More Messages From SEC on Climate

Compliance professionals watching the SEC’s actions on climate risk have one more item for the radar screen. Last week the agency ruled that must include a shareholder resolution in its proxy statement asking the company to prepare a report about whether its employee retirement plans align with Amazon’s stated climate goals.

Why is that interesting? Because it’s yet another example of the SEC taking a broad view of corporate values, climate change, and organizations holding themselves accountable to what they promise publicly.

The shareholder proposal was filed earlier this year by As You Sow, a shareholder activism group that pushes for (among other things) more attention to climate change. The proposal asks Amazon to prepare a report assessing how much its retirement plan options for employees match up to Amazon’s stated goals to reduce carbon emissions and embrace a greener future in its own operations.

Surprising nobody, Amazon asked the SEC for permission to exclude As You Sow’s proposal from the proxy statement. Last Friday the SEC’s Division of Corporation Finance said no; the substance of the question “transcends ordinary business matters” and therefore can be included. Amazon’s 2022 proxy was posted today, and the annual shareholder meeting happens on May 25.

Amazon’s lawyers offered all manner of reasons not to include the proposal, mostly arguing that current labor laws and Amazon’s fiduciary duties as retirement plan sponsor don’t allow the company to consider climate risks when deciding which investments might go into employee retirement plans. One particular passage jumped out me:

The Proposal seeks to suggest that the investment alternatives available under the Plan implicate a significant social policy issue that should be considered by the company’s shareholders by invoking “misalignment [with] the Company’s sustainability goals” or “cognitive dissonance and reputational risk.”

Well, yes. That’s precisely what As You Sow is trying to do. It even said as much in a press release celebrating its victory:

The brand damage of having [Amazon] say one thing and do another is important to measure and understand. We are pleased to see the fleet of 100,000 electric delivery vehicles, but it causes cognitive dissonance when at the same time the company has $621 million in oil, coal, and fossil-fired utilities and $48 million invested in deforestation-risk agribusiness.

Keep in mind, this shareholder resolution doesn’t say Amazon cannot make such investments in its retirement plan; it only directs the board to prepare a report assessing how much its current retirement plans do or don’t align with the company’s climate goals. 

One Corporate Vision on Climate

Back to the SEC and its proposal for more disclosure of climate risk. One requirement within that proposal is for companies to disclose how you plan to achieve any net-zero or low-carbon goals you’ve declared. That includes a description of the transition plan, plus relevant metrics and targets used to identify and manage transition risks.

One can see how As You Sow’s resolution fits within that objective. How can a company declare its commitment to a net-zero future in one breath, while ignoring that commitment in its retirement investments in the next? 

I appreciate that ERISA law (and the fiduciary duties therein) is a complicated field, but I don’t think that matters to most rank-and-file employees. Most people support the notion of trying to save the planet from climate disaster. They like to see their companies take action in support of that goal. Likewise, they don’t like to see their companies simultaneously take other actions that contradict the goal — such as putting their retirement savings into fossil fuel and deforestation investments. At the least, they want the company to explain how those two conflicting visions might reconcile, which is what As You Sow’s resolution asks Amazon to do.

We’ve also already seen the SEC issue comment letters to numerous companies, asking those businesses to explain how the statements they make in corporate sustainability reports square with climate risk disclosures included in the 10-K. The goal there seems rather clear: the SEC wants companies to be thoughtful and consistent in what they communicate to the public (consumers, investors, and anyone else) about climate change. 

This decision favoring As You Sow is in a similar vein. Yes, it’s more about Amazon’s commitment to the stated priority of fighting climate change, while the comment letters are about specific data and risk disclosures — but a single principle is at work in both instances. The SEC wants companies to explain how their approach to climate change is consistent, across all the ways they engage with shareholders on the issue. 

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