In 1942, the U.S. Securities and Exchange Commission (SEC) promulgated its first rule regulating shareholder proposals – Rule 14a8. For more than seven decades, the shareholder proposal process it outlines has allowed both large and small shareholders to alert corporate boards and the investor community to their concerns and to request timely action on emerging, or neglected, issues.

Shareholder proposals and proxy voting are two key elements of shareholder democracy – and together, serve as cost-effective mechanisms for shareholders to monitor and hold corporate management accountable, to communicate collective shareholder views to the board, and to create and protect long-term value. However, over the last 18 months, there has been a marked increase in proposed state legislation that would prohibit state and municipal pension funds from implementing ESG investing strategies or utilizing asset managers that do so.  Numerous “anti-ESG” bills have been introduced in 37 states and a number of these bills have been passed into law, including a law in Texas mandating that state pension funds cut ties with investment firms seen to be “boycotting” fossil fuel companies by addressing climate risk in their portfolios. Yet, if implemented, these “anti-ESG” bills could cause considerable financial damage to state pension funds and their beneficiaries.