In November 2021, the Securities and Exchange Commission issued Staff Legal Bulletin 14L (“SLB 14L”), making it easier for shareholders to place environmental and social proposals on corporate ballots. The move was hailed by advocates for the environment as a major step toward empowering investors to address climate change through shareholder democracy. Yet our new study finds that this regulatory shift imposed substantial costs on affected firms while producing no measurable environmental benefit.

The SEC regulates shareholder proposals under Rule 14a-8 as part of its charge to facilitate capital formation and protect investors. Rule 14a-8(i)(7) allows companies to exclude from a proxy statement certain proposals involving “ordinary business operations.” SLB 14L narrowed that exclusion, stating that issues of “significant social importance” – notably climate change – could no longer be omitted on ordinary-business grounds. Critics of the new rule accused the SEC of politicizing the regulatory process by catering to environmental interest groups.

Stock Prices of Energy Companies Fell

SLB 14L was released without the usual notice-and-comment process, and its timing was a surprise to markets. Our study begins by estimating the reaction of the stock market to the announcement of SLB 14L on November 3, 2021. This sheds light on the market’s assessment of the rule’s effect on the value of companies.

Using conventional event-study methods, we find that firms in the top one-third of greenhouse-gas emissions – “high emitters,” for short – experienced average cumulative abnormal returns of −1.6 percent in the days surrounding the announcement, while low- or zero-emission firms saw no significant change. Figure 1 shows the abnormal returns of high emitters versus other firms. For oil and energy companies, the losses were roughly $26 billion in market value.The negative reaction cannot be explained by concurrent firm-specific news such as earnings releases or stock buybacks. Firms with a history of environmental proposals also experienced negative returns, suggesting that investors anticipated an increase in costly shareholder activism directed at these firms.

No Evidence of Emission Reductions

One possible explanation for the negative price reaction is that investors expected these firms to reduce emissions in response to heightened shareholder pressure, and those emissions cuts would reduce their profit. Although financially costly for targeted firms, emissions cuts could be good for society if they provide offsetting external environmental benefits.

However, we find no evidence that high-emission firms cut their greenhouse gas emissions (Figure 2). Emissions at the targeted companies were essentially unchanged before and after SLB 14L, while non-targeted firms reduced their emissions.

It could take more than one year for companies to adjust their production to reduce emissions. To detect anticipated cuts, we examined pledges to reduce carbon output. We find no statistically significant decrease in pledged emissions among high-emission firms after SLB 14L. Nor did those firms increase capital expenditures on green technologies to change production methods. In fact, their stated emission-reduction targets became slightly less ambitious in the years following the rule change. All of this points away from successful climate action and toward a different explanation for the negative market reaction.

Management Distraction, Not Climate Action

Companies consistently complain that processing shareholder proposals diverts management’s attention and resources from core operations. The Business Roundtable recently estimated that more than three-quarters of large U.S. corporations devote over 100 hours per proxy season on shareholder proposals, with some firms reporting direct costs in excess of $500,000.

To test this management distraction hypothesis, we analyzed the text of proxy statements before and after SLB 14L, searching for references to engagement with proposal sponsors and other stakeholders. Both types of engagement rose sharply after 2021 (Figure 3), especially among high-emission firms and those whose stock prices dropped the most at the announcement. In difference-in-differences regressions, these firms were 6–12 percentage points more likely to report such engagements post-SLB 14L.

Engaging with shareholders in general does not necessarily reduce the value of companies. However, we find that the post-SLB 14L increase in engagement is confined to proponents of shareholder proposals rather than shareholders more broadly. These patterns are consistent with managers spending more time negotiating with activists and explaining their positions to them – activities that may yield little payoff to operations but consume executives’ time and attention.

Benefits and Costs of Shareholder Democracy

Our findings contribute to a growing debate over the benefits and costs of shareholder democracy. Environmental activists have argued that shareholder proposals can be a way to advance sustainability goals when governments are gridlocked and unable to take action on their own. Skeptics worry that proposals can be exploited by small but organized special-interest groups. Our evidence casts doubt on the effectiveness of shareholder proposals to reduceemissions.

Our findings provide some perspective on the SEC’s policymaking process. SLB 14L did not appear to help investors or the environment, leaving the impression that it was prompted by political considerations of the Democratic-controlled leadership. When the Commission shifted to Republican control in 2025, SLB 14L was rescinded through another bulletin, SLB 14M. Rapid policy changes like this that appear influenced by politics introduce regulatory volatility, which is likely to harm capital markets and impose costs on investors.

One interesting aspect of this episode is that SLB 14L was not a law or a formal regulation, both of which must undergo rigorous scrutiny for approval. SLB 14L was only an advisory bulletin that explicitly stated that it had “no legal force or effect.” Nevertheless, the market treated it as a policy change, and it imposed substantial costs on investors. The power that the SEC apparently can deploy through informal interpretations like this sits uneasily with the constitutional principle that laws are to be passed by Congress and regulations are to be made under authority delegated by Congress.

This post comes to us from John Matsusaka at the University of Southern California, Oguzhan Ozbas at Bilkent University, Chong Shu at the University of Utah, and Irene Yi at the University of Toronto. It is based on their working paper, “The Regulation of Shareholder Democracy,” available here.