Expanding Shareholder Voice: The Impact of SEC Guidance on Environmental and Social Proposals

Abstract

After a dramatic increase over the past decade, shareholder support for environmental and social (E&S) proposals seems to have waned. In this Article, we examine whether this recent decline is linked to a 2021 shift in the SEC’s policy, which expanded the ability of shareholders to influence E&S corporate decisions. We suggest that this regulatory shift has led to an increase in “prescriptive” E&S proposals, which typically call for the adoption of more specific E&S policies by companies, but are costlier to implement. Using a combination of supervised and unsupervised machine learning techniques to identify prescriptive proposals, we find that these proposals generally receive less voter support and seem to be driving a substantial part of the decline in support for E&S proposals. This decline is observed among the vast majority of institutional investors, including many ESG funds. However, there is considerable heterogeneity in the magnitude of this decrease across different investor groups. By ranking investors based on their ideological preferences over E&S issues, we find that investors with more intense preferences for E&S issues are more likely to support prescriptive proposals, while those on the opposite end of this spectrum are more likely to oppose them. Our results suggest that while investors continue to vote along ideological lines on E&S issues, the financial costs of prescriptive proposals often outweigh the intensity of E&S preferences for most of them.