'No board in America wants to face that': Proxy reform, Fink's letter and ESG

Wall Street's top regulator is moving to fundamentally reshape the proxy process, one of the key avenues shareholders use to engage with companies on environmental, social and governance issues.

In the latest episode of ESG Insider, a podcast hosted by S&P Global, we talk to stakeholders about what the proxy rule changes the U.S. Securities and Exchange Commission is weighing could mean for companies and investors.

Some investors worry that proposed rule changes could make it harder for shareholders to engage with companies through the proxy process. "When you cut off the opportunities for new ideas to emerge ... you are denying the marketplace the opportunity to vet those ideas and the marketplace will be poorer for it," says Jonas Kron, director of shareholder advocacy at Trillium Asset Management, a firm that uses ESG factors to manage about $3 billion in assets and has submitted shareholder resolutions at major companies.

Advocates for change say proxy rule updates will bring needed sanity to a process that has morphed into a political tool. " The shareholder proposal process in our viewpoint has been subverted over the last several years from being one of a communications device between shareholders and companies ... and instead is being used by certain special interest activists to push agendas or issues that they can't make progress on in Washington," says Tom Quaadman, executive vice president at the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, discussing why the chamber has lobbied for these changes.

Regulators are actively considering proxy rule modifications, but some say the private sector — not government — will provide the biggest catalyst for change. In early 2020, BlackRock Inc. CEO Larry Fink wrote a game-changing annual letter urging chief executives around the world to make more robust ESG disclosures using existing frameworks from the Sustainability Accounting Standards Board, or SASB, and the Task Force on Climate-related Financial Disclosures, or TCFD. BlackRock is the world's largest asset manager and its CEO has considerable clout, explains Robert Jackson, who recently finished his term as an SEC commissioner.

"Companies across America right now I can assure you are talking seriously about what they have to do to come in compliance with those standards because if they don't, they're going to face a skeptical BlackRock come proxy season next year," Jackson says in an interview with ESG Insider. "Almost no board in America wants to face that."

Listen to the episode, and subscribe to ESG Insider on Soundcloud, Spotify, Apple Podcasts, or wherever you get your podcasts.

(Photo: AP)