Jan. 29, 2020
Hon. Jay Clayton Chairman U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: S7-23-19 Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8 S7-22-19 Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice Dear Chairman Clayton, On behalf of Vert Asset Management, I respectfully submit the following comments opposing the rules proposed by the Securities and Exchange Commission (SEC) on November 5, 2019, which will severely limit the rights of shareholders to engage with corporations using the shareholder resolution process and independent proxy advisors. Vert Asset Management (Vert) is a dedicated environmental, social, and governance (ESG) fund manager. We work in close consultation with academic experts and experienced portfolio managers to create investment products that work for the wealth management community. Vert combines ESG research and a disciplined rules-based process to deliver funds that achieve investors’ twin goals of sustainability and market rates of return. We have one mutual fund that invests in publicly traded real estate investment trusts on sustainability criteria. As a business, Vert practices the triple bottom line approach by focusing on people, planet and profit. We are a Certified B Corp, a signatory to the UN PRI, and a contributor to 1% For the Planet. We engage with companies on critical environmental, social, and governance (ESG) issues. Part of the corporate engagement "toolkit" is the ability to put forward a shareholder proposal. We believe that the proposed rules will undermine the existing corporate engagement process that has enabled investors to dialogue with companies on emerging issues. The current ownership threshold of $2,000 ensures that a diversity of voices is heard, not just the biggest investors. Small investors have contributed a multitude of now commonplace best practices. According to data compiled by the Sustainable Investments Institute, 187 resolutions on social and environmental topics came to a vote at US companies in the spring of 2019. Many of these were filed by investors with relatively small stakes consistent with the existing filing thresholds. The proposals received an average of 25.6 % support (about the same as the average of 25.4% for resolutions of this kind in 2018, and 21.4% in 2017). Proposals of interest to a large portion of a company’s shareholder base can and do originate with smaller individual and institutional investors.[1] The proposed changes could prevent significant topics from even being raised and considered, to the detriment of all stakeholders. In addition to the Rule 14a-8 proposals, changes regarding proxy advisory firms were approved at the SEC’s November 5th meeting. We believe these modifications have been proposed to undermine the voice of investors and produce more management-friendly votes. The proposal would require that proxy advisory firms allow companies to review and provide feedback on proxy voting advice. This would fundamentally jeopardize the independent advice of proxy advisors. The current 14a-8 rule works, and there is no need to revise it. Trade associations such as the Business Roundtable, the U.S. Chamber of Commerce, and the National Association of Manufacturers are lobbying for changes by mischaracterizing shareholders who are interested in ESG issues as “uninterested in shareholder value.” We strongly disagree, and we are not alone. We would like to point out that the largest asset manager in the marketplace today - BlackRock with $7 trillion in assets under management - has recently made public statements endorsing the legitimacy of ESG risks as business risks.[2] ESG issues are not a passing trend or an activist's social agenda. We engage as shareholders on ESG risks precisely because we are interested in investing in better businesses - businesses who are addressing potential business risks. Businesses who look at all types of environmental, social, and governance risks because they know that they need to mitigate reputational, legal, and financial risks to build and maintain economic value. In summary, independent proxy advisors and the filing of shareholders' resolutions by investors big and small is a crucial part of the engagement process. Vert strongly urges the SEC to reconsider the proposed rule changes for shareholder proposals and proxy advisors. Sincerely, Sarah Adams Chief Sustainability Officer & Co-Founder Vert Asset Management References: [1]Si2 ‘FACT SHEET: Shareholder Proposal Trends’, Sustainable Investments Institute, Oct.17, 2019, https://siinstitute.org/special_report.cgi?id=80 [2] Larry Fink, CEO and Chairman of BlackRock. 'A Fundamental Reshaping of Finance', Letter to CEOs, BlackRock, Jan. 14, 2020, https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter Sarah Adams Chief Sustainability Officer & Co-Founder 1 (415) 650-7452 tel www.vertfunds.com | www.vertasset.com Vert Asset Management LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. For more information please visit: https://adviserinfo.sec.gov/ and search for our firm name. This is not to be construed as an offer or a recommendation to buy or sell a security.