignment.
“Paccar does not have a public commitment to conduct policy and regulatory activities in line with the goals of the Paris Agreement. Competitor Volvo has a specific commitment to conduct its direct and indirect lobbying (through trade associations) in line with the goals of the Paris Agreement”, the proposal read.
Alignment is a common theme in no action requests. In a proposal filed at insurance group The Travelers Companies, As You Sow has raised the alignment question. Travelers submitted a no action request that the SEC has dismissed.
The proposal said: “By measuring and disclosing its emissions attributable to its underwriting, insuring, and investing activities, and adopting targets aligned with the Paris Agreement’s 1.5C goal, Travelers can reduce risk to itself, investors, and the global climate."
As You Sow has also targeted another insurance group, Chubb. In this case too, the company filed a no action request that the SEC disagreed with.
The 401(k) Question
The 401(k) is a retirement plan available to employees in the US. Where this money is invested is critical since it is a sizeable chunk of capital: in the fourth quarter of 2022, the total assets held by 401 (k) funds were valued at over $30 trillion.
Amazon and Comcast Corporation are among a group of companies facing investor pressure over the carbon footprint of their 401 (k) plans. Both companies have submitted no action requests that the SEC has disagreed with.
According to the proposal filed at Amazon, the company has a $17.4 billion 401 (k) portfolio. The proposal, which was filed by a law firm on behalf of an individual investor says, “given the threat that climate change poses to employee’s life savings, our company can help ensure employee loyalty and satisfaction”.
This concern is echoed in the proposal filed at Comcast Corp. Both companies have argued that it is not for shareholders to decide how the 401(k) plans are designed.
What do you do in Washington?
Coming back to Paccar, the main concern raised is now a common theme this proxy season. 17 shareholder proposals targeted the issue of climate lobbying in 2021. In 2022, that number went up to 25. This year too, the momentum is strong.
What companies do in Washington and other power centres around the world is something investors want to know more about.
The companies: Paccar, CDW Corporation and CNX Resources have filed no action requests in response to such shareholder proposals.
At CDW, a technology company, the proposal was filed by John Chevedden. Mr. Chevedden, now in his 60s, is a leading source of shareholder proposals in the US. He is often referred to as America’s “corporate gadfly”. He has filed over 1000 resolutions at some of the country's largest companies.
“Without knowing the recipients of our company's political dollars we cannot sufficiently assess whether our company's election-related spending aligns or conflicts with its policies on climate change and sustainability”, said Chevedden in his proposal.
In this case, the SEC agreed that CDW could avoid the proposal on grounds of procedural inadequacies: proof of Mr. Chevedden’s beneficial ownership seemed lacking.
The company gave him 14 days to submit the proof, he did so on the 15th. Which gave CDW enough legal ammunition to file a no action request.
The next instalment in this series will focus on the justifications that companies use to avoid having to discuss any climate or other shareholder proposals.