The Securities and Exchange Commission (SEC) released a report on Oct. 7 about their investigation into whether large asset managers complied with federal disclosure requirements during a 2021 campaign to elect new directors to ExxonMobil’s board. The agency said it would not pursue enforcement action but outlined circumstances in which coordinated shareholder activities could trigger additional disclosure requirements.
The investigation examined the activities of Climate Action 100+, an investor initiative focused on corporate climate policies, and its members during a 2021 campaign in which hedge fund Engine No. 1 sought to replace four ExxonMobil directors to influence the company's strategy on fossil fuels and the energy transition. The SEC investigated whether Climate Action 100+ members' participation in the initiative and support for the campaign amounted to coordinated shareholder activity that would require them to disclose their combined holdings and potentially affect their eligibility to use simplified ownership reporting forms.
The report discussed BlackRock and State Street, which belonged to Climate Action 100+ during the campaign, and Vanguard, which did not. The SEC made no findings of securities law violations and decided not to pursue enforcement action.
Federal securities law generally requires investors who own more than 5% of a company’s shares to disclose their holdings to the SEC. Investors who do not seek to influence corporate control may qualify to use Schedule 13G, a shorter disclosure form, rather than the more detailed Schedule 13D.
The SEC said that investors participating in efforts to influence corporate control, including through organizations like Climate Action 100+, could lose their eligibility to use Schedule 13G. It also said that investors acting together could be considered a group under federal securities law, potentially triggering additional disclosure requirements if their combined holdings exceed 5%.
In its report, the SEC stated that “What places eligibility at risk is not the exchange of views, but the shift into coordinated conduct that departs from ordinary-course practices.”
The SEC said these considerations apply beyond Climate Action 100+ to other investor organizations that coordinate shareholder activities.
Climate Action 100+ launched in 2017 as an investor initiative focused on encouraging companies to address climate-related financial risks, reduce emissions, and improve climate disclosures. BlackRock joined the initiative in January 2020, and State Street joined in November 2020. Vanguard did not join because it said joining could compromise its independence in its shareholder voting decisions.
At ExxonMobil’s May 2021 annual shareholder meeting, activist hedge fund Engine No. 1 sought to replace four directors, arguing that the company needed additional expertise to address its financial performance and the transition to lower-carbon energy. Shareholders elected three of its candidates, with BlackRock, State Street, and Vanguard supporting at least some of the new directors. Climate Action 100+ had encouraged its members to support the campaign.
In February 2024, BlackRock transferred its participation in Climate Action 100+ to its international division, while State Street and JPMorgan Asset Management withdrew from the initiative. The changes followed disagreements over the initiative's expanded expectations for participating investors.
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