Academic journal article Duke Environmental Law & Policy Forum

It's Getting Hot in Here: The SEC's Regulation of Climate Change Shareholder Proposals under the Ordinary Business Exception

Academic journal article Duke Environmental Law & Policy Forum

It's Getting Hot in Here: The SEC's Regulation of Climate Change Shareholder Proposals under the Ordinary Business Exception

Article excerpt



The Republic of Maldives is a small island nation located in the Indian Ocean, consisting of 1,192 small, low lying coral islands. (1) The Maldives have been inhabited for up to 2,500 years (2) and it has a current population of approximately 350,000. (3) But the Maldivian islands may not exist for another 2,500 years because of climate change.

Fossil fuel emissions and changes in land use are increasing global atmospheric concentrations of greenhouse gases and aerosols, which taken together lead to regional and global changes in temperature. (4) This phenomenon, known as climate change, brings with it many dramatic and potentially devastating environmental, social and economic effects on a global scale. (5) Increases in global temperature create changes in precipitation and other climate variables, potentially leading to drastic worldwide environmental transformations, including a global mean sea level rise, (6) changes in soil moisture levels, and increased likelihood of extreme high-temperature events such as floods and droughts. (7) Such environmental change will in turn affect societies and economies by impacting food and water resources, (8) ecosystems and biodiversity, (9) human settlements, (10) and human health. (11)

In response to climate change, the international community entered into a treaty known as the Kyoto Protocol that bound its signatories to commit to reductions in national greenhouse gas emission levels. (12) However, the United States is currently not part of the protocol. (13) A major factor behind the American government's failure to adopt the Kyoto Protocol was its potentially huge economic implementation costs and its adverse effect on American business profitability. (14) The United States absence from the protocol reflects in part the American corporate community's unwillingness to address the problem of climate change, and the United States government has failed to address the situation sufficiently. (15)

Environmentally and socially conscious activists have tried to remedy this corporate attitude through the shareholder proposal process. (16) The shareholder proposal process is a procedure where eligible shareholders propose resolutions at annual shareholder meetings that request company boards to undertake specified actions. (17) If the resolutions meet statutory guidelines, they are published in the company's annual proxy statement and all the company's shareholders vote to endorse or reject the proposal. (18) Shareholder proposals that address climate change typically urge company boards to report on the company's operational contributions to global warming, and to address business exposure to regulatory and market pressures. (19) The shareholder proposal process potentially gives shareholders significant influence over corporate management, and there has been significant controversy over the proper scope of its use. (20)

Part II of this comment provides an overview of the shareholder proposal process under the 1934 Securities Act. (21) Part II also describes how environmentally conscious shareholders have used shareholder proposals to influence corporate behavior, and explains why climate change is a significant social policy and investment issue that is applicable to the shareholder proposal process. (22) Part III illustrates the problems with the current SEC no-action letter process, and demonstrates that SEC decisions regarding climate change shareholder proposals during the years 1998-2005 have been inconsistent and even contradictory. (23) Part III also analyzes current commentary criticizing the shareholder proposal process, and provides recommendations on how the SEC could reform the process to ensure more predictable results. (24)


A. Shareholder Proposals, the Securities Act of 1934, and the SEC

Companies hold annual shareholder meetings where shareholders vote on important corporate management issues, such as mergers and acquisitions, sales of substantial assets, director elections, and amendments to articles of incorporation. …

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