New York City Comptroller Scott Stringer, on behalf of the New York City pension funds (the “NYC Funds”), submitted a shareowner proposal to TransDigm Group on September 19, 2019, requesting that the company adopt a policy with time-bound, quantitative, company-wide goals for managing greenhouse gas (GHG) emissions, taking into account the objectives of the Paris Climate Agreement, and report on its plans to achieve these targets.
Transdigm’s peers in the aerospace and defense industry that have set GHG management goals include United Technologies, Boeing, Lockheed Martin and Northrop Grumman. The NYC Funds which have approximately $200 billion in assets under management, are substantial long-term TransDigm shareowners, with approximately 60,000 shares of TransDigm common stock valued at approximately $22.1 million
On November 9, 2018, TransDigm wrote to the Securities and Exchange Commission division of Corporation Finance (“Division“) requesting the issuance of a no-action letter that would approve omission of the shareowner proposal from its proxy materials. TransDigm made its no-action request on the grounds that, pursuant to Rule 14a-8(i)(7), the subject of the proposal impermissibly related to TransDigm’s “ordinary business matters” and impermissibly sought to micromanage TransDigm. The company further argued that the proposal does not transcend ordinary business matters.
TransDigm was likely emboldened by the Division’s response to EOG Resources earlier in 2018, in which the Division, inconsistent with its prior determinations, issued a no-action letter effectively permitting EOG Resources to exclude a shareowner proposal similar to the NYC Funds’ proposal. However, twice in 2015 the Division found that nearly identical proposals could not be excluded.
On December 5, 2018, the NYC Funds filed a lawsuit in U.S. District Court, Southern District of New York, alleging that TransDigm was attempting to illegitimately block a shareowner proposal that would require TransDigm, for the first time, to examine and set goals for managing its greenhouse gas (GHG) emissions. At the time, the Division had not yet responded to TransDigm’s request—and the NYC Funds requested that no response be issued in light of the lawsuit.
On January 23, 2019, New York City Comptroller Scott M. Stringer and the New York City Law Department announced the settlement of the lawsuit. As part of the settlement, TransDigm agreed to end its no-action request and allow the Funds’ shareowner proposal on GHG emissions to go up for a vote at the company’s 2019 annual meeting on March 12th in Cleveland, Ohio.
According to Comptroller Stringer, “The need for climate leadership is more urgent than ever. Yet, just when we need to speed up the pace, federal roll-backs are making polluting easier and could cause generations of damage. That’s why as investors, we’re using our voice to pressure companies to step up and address their role in climate change.”