On Oct. 27, 2009, the U.S. Securities and Exchange Commission
(SEC) issued Staff Legal Bulletin No. 14E, which reversed the
SEC's policy on whether the Boards of Director of public
companies can be forced to report on financial risks associated
with environmental issues such as climate change. The SEC's
policy since 2005 has been that a company may exclude such
proposals under Rule 14a-8(i)(7). To date, the SEC's reasoning
has been that "an internal assessment of the risks or
liabilities that a company faces as a result of its operations that
may adversely affect the environment or public health" relates
to "ordinary business matters." The SEC's previous
policy also excluded proposals that requested that the Board report
on the economic benefits of committing to a substantial reduction
of greenhouse gas and other emissions related to the company's
current business activities.
As of Oct. 27, 2009, the SEC has reversed this policy. The SEC now
takes the position that such proposals are not excludable where the
underlying subject matter of a proposal:
- transcends the day-to-day business matters of the company;
- raises policy issues so significant that it would be appropriate for a shareholder vote; and
- poses sufficient nexus between the nature of the proposal and the company.
The SEC's new policy does not address climate change risk,
per se. The new policy does, however, potentially open the
floodgates for shareholder requests for companies to report on
financial risks associated with climate change and other
environmental issues to the extent they meet these
conditions.
Barnes & Thornburg LLP is continuing to monitor developments
associated with SEC Bulletin No. 14E. If you would like more
information concerning these developments, please contact one of
the following attorneys in Barnes & Thornburg's Business or
Environmental Departments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.