On October 7, the SEC issued a report of investigation under Section 21(a) of the Exchange Act addressing whether members of Climate Action 100+ (CA100) violated the beneficial ownership reporting provisions of the Exchange Act in connection with the election of dissident directors nominated by Engine No. 1 at the May 2021 annual meeting of Exxon Mobil Corporation. The SEC determined not to bring an enforcement action based on the conduct known to it; however, it expressed “serious concerns” about the conduct of certain CA100 members and other related parties and events leading up to, and in connection with, the annual meeting. The SEC issued the report to inform asset managers and investors who join, or are considering joining, organizations like CA100 of relevant considerations for purposes of remaining compliant with beneficial ownership disclosure requirements under the Exchange Act.
The Report is the SEC’s first report under Section 21(a) in eight years. Section 21(a) reports are not rules or regulations themselves. Rather, they provide guidance to the marketplace regarding the SEC’s current views on often complex areas of the law. This report elaborates on how the SEC views the application of the rules under Sections 13(d) and 13(g) of the Exchange Act when investors coordinate their engagement and proxy voting through an intermediary organization. In the SEC’s view, coordinated engagement practices by an intermediary organization, such as “flagging” upcoming shareholder votes for members and pressuring members whose votes do not align with other members, may be evidence of an implied agreement that forms a “group” for beneficial ownership reporting purposes, notwithstanding members’ disclaimers of group status. Separately, membership in an organization whose stated purpose is to change or influence control of a specific issuer, including by supporting the election of dissident directors, could be a factor in assessing whether an institutional investor’s eligibility to report on Schedule 13G instead of Schedule 13D has been lost.
Additionally, although the report arises from a scenario involving a climate-focused initiative, the SEC states that its analysis applies to participants in any similar intermediary-driven organization. The report arrives just a year and a half following the SEC staff’s February 2025 guidance on Schedule 13G eligibility and just weeks after proposals from the SEC to rescind Rule 14a-8 and to modernize the proxy solicitation rules. Institutional investors should review their participation in collective engagement initiatives in light of the report, and public companies should consider how the report may affect activist campaigns and shareholder engagement.
For more details regarding the SEC’s latest Section 21(a) report, review this Goodwin alert.