The Voice Of Capital

Recent amendments to the U.S. Securities and Exchange Commission's (SEC) rules on beneficial ownership reporting are transforming strategies for investor relations and engagement.

By way of background, Schedules 13D and 13G are SEC-mandated filings that disclose beneficial ownership of more than 5% of a publicly traded company's stock. Schedule 13D, the ‘active’ investors filing, requires burdensome disclosures about intentions, including plans to influence management regarding strategic decisions. Schedule 13G, by contrast, is a streamlined form for ‘passive’ investors.

The revised rules include a broader interpretation of what constitutes activist intent (see question 103.12). Shareholders exerting ‘pressure’ to adopt measures related to environmental, social, and governance topics by explicitly or implicitly tying such adoption to voting intentions are now deemed to ‘influence control of the issuer.’

The risk of losing their 13G filer status or facing litigation is prompting large asset managers to reassess their approach to stewardship. Part of the issue is that what counts as ‘ESG engagement’ is ambiguous: At what point does a conversation about sustainability become ‘pressure’ as opposed to a permissible routine discussion? What are acceptable (e.g., climate adaptation) and unacceptable (e.g., climate mitigation) topics?

While legal interpretation evolves, large asset managers are scaling back their dialogue with companies. Instead, ‘quiet influence’ through proxy voting and public position statements may be theoretically favored. In practice, however, the message sent to the global markets by the SEC is weighing on all sources and forms of influence, with potential extraterritorial implications.

In this new context, to assess investor preferences related to sustainability, US firms can proactively engage with US asset managers (who may now hesitate to provide candid feedback), European investors, who typically operate below the SEC filing threshold (but may still hesitate to engage due to extraterritorial considerations) and, where practical, ultimate asset owners (e.g., pension funds or insurers). They can also monitor proxy voting trends and shareholder proposal filings to identify emerging risks; analyze asset managers' disclosures (e.g., voting guidelines); and continue to consult with ESG rating agencies, as they are in close touch with market participants.

Through public documents and IR presentations, US firms can continue to outline how they integrate sustainability risks and opportunities into their strategy and operations, with a strict emphasis on sector best practice, financial materiality, and value creation, relying on legally appropriate disclosure. Since sustainability reports are currently expected to continue being published in the US, US firms, like their European counterparts, must integrate non-financial performance into their IR approach to control their corporate narrative, rather than leaving it to investors to make their own contextless evaluation.

Regardless of the merits or limitations of the new SEC regulation – an assessment beyond the scope of these notes – capital has a way of asserting itself. Ultimately, asset owners driven by long-term financial interest will find ways to direct capital to firms with the most sustainable financial profiles.

In this context, it will be worthwhile to closely monitor asset managers and transatlantic funds flows as capital expresses itself in the coming quarters.

(This is an evolving story)

Sources:

• ‘2025 U.S. Proxy Season Preview: Navigating Complexity in a Changed World’, Harvard Law School, March 2025

• ‘The Passive/Aggressive Investor’, Gibson Dunn, February 2025

• ‘Words of Wisdom’, Latham & Watkins, February 2025

• ‘Shareholder engagement by investors may trigger requirement to convert from S13G to S13D’, BCLP Law, February 2025

• ‘A little letter. A big difference: An Empirical Inquiry into Possible Misuse of Schedule 13D/13G filings’, Columbia Law Review, 2016