BRIAN SCHATZ

HART BUILDING
SUITE SH-722
WASHINGTON, OC 20510--1105
(202) 224- 3934

HAWAII

<lanitcd ~rates ~cnetc

300 ALA MOANA BOULEVARD
ROOM 7- 212
HONOLULU, HI 96850
(808) 523-2061

November 9, 20 18
The Honorable Jay C layton
Cha irman
Securities and Exchange Commission
I00 F Street, NE
Washington, DC 20549
Dear Chairman C layton:
I am writing to su bmit a comment to the SEC in light of its forthcoming ro undtable on the proxy
process, File Number 4-725. Specifically, I am concerned that Staff Legal Bulletin No. l 4J
marks a policy sh ift in how the SEC treats shareho lder proposals in general, and proposals
re lated to climate change in particular, w ithout going through a rulemaking process or receiv ing
congressional approval. 1 This shift appears to have started before Staff Legal Bulletin No. 14J
was published, as the SEC increased its use of the "m icromanagement" exclus ion, especially
with respect to climate change-related proposals. This bulletin- and the new policy it reflects ­
w ill undermine the rights of shareholders to engage w ith public ly traded companies on issues
that are essential to risk management, strong governance, and long-term value creation, such as
the impact of climate change on companies and companies' impact on climate change. As the
SEC reviews the proxy process in its upcoming round table, I urge you rescind the Staff Legal
Bulletin No. 14J and reverse the SEC's policy of expanding the use of the micromanagement
exclusion.

Gro wing J11vestor Interest in Managing Climate Risk
Investors have a financial interest in companies' management of climate change-related risks,
particularly companies in o il and gas industries. As SEC guidance states, investors have a right
to c lear disclosure of climate-related risks so that they can understand the full scope of material
risks to which their portfolios are exposed. 2 Similar sentiments have been expressed by leading
business scho lars,3 regulators in other countries,4 and investors themselves. 5 Investors have a
1

"Shareholder Proposals: Staff Legal Bulletin No. I4J (CF)" (Division of Corporation Finance, Securities and
Exchange Commission, October 23, 20 18), https://www.sec.gov/corpfin/staff-legal-bulletin- 14j-shareholder­
proposals.
2 "Commission Guidance Regarding Disclosure Related to Climate Change" (Securities and Exchange Commission,
February 8, 20 I0), https://www.sec.gov/rules/interp/20 I 0/33-9 106.pdf.
3 See, e.g. , Matthew E. Kahn, " Requiring Companies to Disclose Climate Risks Helps Everyone," Harvard Business
Review, february 16, 20 17, hnps://hbr.org/2017/02/requiring-companies-to-disclose-elimate-risks-helps-everyone.
•1 See, e.g., lain Withers, "Just One in IO Banks Preparing for Climate Change Risk, Warns Bank of England," The
Telegraph, September 26, 20 18, I 0, https://www.telegraph.co.uk/business/20 18/09/26/just-one- I0-banks-prepari ng­
cl imate-change-risk-warns-bank-england/.
5 See, e.g., Amy Harder, "Wall Street Is Starting to Care about Climate Change," Axios, June 26, 2017,
https://www .axios.com/wall-street-is-sta11ing-to-care-about-climate-change- I5 I 3303205-f97cfl 4c-c92 I -4ad0-b37a­
l 2832acea4 fb. html; Todd Co11 and James Stacey, " Investors Push the Pace of Cli mate Risk Financial Disclosures"
(Yale Center for Business and the Environment & ERM, May 2018),

 right to use shareholder proposals to require companies to take actions to mitigate the material
risks of climate change in their investment portfolios, increase their financial stability, and to act
in interest of the public.
While such proposals are not new, the number of shareholder proposals about climate change has
increased in recent years. Since at least 1990, investors have filed numerous climate change­
related shareholder proposals. 6 The growing number of shareholder proposals asking companies
to take action is evidence that investors increasingly realize the risks climate change poses for
businesses. Investors filed fewer than 10 climate change-related shareholder proposals in 2000, 7
over 25 in 2005, 8 over 40 in 2007, 9 over 60 in 2015,1° and already over 70 this year, as of July
12, 2018. 11
Shareholder support for climate change proposals has also increased over time. The average
climate change-related shareholder proposal received 32.8% of shareholder support in 2017, 12 up
significantly from an average of 21.6% in 2007. 13 The 18 proposals in 2017 that specifically
seek a company to undertake a risk assessment under the two-degree Celsius scenario proposed
in the Paris Agreement received an average of 45% support, up from eight proposals averaging
32% in 2016. 14 Most significantly, last year marked an important milestone for climate change­
related shareholder proposals because proposals at three companies-Exxon Mobil Corp.,
Occidental Petroleum Corp., and PPL Corp.-were successful in garnering majority support
from shareholders for climate change disclosure, including from BlackRock and Vanguard Inc.,
the first and second largest asset managers, respectively, by assets under management. 15
Cl,ange in tJ,e SEC's Use of "Micromanagement" Exclusion
I am concerned that the SEC has made a significant change in how it applies the law to make it
easier for companies to exclude shareholder proposals. It made this change without going
through a formal rulemaking process, which denies stakeholders the opportunity to comment on
the change. Starting in 2017, the SEC has demonstrated a greater willingness to accept
companies' arguments for excluding shareholder proposals on micromanagement grounds. This
shift began well before the publication of Staff Legal Bulletin No. 14J. The SEC allowed the
https://www .erm.com/globalassets/documents/publications/2018/yalecbe-erm-investors-push-the-pace-on-climate­
risk-financial-disclosures. pdf.
6
Elise N. Rindfleisch, "Shareholder Proposals: A Catalyst for Climate Change-Related Disclosure, Analysis, and
Action," Berkeley Business law Journal 5, no. I (March 2008), https://doi.org/10.15779/z386003.
7
Id
8
Id
9
Id.
10 "Investors Continue Focus on Climate Change in the Wake of Paris Accord" (Institutional Shareholder Service,
December 18, 2015), https://www.issgovemance.com/investors-continue-focus-climate-change-wake-paris-accord/.
11 Ronald O. Mueller et al., "Shareholder Proposal Developments during The 2018 Proxy Season" (Gibson, Dunn &
Crutcher LLP, July 12, 2018), https://www.gibsondunn.com/wp-content/uploads/2018/07/shareholder-proposal­
developments-during-the-2018-proxy-season.pdf.
12 Ronald 0. Mueller et al.
13
Rindfleisch.
14 Mara Lemos Stein, "More Shareholder Proposals Spotlight Climate Change," Wall Street Journal, February 8,
2018, https://blogs.wsj.com/riskandcompliance/2018/02/08/more-shareholder-proposals-spotlight-climate-change/.
15 Amy Harder, "Wall Street Is Starting to Care about Climate Change"; Liam Kennedy, "Top 400 Asset Managers
2018: 10 Years of Asset Growth," /PE, June 2018, www.ipe.com/reports/special-reports/top-400-asset­
managers/top-400-asset-managers-2018-10-years-of-asset-growth/ 10025004.fullarticle.

2

 exclusions of 4 proposals on micromanagement grounds in 2017, and 11 proposals in 2018, both
of which mark a significant increase from relatively rare use of micromanagement as a grounds
for no-action letters in previous years. 16
The more expansive application of the micromanagement exclusion appears to be targeted at
climate change proposals in particular. GHG emissions proposals were the most common type
of proposal excluded on micromanagement grounds in both 2017 and 2018, 17 even though prior
SEC decisions state that climate change and greenhouse gas emissions proposals transcend
ordinary business and qualify as significant policy issues concerning shareholders. 18
For example, in the case of EOG Resources, one of the largest independent oil and gas
companies in the United States, the Division of Corporation Finance agreed with management
that the proposal could be excluded under rule 14a-8(i)(7), which permits the exclusion of a
proposal that "micromanages" the company. 19 It was not clear why the Division of Corporation
Finance would conclude that the climate change proposal EOG Resources sought to exclude
constitutes micromanagement when other similar proposals have not been excluded for this
reason in the past. Importantly, the shareholder proposal at issue did not dictate the terms of the
GHG emission reduction targets, nor how or when EOG Resources should achieve those targets.
Instead, the proposal simply would have required the company to "adopt company-wide,
quantitative, time-bound targets" for reducing GHG emissions because, as shareholders, they see
compelling economic and social reasons to reduce GHG emissions. 20
In addition to the EOG Resources no-action letter this season, the SEC concurred with both
Apple Inc. and Deere & Co. about the exclusion of shareholder proposals on emissions
reductions on the basis of micromanagement. 21 In both cases, the shareholder proposal requested
a report evaluating the potential to achieve net-zero emissions of greenhouse gases by a fixed
future data. The SEC also concurred with the exclusion of a proposal submitted to PayPal
Holdings, Inc. this year that was nearly identical to a proposal the SEC allowed to proceed last
year. 22 Neither proposal required the achievement of net-zero emissions or even suggested the
future date for achieving net-zero emissions; they simply asked the company to provide a report
on the feasibility of achieving net-zero emissions in the future.

SEC Staff Legal Bulletin No. l 4J
The publishing of SEC Staff Legal Bulletin No. 141 on October 23, 2018 appears to formalize
this shift in SEC policy about shareholder proposals rather than simply clarifying the application
16

Ronald 0. Mueller et al.
Ronald 0. Mueller et al.
18 See, e.g., CBS Corporation (Securities and Exchange Commission March 1, 2016); Great Plains Energy
Incorporated (Securities and Exchange Commission February 5, 2015).
19 EOG Resources, Inc. (Securities and Exchange Commission March 12, 2018).
https://www .sec.gov/divisions/corpfin/cf-noaction/l 4a-8/20 l 8/trilliummillerrecon0312 l 8-14a8.pdf
20
EOG Resources, Inc..
21 Apple Inc. (Securities and Exchange Commission December 21, 2017); Deere & Company (Securities and
Exchange Commission December 27, 2017). https://www.sec.gov/divisions/corpfin/cf-noaction/14a8/2017/jantzmanagement 1221 l 7- l 4a8.pdf.
22 PayPal Holdings, Inc. (Securities and Exchange Commission March 6, 2018); Pay Pal Holdings, Inc. (Securities
and Exchange Commission March 13, 2017).
17

3

I

 of Rule l 4a-8(i)(7). I am troubled both by the process by w hich this shift was decided and by the
apparent targeting of c limate change proposals.
By formalizing the policy shift seen over the past two years in a staff legal bul letin, the SEC has
avo ided going through a rulemaking process or receiving explicit congressiona l authorization.
This approach has prevented Congress, stakeholders, and the public from having any input into
the policy. The Staff Legal Bulletin No. 141 also seems to specifically target cl imate change
related proposals, c iting multiple climate change-related proposals in its analysis of the
micromanagement consideration with respect to rule 14a-8(i)(7). If the SEC is now going to
presume that proposals that ask companies to set targets for carbon emissions are
micromanagement, the SEC w ill significantly undermine shareholders' rights to protect their
investments and leaves markets more vulnerable to the risks posed by c li mate change.
The SEC' s recent actions against climate change-related shareholder proposals and its apparent
poli cy shift marked by Staff Legal Bulletin No. 141 weaken an important aspect of a well­
funct ioning, mature market, in w hich shareholders operating on longer-term time horizons can
influence companies' managements that may have shorter-term outlooks and incentives. I urge
you to bolster, not weaken, investors' abilities to engage with companies on important issues,
such as c limate change, by reversing Staff Legal Bulletin No. 141 and the policy shift it reflects.

BRIAN SCI-IATZ
U.S. Senator

4