The SEC’s Mandated Disclosure Rules: Are They What Investors Really Want?
The Securities and Exchange Commission (SEC) is considering new disclosure rules centered on climate, human capital, boardroom diversity, and “greenwashing” issues based on investor demand. However, recent data shows that shareholders are increasingly rejecting social-issue proposals, and support for ESG-related proposals decreased to only 22% on average in 2023, down by 11 percentage points from 2021. In this post, we examine why the SEC’s upcoming mandated disclosure rules may not align with what investors truly want.
Despite the SEC’s insistence that investors require more disclosure regarding social and environmental issues, shareholders are rejecting proposals addressing these concerns. Bloomberg Law reports that ExxonMobil, Chevron, JP Morgan, and Goldman Sachs recently defeated proposals that would make the companies disclose their absolute emissions. Shareholders voted overwhelmingly against these proposals, believing that it’s not the responsibility of individual companies to report or commit to decreasing absolute emissions.
This trend of shareholders rejecting social-issue proposals is not an isolated incident. In 2023, support for ESG-related proposals dropped to only 22% on average, which is a significant decrease from the 33% support average in 2021. This fall in support can be attributed to the fact that shareholders are more concerned about returns on investment than they are with social and environmental initiatives. The rejection of these proposals raises questions about whether the SEC’s new disclosure rules align with investor demands.
The SEC released new guidance in 2021 allowing a wider range of proposals related to broader societal issues to be considered. This led to a significant increase in social-issue proposals. However, while the SEC alleges it is merely responding to investor demand, shareholders are increasingly rejecting these proposals. This begs the question: are these proposals reflective of the majority of investors, or only of a vocal minority?
The upcoming SEC mandated disclosure rules may not be what investors truly want. While the SEC has cited investor demand as the basis for these new rules, evidence shows that shareholders are voting against social-issue proposals. The SEC should reconsider whether these mandates will align with investor sentiment, or if they risk imposing measures that investors do not desire.
Conclusion: The SEC’s mandated disclosure rules centered on climate, human capital, boardroom diversity, and greenwashing are supposed to address investor demand. However, recent data indicates that shareholders are increasingly rejecting social-issue proposals. The rejection of such proposals raises important questions about whether the SEC’s new mandates are reflective of the majority of investors or only of a vocal minority. As such, the SEC should reassess whether these mandates align with investor sentiment, or if they risk imposing measures that investors do not want. It is critical that the SEC strikes a balance between meeting investor demands and preserving the soundness of the financial system.