SEC Issues Section 21(a) Report on Investor Coalitions, “Group” Formation, and Schedule 13G Eligibility

Summary

On October 7, 2026, the U.S. Securities and Exchange Commission (SEC) issued a report of investigation (the “Report”) under Section 21(a) of the Securities Exchange Act of 1934 (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 (“ExxonMobil”).¹ 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.² 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. The Report’s principal positions and their practical effects are summarized below.

Overview of the Report’s Principal Positions

Background

Section 21(a) of the Exchange Act authorizes the SEC to investigate possible violations of the federal securities laws and, in its discretion, to publish information concerning them. The SEC has used Section 21(a) reports sparingly, generally to state its views on how existing law applies to new circumstances without bringing an enforcement action against the persons investigated. A Section 21(a) report is not an adjudication and makes no findings of violations, but it signals how the SEC and its staff are likely to approach similar conduct.

Section 13(d) of the Exchange Act requires a person that acquires beneficial ownership of more than 5% of a class of registered voting equity securities to file a Schedule 13D within five business days. Beneficial ownership includes sole or shared voting power, and an asset manager that votes client shares is a beneficial owner of those shares. When two or more persons act as a group for the purpose of acquiring, holding, or disposing of securities, the group is treated as a single person and its members’ holdings are aggregated, and the SEC has long taken the position that “holding” includes voting.³ Qualified institutional investors that acquire and hold securities in the ordinary course of business and passive investors holding less than 20% of a class may instead report on the short-form Schedule 13G if they certify that they do not hold the securities with the purpose or effect of changing or influencing control of the issuer. A Schedule 13G filer that develops such a purpose or effect must file a Schedule 13D within five business days and may not vote the securities or acquire additional shares during a cooling-off period.⁴

In February 2025, the staff of the SEC’s Division of Corporation Finance revised its interpretive guidance on Schedule 13G eligibility to state that a shareholder that goes beyond discussing its views with management and pressures management to adopt specific measures — for example, by conditioning its support for director nominees on the adoption of its recommendations — may be “influencing” control and ineligible to report on Schedule 13G.⁵ The Report extends that reasoning to engagement through intermediaries.

The Conduct Described in the Report

CA100 was founded in 2017 by the California Public Employees’ Retirement System (CalPERS). Investors join as signatories and commit to engaging with specific companies identified by CA100 to pursue its climate-related objectives. CA100 is supported by five regional investor networks, including the Boston-based nonprofit Ceres in North America, and is led by a steering committee that, at the relevant time, included representatives of CalPERS and Ceres. For each focus company, CA100 designated “lead investors” responsible for advancing CA100’s objectives, including by submitting shareholder proposals. Under a “flagging” protocol, CA100 identified shareholder proposals it considered important and encouraged members to vote for them.

After ExxonMobil, a CA100 focus company, obtained no-action relief in 2019 to exclude a CA100-aligned emissions proposal, CA100’s lead investors for ExxonMobil announced a campaign to vote against the entire board of the company. Later in 2019, according to the Report, CA100 and several of its members developed an 18-month strategy that included support for shareholder proposals at the 2020 annual meeting, followed by a “board refresh,” in which an outside activist would be recruited to lead a proxy contest at the 2021 annual meeting. In the course of that planning, according to the Report, a lead investor introduced Ceres to an activist fund principal who later joined Engine No. 1, the fund that eventually ran a proxy contest to elect four dissident director nominees at ExxonMobil’s 2021 annual meeting.

Much of the Report describes the pressure applied to large asset managers to join CA100 and to align their votes with its objectives. According to the Report, BlackRock and State Street hesitated to join in part because of concerns that engaging alongside other investors could raise regulatory issues. According to the Report, Ceres benchmarked and publicized asset managers’ climate voting records, organized asset owner clients to press the managers, and was offered a $3.7 million grant conditioned in part on persuading passive managers to align their votes with CA100’s objectives and on recruiting activists to promote dissident slates. After a CA100 member client withdrew certain assets from BlackRock, citing climate concerns, BlackRock joined the organization in January 2020 and issued a signing statement reserving sole discretion over its engagement and voting. Its internal guidelines permitted communicating a final voting decision only to the company.

The Report nonetheless recounts Ceres minutes indicating that BlackRock’s head of investment stewardship discussed flagged ExxonMobil proposals, the board refresh strategy, and BlackRock’s intended votes with Ceres staff before the 2020 meeting. For 2021, CA100 changed its procedures to permit the flagging of director election proposals (which prior procedures had not permitted) in order to increase public pressure on BlackRock and others to vote for the dissident slate of directors. According to the Report, BlackRock held calls or meetings with Engine No. 1, met the dissident nominees, and met with ExxonMobil, and Ceres minutes from May 2021 described a Ceres senior director as “[t]alking with BlackRock daily.” BlackRock voted for three of the four Engine No. 1 nominees, citing alleged gaps in ExxonMobil’s energy transition strategy.

The Report also notes what the investigation did not find. The investigation did not develop evidence that BlackRock or State Street agreed to vote in a particular manner or shared their voting intentions with persons associated with CA100, although the Report elsewhere relies on Ceres minutes suggesting that BlackRock discussed its voting positions with Ceres staff. BlackRock witnesses testified that CA100 did not influence BlackRock’s votes. The investigation did not find evidence that funds were channeled through CA100 or Ceres to Engine No. 1.

The SEC’s Analysis

Group Formation

The Report restates the SEC’s position, most recently expressed in its 2023 beneficial ownership modernization release, that a group is formed when there is any express or implied agreement, arrangement, understanding, or concerted action through which two or more persons coordinate the acquisition, holding, or disposition of securities. Whether a group exists depends on the facts and circumstances and may be shown by circumstantial evidence. Relevant factors include an agreement to act together; prior relationships among the members; one member negotiating for the others; communications among members about acquiring, holding, voting, or disposing of the stock; the issuer’s view of the members as a group; and whether the members later voted the same way or sold at the same time.⁶ Scienter (i.e., knowledge or intent) is not required to establish a violation of Section 13(d).

Applying these principles, the SEC concluded that CA100’s objectives and methods raised “serious concerns” regarding group formation. In the SEC’s view, CA100 and its investor networks sought to orchestrate members’ votes by signaling which votes were important through flagging and then influencing members to support CA100 through negative publicity and coordinated pressure. Those efforts, the Report states, can operate as “indirect channels through which members act with a common purpose in the holding of securities,” and members’ voting in alignment after a vote is flagged may be circumstantial evidence of an agreement to unseat incumbent directors and elect dissident nominees.

Two points in the analysis warrant additional attention. First, a member’s disclaimer of group status does not prevent a finding of group formation if the evidence shows an explicit or implicit agreement regarding voting. According to the Report, limits that members place on their participation when joining “are only effective when the established parameters are both sufficient to prevent formation of a group and are respected.” Second, coordination through an intermediary does not insulate the members from the applicable disclosure rules. Coordination of voting through an intermediary, together with additional evidence such as the intermediary’s promotion of negative media coverage of a member whose votes do not align, may indicate that a group has formed. The Report cautions that investors must be mindful that they could be forming a group when they coordinate with multiple shareholders, through intermediaries, around common objectives. The Report identifies examples of situations where such coordination may occur, including “organized engagement efforts, evaluative frameworks that the members have agreed upon, and harmonization of its members’ voting decisions on specific matters presented at an issuer’s shareholder meetings.”

The Report also identifies conduct that does not constitute formation of a group. Merely joining an organization such as CA100 in the ordinary course is not necessarily an action that triggers a Schedule 13D reporting obligation (under Sections 13(d)(3) or 13(g)(3)). However, the analysis changes if joining such an organization is inseparable from additional conduct, such as committing to vote in alignment with the organization’s expectations or engaging with specific issuers in pursuit of its objectives. Furthermore, parallel actions resulting from independent decision-making, preexisting relationships, and alignment of interests alone do not establish a group. Nor does a conversation with an activist seeking support or an independently determined announcement by a shareholder of an intention to vote in favor of director nominees proposed by an unaffiliated activist investor. Investors, the Report states, remain free to exchange views and advocate their perspectives on governance matters.

The Report excludes from its concerns trade associations and public advocacy groups that do not pressure, negotiate, or introduce proposals with the purpose or effect of changing or influencing control at specific issuers.⁷ If a group holding more than 5% of a class is formed with the purpose of changing or influencing control, the group must report on Schedule 13D, either jointly or through separate filings by each member identifying all members of the group.

Schedule 13G Eligibility

The Report’s second line of analysis is independent of group formation. Schedule 13G is unavailable to a person who acquired or holds securities with the purpose or effect of changing or influencing control of the issuer, which the Report reads, consistent with Rule 12b-2, to mean the power to direct the management and policies of the issuer. The Report notes that persons who nominate directors typically cannot qualify for Schedule 13G, while voting for a dissident slate, without more, does not cause a loss of eligibility.

The SEC states that an asset manager’s involvement with an organization like CA100 raises questions about its continued eligibility to report on Schedule 13G. When an organization’s agenda includes a board refresh initiative, that objective has control-related implications, and a qualified institutional investor’s commitments and coordinated actions in support of the initiative may be indicative of control intent. Even absent a board refresh initiative, eligibility may be called into question when an investor joins an organization that engages on specific issuers and targets specific management or policy outcomes, and membership coupled with commitments to the organization’s objectives and actions in support of them can demonstrate a control purpose. The same analysis applies to passive investors relying on Rule 13d-1(c). The Report adds that Rule 13d-1(b) requires a qualified institutional investor to hold securities in the ordinary course of business and that an index fund manager, whose mandate is typically limited to tracking a benchmark, should carefully evaluate whether joining a coordinated initiative unrelated to benchmark performance is consistent with that requirement. Additionally, Section 16 reporting obligations and short-swing profit liability considerations arise when a holder of more than 10% of a class (or a holder of less than 10% of a class that is a member of a group that collectively holds more than 10%) loses Schedule 13G eligibility.

The Report confirms that qualified institutional investors may continue to engage in ordinary-course dialogue with management and explain their voting decisions. In the SEC’s words, “[w]hat places eligibility at risk is not the exchange of views, but the shift into coordinated conduct that departs from ordinary-course practices,” including coordinated engagement and collective signaling aimed at changing board composition or company policies.

Funding Through Intermediaries

The Report also addresses the use of intermediaries as funding conduits. If investors fund an intermediary that in turn provides financial or strategic support to an activist, the arrangement may be a scheme to evade reporting under Rule 13d-3(b) if the investors intended to create a false appearance regarding their coordinated activities, in which case the intermediary’s shares could be attributed to the investors, or vice versa. The Report further notes that any person that contributes more than $500 to finance another person’s proxy solicitation is a “participant” that must be identified under Item 4 of Schedule 14A, whether the funds reach the soliciting party directly or through an intermediary. BlackRock paid annual membership dues of $14,375 to Ceres, and the use of those funds appeared to the SEC to have been unrestricted. Although the investigation found no evidence that such funds supported Engine No. 1’s solicitation, the SEC states that contributions channeled through an organization to a soliciting party could make the contributor a participant and that a failure to identify the contributor may violate Section 14(a).

The Report does not address whether any investment adviser breached its fiduciary duties in connection with the conduct described, although it recites the applicable standards, including as they apply to proxy voting.

Actions for Investors and Companies to Consider

Institutional Investors and Asset Managers

• Review coalition memberships and commitments. Investors should identify the organizations they have joined; the commitments made in connection with each, including commitments to engage with specific focus companies; and their participation in any vote flagging, pre-declaration, or voting-record benchmarking process. The Report indicates that membership alone is not the concern; the concern is the combination of membership with commitments to vote or engage in alignment with the organization and with communications about voting intentions.
• Enforce engagement policies. The Report treats written limits on participation as effective only if they are sufficient and followed. Investors should confirm that stewardship personnel understand what may and may not be discussed with intermediaries, other investors, and activists; limit the communication of voting intentions to third parties; and document the independent analysis supporting voting decisions, particularly in contested elections.
• Reassess Schedule 13G eligibility. Investors reporting on Schedule 13G should consider whether coalition commitments, issuer-specific engagement, and support for board refresh campaigns are consistent with their certifications, and they should have procedures to identify a disqualifying purpose or effect and to convert to Schedule 13D within five business days. Index fund managers should consider how they document the relationship between stewardship initiatives and their funds’ mandates. Investors should also be mindful of the SEC’s February 2025 guidance, in which it emphasized that discussions with management that go beyond the investor’s views on a particular topic and how those views may inform its voting decisions and instead seek to exert pressure on management to implement specific measures or changes to a policy may be viewed as “influencing” control over the issuer.
• Understand how contributions are used. Even unrestricted membership dues may become relevant if an organization supports a proxy solicitation.

Public Companies and Boards

• Expect changes in institutional engagement. Large asset managers may become more cautious about pre-declaring votes, discussing voting intentions with third parties, and participating in collective initiatives, and institutional investors may be more reluctant to lend organized support to dissident campaigns. Companies should expect engagement to be more bilateral and should adjust their engagement programs accordingly, bearing in mind that the Report confirms that ordinary-course dialogue remains permissible.
• Consider the Report in the shareholder proposal context and in contested election situations. Companies facing campaigns that draw organized institutional support can look to the Report in assessing whether coordinating shareholders have group reporting obligations or have lost Schedule 13G eligibility, as well as in deciding whether to raise those concerns with the shareholders, the SEC staff, or a court.
• Review advance notice bylaws and dissident shareholder disclosure. The advance notice bylaws of many companies require shareholders nominating dissident director candidates or making other shareholder proposals to disclose agreements, arrangements, and understandings with other persons regarding nominations, proposals, and voting. The Report affords indirect support to companies that press for complete responses regarding coalition affiliations, intermediary involvement, and funding sources. Companies should also review participant disclosure in dissident proxy statements with the Report’s reading of Item 4 of Schedule 14A in mind.
• Monitor related developments. The Report comes amid proposals from the SEC to rescind Rule 14a-8 and to modernize the proxy solicitation rules, as discussed in our September 24 and September 28, 2026, alerts. Companies should consider the cumulative effect of these developments on annual meeting planning and should monitor any Commissioner statements, staff guidance, or enforcement activity that follows the Report.