It is already evident two months into Trump’s second Presidential Term that changes within the Securities Exchange Commission (“SEC”) will amount to a sea change in terms of proxy power for investors and with respect to ESG matters.
Since Trump designated Mark Uyeda as Acting Chairman of the SEC (pending Senate approval of Paul Atkins as Chairman), we have seen a marked change of direction from that taken by previous Chairman, Gary Gensler. One of Gensler’s significant initiatives was the SEC’s guidance contained in Staff Legal Bulletin No. 14L (“14L Guidance”), which concerned Rule 14a-8. Rule 14a-8 is the “cornerstone of shareholder engagement on important matters” because it allows shareholders to submit proposals to be considered at annual meetings.
Under Rule 14a-8, companies may exclude a shareholder proposal if it “deals with a matter relating to the company’s ordinary business operations.” 14L Guidance evidenced Gensler’s intent to “realign [the SEC]’s approach for determining whether a proposal relates to ‘ordinary business’” by considering whether the proposal “raises issues with a broad societal impact” — in effect, raising a higher burden on public companies seeking to exclude shareholder proposals, especially those related to ESG.
Notably, 14L Guidance eased the way for investors to raise ESG concerns through the shareholder proxy process. Indeed, prior to 2021, public companies relied on the “ordinary business exception” of Rule 14a-8 to exclude ESG related proposals. Following the SEC’s 14L Guidance in 2021, shareholder proposal on ESG issues increased by 33% and have accounted for 62% of the total number of proposals considered at annual meetings in 2024.
On February 12, 2025, the SEC under Uyeda effectively reversed the prior 14L Guidance, indicating in Staff Legal Bulletin No. 14M (“14M Guidance”) that the SEC staff is now to take a “company-specific approach” in evaluating shareholder proposals and not focus “solely” on whether a “proposal raises a policy issue with broad societal impact or whether particular issues or categories of issues are universally ‘significant.’” The SEC’s 14M Guidance therefore re-establishes a more company-friendly approach to analyzing shareholder proposal exclusions, and will allow a company to more easily exclude ESG initiatives and proposals in the shareholder proxy process.
Separately, the SEC under Uyeda has already taken steps to pause and roll back enforcement of its Climate Disclosure Rules. On March 6, 2024, the SEC adopted final Rules that will require disclosures about climate-related risks that have had or are reasonably likely to have a material impact on a company’s business strategy, results of operations, or financial conditions.
Thereafter, litigation ensued, including a series of cases that were consolidated before the United States Court of Appeals for the Eight Circuit. Notably, Uyeda himself previously voted against the Climate Disclosure Rules, and in an official SEC statement issued on February 11, 2025, Uyeda stated that the Climate Disclosure Rules were “deeply flawed.”
In this statement, Uyeda then directed the SEC to pause litigation and “notify the [Eighth Circuit] . . . that the Court not schedule the case for argument to provide time for the Commission to deliberate and determine the appropriate next steps in these cases.”
These policy changes signal an intent to defang the SEC generally, and specifically in relation to ESG matters — which means it is even more important for institutional investors to actively consider litigation options to hold bad corporate behavior to account and to right ESG wrongs.
Investors can take some comfort from historical and current examples of how litigation has done just that. For example, in In re Massey Energy Company Securities Litigation a pension fund obtained a $265M settlement for shareholders after Massey Energy, a large coal mining company, had made false and misleading statements related to its commitment to worker safety. Massey Energy’s claims were proven false when a massive and fatal coal dust explosion resulted from clear safety violations.
Similarly, the recent securities fraud class action in In re The Boeing Company Securities Litigation, filed last year and estimated to go to trial later this year, alleges that Boeing’s touted safety and quality control practices — following the deaths of 346 people in 2018 and 2019 due to Boeing’s safety issues — were misleading in light of the 2024 Alaska Airlines Incident in which a door blew out of a Boeing airplane mid-flight. Following this incident, Boeing’s share price plummeted, leading investors to suffer billions of dollars of losses. In both of these cases, and many others, institutional investors have stepped forward to hold bad corporate behavior to account.
Jamie Hanley and David Saldamando are London-based lawyers with the New York-based law firm Labaton Keller Sucharow LLP
