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2022 SEC Action Likely to Provide New Tools for Stockholders Focused on Climate-Related Risks and Opportunities | USA

Jason Halper and Sara Bussiere, partner and special counsel at Cadwalader, Wickersham & Taft LLP, discuss proposed amendments to SEC Regulations, and the options afforded by them to activist shareholders with a green agenda.

Published on 15 November 2022
Jason Halper, Cadwalader, Wickersham & Taft partner, Expert Focus contributor
Jason Halper
Ranked in Litigation: Securities in Chambers USA 2022
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Sara Bussiere, Cadwalader, Wickersham & Taft associate, Expert Focus contributor
Sara Bussiere

The US Securities and Exchange Commission (SEC) has taken a number of steps this year in response to investor interest in climate-related corporate accountability. The SEC’s recent focus may impose significantly greater disclosure obligations on issuers, with accompanying requirements for boards of directors to manage and then report on risks and opportunities associated with sustainability, and make it more difficult for companies to exclude shareholder proposals addressing climate change from company proxy statements.

Proposed amendments to Regulation S-K and Regulation S-X

Most significantly, the SEC has proposed far-reaching amendments to Regulation S-K and Regulation S-X that would require substantial climate-related disclosures.In summary, the proposed rules consist of amendments to Regulation S-K and Regulation S-X that would require a registrant to disclose information about:

  • oversight and governance of climate-related risks by the registrant’s board and management;
  • how any climate-related risks identified by the registrant have had or are likely to have a material impact on the business and consolidated financial statements of the company, and how those risks may manifest over the short, medium, or long-term;
  • how any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook;
  • the registrant’s processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the registrant’s overall risk management system or processes;
  • the potential impact of climate-related events (severe weather events and other natural conditions as well as physical risks identified by the registrant) and transition activities (including transition risks identified by the registrant) on the line items of a registrant’s consolidated financial statements and related expenditures, and disclosure of estimates of the financial impacts of such climate-related events and transition activities and the assumptions underlying those estimates;
  • Scopes 1 and 2 greenhouse gas emissions metrics, both broken out by constituent greenhouse gases (eight different greenhouse gasses are specified in the proposal) and also presented in the aggregate;
  • Scope 3 greenhouse gas emissions metrics, if material, or if the registrant has set a greenhouse gas emissions reduction target or goal that includes its Scope 3 emissions; and
  • the registrant’s climate-related targets or goals, and transition plan, if the registrant has one.

"The SEC has made it clear that it will remain focused on companies it believes have made materially misleading statements concerning climate-related issues."

If not already doing so, boards and senior management should be taking steps now to prepare for these types of increased disclosures and associated governance obligations. Whatever form the final rule takes, the SEC and numerous other regulators (as well as the asset management and other influential industries) are demanding more thorough disclosure of climate-change issues. Compliance will take time given the complexities involved and the potentially fundamental issues that are raised concerning a company’s financial and operational plans.

The SEC’s Climate and ESG Task Force and enforcement actions

The past year also brought increased activity from the SEC’s Climate and ESG Task Force within the Division of Enforcement, which was created to, among other things, help identify “material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.” In April, the SEC commenced an action against Vale S.A., a publicly traded Brazilian mining company and one of the world’s largest iron ore producers, for knowingly making false and misleading claims about the safety of its dams in the years leading up to the January 2019 Brumadinho disaster. The following month, the SEC filed and settled an action against an investment advisor for allegedly misleading investors by stating or implying that its investments in certain mutual funds had undergone an ESG quality review even when that was not the case. In September, the SEC announced a settlement with Compass Minerals International Inc. in connection with the company’s failure to properly assess the financial risks associated with the company’s significant discharge of mercury in Brazil.

The SEC has made it clear that it will remain focused on targeting companies that it believes have made materially misleading statements concerning climate-related issues, including investment companies that allegedly falsely inflate their climate-related progress and credentials (a practice known as “greenwashing”).

Proposed amendments to Rule 14a-8 of the Securities Exchange Act

The SEC recently issued proposed amendments to Rule 14a-8 of the Securities Exchange Act, which Rule requires, in certain circumstances, the inclusion of stockholder proposals in a company’s proxy materials unless the company can establish one of the 13 bases for exclusion (“exceptions”). The proposed amendments implicate three of the commonly used exceptions that companies rely upon to exclude stockholder proposals.

The substantial implementation exception

Companies can presently exclude a proposal on the grounds that it has already substantially implemented the proposal. Under the proposed revision, the company can only exclude the proposal if it has implemented the “essential elements” of the proposal.


The current rule allows companies to exclude a stockholder proposal that “substantially duplicates another proposal.” The proposed amendment defines “substantially duplicates” as meaning that the proposal “addresses the same subject matter and seeks the same objective by the same means.”


Under the existing rule, companies may exclude a proposal that addresses “substantially the same subject matter” as a proposal that was “previously included in the company’s proxy materials within the preceding five years” if it was voted on at least once in the prior three years and did not receive shareholder support. Under the amended rule, this rule would only apply to proposals that, like duplication, address the same subject matter and seek the same objective by the same means.

These amendments, if adopted, may prompt an increase in climate-related stockholder proposals because climate-related risks and opportunities implicate a broad social concern with complex, detailed, and distinguishable issues that may be harder for companies to exclude.

Staff Legal Bulletin No 14L

This likelihood of more climate-related stockholder proposals is especially higher in light of Staff Legal Bulletin No 14L (SLB 14L), which was issued last year by the SEC’s Division of Corporation Finance. SLB 14L addressed the ordinary business exclusion under Rule 14a-8, which allows a company to exclude a stockholder proposal that “deals with a matter relating to the company’s ordinary business operations.” Previously under this exception, companies could exclude proposals concerning social policy issues if the proposal was not material to the company’s business. SLB 14L removed any requirement that there be a causal nexus between the social policy issue and the company’s business. Now, the SEC will “consider whether the proposal raises issues with a broad societal impact, such that they transcend the ordinary business of the company.” SLB 14L itself indicates that this new standard will likely encompass climate-related proposals, explaining that the SEC will not agree with the exclusion of proposals that ask companies “to adopt timeframes or targets to address climate change” or similar proposals “so long as the proposals afford discretion to management as to how to achieve such goals.”

These recent proposed amendments to Rule 14a-8 and SLB 14L are likely to encourage stockholders with climate-related policy goals to submit stockholder proposals.

The universal proxy

The SEC’s recent adoption of the universal proxy card may also facilitate increased stockholder action through director elections. Under the new rules, the universal proxy card must include all director nominees for the upcoming stockholder meeting, which allows stockholders voting by proxy to vote for a mix of directors supported by management and those nominated on a dissident slate. Prior to the amendment, only stockholders attending the meeting in person could split their vote in this way. The purpose of the amendment is to “put investors voting in person and by proxy on equal footing.” Though there have been many predictions on how this new rule may impact the 2023 and future proxy seasons, the general consensus suggests that the new rule is good for climate-related activist investors seeking to nominate directors to a company’s board because the universal proxy permits shareholders to “split their vote,” – ie, vote for three incumbent directors, but one dissident director who support climate-friendly policies. This discretion gives environmental-focused stockholders important leverage in negotiating for changes in corporate policies and action as it pertains to climate-related risks and opportunities.  


Stockholders pursuing a climate-focused agenda are actively monitoring what companies are doing to address the risks and opportunities posed by climate change, and the SEC is making it easier for them to do so. Companies should stay apprised of these developments so that they can take steps to prepare defences to this increased oversight.

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