The staff of the U.S. Securities and Exchange Commission has given Devon Energy Corp. and J.B. Hunt Transport Services Inc. the green light to block shareholders from voting on resolutions that ask the companies to adopt greenhouse gas emissions reduction targets.
Staff's actions are among a number of recent developments on shareholder resolutions aimed at pushing companies to consider the potential risks of climate change and other environmental issues.
The SEC in a March 4 staff no-action letter agreed with Devon Energy that a shareholder proposal co-filed by The George Gund Foundation and As You Sow on behalf of a Devon Energy shareholder effectively would require the company to adopt targets aligned with the goals of the Paris Agreement on climate change, which aims to limit global warming to 2 degrees C from pre-industrial levels.
"The proposal would micromanage the company by seeking to impose specific methods for implementing complex policies in place of the ongoing judgments of management as overseen by its board of directors," SEC Special Counsel Courtney Haseley said in the letter.
The SEC made a similar micromanagement finding in mid-February on a proposal filed with trucking company J.B. Hunt by Trillium Asset Management on behalf of shareholders. Trillium's resolution asked the company to adopt qualitative targets for reducing greenhouse gas emissions and issue a report discussing its plan and progress toward those goals.
The SEC agreed with J.B. Hunt's assertion that it could exclude the proposal from its annual meeting.
"In our view," Haseley wrote, "the proposal seeks to micromanage the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment. Accordingly, we will not recommend enforcement action to the commission if the company omits the proposal from its proxy materials."
The two SEC decisions largely are founded on guidance the agency issued in 2017 that widened the scope of conditions under which companies could exclude certain environmental, social and governance-focused resolutions from their annual shareholder meetings, which typically occur in the spring. Shareholder resolutions are advisory in nature, but companies tend to heed resolutions that garner majority support.
While the SEC generally has sided with companies on blocking resolutions that call for setting specific targets, the agency has allowed resolutions that ask them to report more broadly on an issue to proceed.
For instance, the agency on March 4 rejected Anadarko Petroleum Corp.'s assertion that it does not need to hold a vote on a proposal As You Sow filed on behalf of certain stockholders. The resolution would ask the company to report on plans to reduce its total contribution to climate change and align its operations and investments with the goal of the Paris accord. Sanford Lewis, who represented the shareholders in the SEC case, argued that the proposal "does not impose specific time-frames or methods for implementing the request but instead requests information on company plans without mandating the minutia of the company’s day-to-day management."
A company's decision to block a vote on a resolution also can prompt litigation. New York City Comptroller Scott Stringer took TransDigm Group Inc. to court to force the aerospace and defense company to hold a vote on a resolution that would have it set goals for managing greenhouse gas emissions. TransDigm in January settled with the comptroller and agreed to allow a vote on the measure at its annual meeting March 12. The comptroller acts as an investment adviser to, and custodian and a trustee of, the New York City Pension Funds.
Also on the environmental shareholder resolution front, As You Sow withdrew a resolution asking Pinnacle West Capital Corp. to assess and report on the feasibility of linking executive compensation metrics to the objectives of the Paris Agreement after Pinnacle West issued that report in December 2018.
A copy of the report by Pinnacle West's Human Resources Committee was attached to a February 1 SEC letter that acknowledged the withdrawal. The committee found that although attaching Paris-related metrics to executive pay technically is feasible, doing so is neither necessary nor appropriate.
"Imposing such specific and rigid standards could cause the company to act prematurely in what in hindsight is determined to be the wrong action and could restrict the company's ability to continue to evolve its practices in response to technological, environmental and economic changes," the committee found. Moreover, Pinnacle West is "appropriately positioned ... to take advantage of opportunities in the future in a decarbonized environment."