In Focus

CII, Other Investor Groups Cite New Evidence Against Changes to Shareholder Proposal Rule

CII and other shareholder groups sent a letter July 29 asking the SEC to abandon its plans to raise the resubmission thresholds for shareholder proposals. The correspondence contained a host of compelling new evidence, including case studies from the 2020 proxy season, illustrating how the SEC’s proposed rule changes governing the 14a-8 process would inhibit the filing of shareholder resolutions. The research showed that shareholder proposals related to environmental and social matters, in particular, would be sharply curtailed, at a time when significant threats to shareholder value stemming from such issues have emerged, including risks related to the Covid-19 pandemic, diversity and inclusion, human capital management and climate change. In addition to CII, the letter was signed by representatives from the AFL-CIO, Ceres, the Interfaith Center on Corporate Responsibility (ICCR), the Shareholder Rights Group, the Sustainable Investments Institute and US SIF: The Forum for Sustainable and Responsible Investment.

CII Criticizes DOL’s Proposed Rules on ESG Investing

CII sent a letter to the Department of Labor (DOL) July 28 opposing the DOL’s June 24 proposed amendments to the Employee Retirement Income Security Act (ERISA). More than 40 CII members wrote their own letters on the proposal as of the comment deadline. The amendments would codify the agency's current stance that plan fiduciaries must select investments and courses of action based solely on financial considerations relevant to risk-adjusted economic value. CII’s letter says the proposed rule “demonstrates an unjustified skepticism by DOL about ERISA plans’ ESG investing practices without adequately defining what those practices are or why they should be discouraged.” It also predicts the rule would create significant burdens of proof for investment approaches that emphasize ESG matters, which are ill-defined by DOL, without subjecting funds that dismiss or minimize ESG risks and opportunities to the same burdens. CII also says in the letter that the rule would impose new recordkeeping costs for plan fiduciaries that are likely much higher than DOL estimates, exceeding the alleged benefits of the proposed change.

SEC Proxy Advice Rules Could Delay Voting, Drive up Costs for Investors

While CII is relieved that the SEC dropped the most problematic aspect of its original proposal for heavy-handed regulation of proxy advisory firms, we are concerned that the rules and guidance the SEC approved July 22 could result in delays in distribution of proxy advice, driving up costs for investors, impairing the independence of proxy advice and causing uncertainty for institutional investors. Just how damaging the new regulatory regime could be isn’t clear because the SEC acted without providing details of its approach. In a statement, CII said the new rules and guidance seem to effectively require investment advisors who vote proxies on behalf of investor clients to consider and evaluate any response from companies to proxy advice before submitting votes. That could cause significant delays in the already constricted proxy voting process and jeopardize the independence of proxy advice.