Just in time for proxy season!

The SEC, in Staff Legal Bulletin 14E (CF), will now allow shareholder resolutions on ESG issues which previously were excluded as relating to the assessment of operational risk by companies.

“In those cases in which a proposal's underlying subject matter transcends the day-to-day business matters of the company and raises policy issues so significant that it would be appropriate for a shareholder vote, the proposal generally will not be excludable under Rule 14a-8(i)(7) as long as a sufficient nexus exists between the nature of the proposal and the company.”

However, it appears at this point that the determination will be made on a case by case basis with more guidance likely once we see how the SEC makes its decisions over the coming year.

An update by McGuire Woods LLP states “Companies arguing that these types of proposals should be excluded will need to show that the “proposal’s underlying subject matter involves an ordinary business matter to the company,” or spell out some other basis for excluding the proposal. Not only will the new SLB serve as a basis for including more ESG proposals in public company proxy statements, it would appear to permit those proposals to expressly request that companies undertake risk/liability assessments regarding these topics.”

This welcome change has occurred just in time for the 2010 proxy season, as many resolutions are filed in November. “We always saw the SEC rule on risk as completely absurd” says Bob Walker, Vice President of Sustainability at Northwest & Ethical Investments LP. “While it did impact how we crafted the shareholder proposals we filed with US companies, we never considered it when filing in Canada. Advancing better ESG risk management forms the core of our Shareholder Action Program.”

“ We believe that the board responsibility to ensure proper enterprise risk management procedures are in place must include a well-resourced consideration of ESG factors.”

“14 E (CF) will advance ESG investing – and corporate decision-making – in the United States almost immediately.”