AP2: SEC ‘no-action’ rollback could send more shareholder proposals to vote

AP2 has voiced its concerns around what impact the shift in US shareholder proposal exclusions will bring to sustainability-conscious investors, as the Swedish buffer fund gears up for a busy year of engagement in 2026.

In its 2025 sustainability report, published in Swedish on Tuesday, the SEK475 billion ($49 billion) fund said it is worried that the so-called Rule 14a-8 update may trigger a higher volume of proposals US companies may put forward during shareholder meetings in 2026, and affect their quality.

This is a departure from the belief of some investor groups that the rule change will reduce the number of proposals put up for voting at meetings and thus the ability for shareholders to engage with companies on ESG issues.

Rule 14a-8 allows investors the right to include proposals in a company’s proxy voting materials, but the US Securities and Exchange Commission overhauled the “no-action” process in place for when a company wants to exclude a shareholder proposal from board meetings last November.

Previously, companies needed to submit a letter to the SEC and state reasons if it wished to exclude a proposal from shareholder meetings, and the SEC typically then issued a “no-action” letter which serves as an indication to the company that the regulator won’t take any actions against them.

But last November’s change means companies no longer need to obtain approval to exclude a proposal, often around social and environmental issues, from shareholder meetings unless it is regarding a subject that needs shareholder actions under state law.

While the SEC explained the change as a result of insufficient time and resources, investor groups like the International Corporate Governance Network (ICGN) slammed it as yet another effort aimed at blocking investors from engaging with their portfolio companies.

“By stepping back from the process, the SEC risks significantly diminishing shareholder voice and reducing important checks and balances that exist to protect the long-term interest of the company and its owners,” ICGN said in a letter to the SEC in January.

Though AP2 acknowledged concerns that the Rule 14a-8 change will make it easier for companies to withhold undesirable proposals from the broader shareholder group, its worry is around the opposite scenario: it believes the change can result in more proposals at 2026 AGMs.

“If companies exclude shareholder proposals before the meeting, without support from the SEC, they risk legal action from the proposer,” AP2 said.

“Given the declining support for many proposals in recent years, particularly social and environmental proposals, some companies may conclude that it is wiser to let the proposals go to shareholders’ vote.”

There has already been a legal scuffle between AT&T and New York City public pension funds this year for that exact reason. The funds, which collectively manage $319 billion, sued the telecommunications company for “unlawfully” excluding its proposal requesting a breakdown of AT&T’s workforce by race, ethnicity, and gender from an upcoming AGM. AT&T initially defended its action with the Rule 14a-8 change but later settled with the pension funds in February.

“Whether this will have a practical impact on the volume and quality of 2026 shareholder proposals to American companies therefore remains to be seen,” AP2 said in its sustainability report.

“AP2 is a long-term investor and is convinced that sustainability over time affects a company’s financial results. It is particularly important for us that sustainability-related shareholder proposals continue to be of high quality and are brought to the meeting through a functioning and fair process.”

AP2 also flagged the constraints around proxy advisors as another pressure point. President Donald Trump issued an executive order last December – a catalyst for the SEC rule change – which stated that groups like Institutional Shareholder Services and Glass Lewis “wield enormous influence” over American companies’ governance matters and should be put in check.

AP2 said it is already seeing the flow-on effect “in the form of significantly fewer general recommendations ahead of 2026 on issues concerning diversity, political contributions, human rights, and climate change from these advisory firms”.

“This places higher demands on our own analysis, information gathering, and contact with companies on sustainability issues.”

On the diversity front, AP2 observed that a negative sentiment from the US federal government have caused many companies to retreat from publicly disclosing their DEI targets, but AP2 maintains its goal to have at least 40 per cent of each gender on listed portfolio company boards by 2030.

“AP2 has not moderated its previous requirements on diversity in company boards, but retains its view that it is of continued great importance in boards and managements to create value in all companies, which is why we also continue to use voting as a tool to indicate if diversity is not taken into account.”

This article includes translations using AI.