Issue link: https://digital.shearman.com/i/1162884
Shearman & Sterling LLP Shareholder Proposals 2019 – ESG No-Action Letter Trends and Strategies | 53 WHAT SHOULD COMPANIES DO NOW? As the interest in ESG continues to grow, so will the number of shareholder proposals on ESG-related topics. As mentioned above, ESG proposals are somewhat unique in that they often relate to issues that companies and their boards have already considered in detail, and may have been the subject of public disclosures and of shareholder engagement. In the face of a new proposal on an ESG topic, companies should keep the following practical pointers in mind: 15 See ExxonMobil Corporation (April 2, 2019). 1 4 2 5 3 6 Interestingly, ExxonMobil was successful in excluding a similar proposal from a different proponent on substantial implementation grounds. 15 The proposal was worded somewhat differently, asking the board to adopt a policy not to undertake any energy savings or sustainability project based solely on alarmist climate change concerns (except where required by law), but that each project should meet financial return on investment metrics. Because of the financial focus of this proposal, as opposed to the more general consideration of the risks and benefits of engaging in sustainability efforts in other proposals, ExxonMobil was able to successfully argue substantial implementation. ExxonMobil supported its substantial implementation argument by referencing specific language in its annual report on Form 10-K, discussing its analysis of the short- term and long-term financial benefits of its projects (including those that contain a potential energy savings or sustainability component), and emphasizing that climate change risk is not just a societal issue but also represents a business opportunity, as customers are seeking solutions to mitigate those risks as well. Inventory previous company actions on the subject matter of the proposal, including whether it has been the subject of prior board consideration, disclosure, shareholder engagement or a shareholder vote. For large and geographically broad companies, consider creating this inventory preemptively, to be ready when a proposal comes in. If the proposal relates to the company's ordinary business, consider carefully the nature of the proposal and related precedent no- action letters, then evaluate whether the type of board analysis described in SLB 14I and 14J may be critical in order to obtain exclusion. This will allow an informed balancing of the benefits and burdens of taking the board's time on the issue. Consider discussions with the proponent, as a means to educating the proponent about the company's existing and planned actions with respect to the subject matter of the proposal. Because ESG proposals frequently relate to issues that are already of importance to the company, this kind of engagement can sometimes secure a withdrawal. Consider whether the proposal can be characterized as "micromanaging" the company, which is one of the clearest paths to exclusion. Try to link each element of the proposal to an existing or planned practice, policy or disclosure of the company so as to support an argument for exclusion. Consider requests for exclusion in the broader context of the company's reputation and brand and how it wishes to communicate about the issue. Consider whether the company would want to be seen as opposing a proposal which its customers and employees would be largely in favor of, although if the company includes such a proposal in its proxy statement, it will typically recommend against the proposal with an accompanying opposition statement.