In March 2022, the U.S. Securities and Exchange Commission (SEC) proposed a rule requiring public companies to make certain climate-related disclosures as part of their securities filings. The rule has been highly controversial, generating thousands of comment letters in response. Some commentators argued that it exceeds the scope of the SEC’s rulemaking authority; others criticized the rule as too limited. The Business Roundtable and the U.S. Chamber of Commerce have already threatened litigation if the SEC adopts the rule as proposed. At the same time, the Sierra Club and Earthjustice have warned that they may sue the SEC if it “softens or abandons plans for big companies to disclose the Scope 3 emissions from their supply chains and other indirect sources.” All of this is happening against a global backdrop, with countries around the world requiring corporations and asset managers to disclose information relating to climate change and other environmental, social, and governance issues.
Some regulators and capital markets participants argue that sustainability disclosures are necessary for the capital markets to price an issuer’s securities accurately, to enable investors to make investment decisions that may be informed by both economic and non-economic considerations, and to enable investors to attempt to address sustainability issues through engagement. Others have pushed back, suggesting that such disclosures are a costly distraction from companies’ primary business. For the time being, sustainability disclosures by U.S. issuers are made on a voluntary basis and in a variety of ways, including in securities filings, in sustainability reports, through third-party tools for sustainability reporting such as Nasdaq’s OneReport, and in other stand-alone disclosure documents.
These voluntary disclosures are, at least in part, a response to investor demand. This demand has taken many forms, including the use of shareholder proposals. Indeed, the past few years have seen a substantial number of shareholder proposals requesting that issuers prepare reports or disclose statistics on a variety of environmental and social issues, many of which have received substantial support. We argue in a recent chapter that these proposals provide important insight into investor demand for sustainability disclosure, and that the SEC should take greater account of this demand in formulating its disclosure mandate.
The chapter starts with a brief historical context of investor demands for sustainability disclosure. We then describe regulatory efforts, briefly introducing the EU’s sustainability disclosure mandates and summarizing the SEC’s proposed climate disclosure rule. We focus on one key objection that commentators have raised to the proposed rule to motivate our empirical analysis: the claim that investors can obtain sufficient information on sustainability disclosure through private ordering and that their failure to make greater use of shareholder proposals is evidence that mandated disclosure is unnecessary.
The chapter then examines empirically investor efforts to obtain environmental and social disclosures through the shareholder proposal rule. After providing a brief overview of the rule, the chapter offers data on recent shareholder proposals seeking sustainability disclosure, including the information sought, the support such proposals receive when they go to a vote, and subsequent issuer responses. In particular, our analysis includes not just proposals that are submitted to a vote but also a substantial number of proposals that are submitted to issuers and subsequently withdrawn.
The data reveal several key findings. First, during both the 2021 and 2022 proxy seasons, shareholders submitted hundreds of proposals seeking sustainability disclosures beyond what issuers were already providing. Second, a substantial percentage of these proposals were withdrawn, often in connection with settlements in which issuers agreed to provide some or all of the requested disclosures. While each situation is no doubt unique, a significant number of these settlements were likely motivated, at least in part, by the issuer’s perception that the proposal was likely to receive substantial voting support. Because of this, analyses of proposal outcomes that focus exclusively on voted proposals likely understate the true level of shareholder support for sustainability disclosures.
Third, the information requested through shareholder proposals differs from that contained in the SEC’s proposed mandates in some important ways. While some proposals reflect requests for highly salient environmental disclosures from companies for which the requested disclosure is mission critical – including a request that Exxon report on its full carbon footprint emissions – others, such as the request that Dollar General, Macy’s, and Zillow provide information relating to greenhouse gas emissions, appear less so. Shareholder proposals also appear to offer greater flexibility than an SEC rule, enabling shareholders to seek information on a current “hot issue.” The frequency with which shareholders sought disclosure of Employment Information Reports (EEO-1) and the results of racial equity audits in the wake of the murder of George Floyd are two examples. Shareholder proposals also facilitate targeted requests of information that would likely not be relevant to the vast majority of issuers, such as the request that Yum Brands provide disclosure on the social costs of antibiotic resistance, or that Pepsi report on sugar and public health.
The data provided in this chapter suggest an important new insight into the relationship between mandatory disclosure and private ordering. At least in the context of sustainability disclosure, the two appear to function as complements rather than substitutes. At the same time, the scope of disclosure available through private ordering is more limited than what could be provided in a mandatory disclosure regime. A specific shareholder proposal can only seek disclosure on a discrete topic at a single company. Although it is common for shareholders to submit the same or similar proposals to multiple issuers, the process of navigating issuer objections to the proposal and mobilizing shareholder support does not readily scale. In reality, most public companies do not receive a single shareholder proposal, and the number of companies targeted by any given proposal is extremely limited. Consequently, the disclosures produced by private ordering do not allow investors to compare companies on a market-wide basis. Mandatory disclosure may therefore be valuable with respect to information that is likely to be relevant to evaluating the business risks and opportunities of a wide segment of the market.
Although the 2021 and 2022 proxy seasons provide a relatively short window, our analysis suggests substantial investor demand for sustainability disclosure. This demand can provide guidance to regulators in formulating a mandatory disclosure rule. We suggest that the SEC incorporate a more complete analysis of shareholder proposals into its rulemaking process and, in modifying the mandatory disclosure regime, seek to complement these private ordering efforts.
 The Enhancement and Standardization of Climate-Related Disclosures for Investors, 87 Fed. Reg. 21334 (April 11, 2022).
 See, e.g., Subodh Mishra, SEC Climate Disclosure Comments Reveal Diversity of Views, Harv. L. Sch. Forum on Corp. Gov., Aug. 31, 2022, https://corpgov.law.harvard.edu/2022/08/31/sec-climate-disclosure-comments-reveal-diversity-of-views/#:~:text=They%20said%20that%20corporations%20had,regimes%2C%20particularly%20those%20in%20Europe (reporting that, as of August 31, 2022, the SEC had received “about 11,000 comments on the proposal—far more than usual”, and summarizing the comments submitted).
 Andrew Ramonas, SEC Climate Rules Risk Legal Battle with Environmental Groups Bloomberg Law, Apr. 18, 2023, https://news.bloomberglaw.com/esg/sec-climate-rules-risk-legal-battle-with-environmental-groups.
 Although the term ESG (environmental, social, and governance) disclosure has achieved widespread recognition in the popular press, we use the term “sustainability” to focus on disclosures that are relevant for investors in evaluating a corporation’s business model, management quality and risk exposure.
 There is no legal requirement that a proponent file a proposal with the SEC when submitting it to an issuer, and a proposal that is submitted and subsequently withdrawn may not appear in the SEC’s Edgar system. Although some proponents publicly disclose the extent to which they submit and withdraw proposals, as well as any settlement they reach in connection with their withdrawal, our data with respect to such proposals is necessarily underinclusive.
This post comes to us from professors Jill E. Fisch at the University of Pennsylvania Law School and Adriana Z. Robertson at the University of Chicago Law School. It is based on their chapter, “Shareholder Proposals and the Debate over Sustainability Disclosure” forthcoming in Board-Shareholder Dialogue: Policy Debate, Legal Constraints and Best Practices (Cambridge Univ. Press, Luca Enriques & Giovanni Strampelli, eds., 2023) and available here.