You may have made many investment decisions in your life, but did you ever invest in a company to prevent climate change or to achieve social justice? That’s what ESG (environmental, social, and governance-oriented) funds want you to do.
In fact, there are activist shareholders who attempt to force corporate boards to include ESG goals in their missions. The SEC under the Trump administration gave some level of cover to corporate boards focused on performing their fiduciary duties to shareholders. The Biden administration may do the exact opposite, emboldening activist shareholders who want boards to focus on everything but actually creating value for shareholders. Dieter Holger reports in The Wall Street Journal:
Shareholder resolutions on environmental and social issues could find more support from the Securities and Exchange Commission’s new leadership, some investors and former SEC officials say, potentially creating headaches for large companies that have to publicly respond to investor demands.
The U.S. market regulator during the Trump administration gave guidance that emboldened companies to block shareholder resolutions asking them to report things such as greenhouse gas emissions and gender and racial issues in their workforces. Beginning in 2017, the agency issued a series of bulletins that underscored how companies could omit resolutions by arguing that they applied to ordinary business or constituted micromanagement.
Shareholder resolutions are requests from investors to management that are usually voted on by stockholders at a company’s annual meeting. They aren’t legally binding in the U.S., but they can nudge companies to make changes. The resolutions also can present risks to a company’s reputation because they force management to publicly respond to requests for action on hot-button topics, such as climate change and how they treat minorities and women.
Although the SEC doesn’t formally block shareholder proposals, it does respond to requests by companies asking whether it would recommend an enforcement action if a proposal is left off the ballot. The SEC responds with a “no-action” letter when advising that it wouldn’t.
Under the Biden administration, the regulator could enable more proposals to reach ballots, particularly since the White House has made regulation on climate change and racial and gender issues more of a priority, former SEC officials said. The SEC in recent weeks signaled support for environmental, social and governance-oriented finance. It said it would monitor how ESG-oriented funds vote on shareholder ballots, and opened a review of how companies are disclosing risks they face from climate change.
An SEC spokeswoman declined to comment.
Allison Herren Lee, the acting SEC chairwoman who joined the agency as a commissioner in July 2019, has criticized SEC amendments under the Trump administration that made it more difficult for investors to file and vote on shareholder issues related to climate change.
Whoever is managing your money, should approach their duty to you with the Prudent Man Rule in mind.
Action Line: You have to ask yourself, are you investing to stop climate change, or to earn income for you and your family in retirement? The two goals are often not in synch. If you’re serious about generating income for retirement and giving your family the security they deserve, click here to sign up for my free monthly Survive & Thrive newsletter. I’ll help you bust inertia and make the necessary decisions to protect your family. But only if you’re serious.
E.J. Smith - Your Survival Guy
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