March 16, 2021

ESG: Acting SEC Chair Solicits Public Comment on Climate Change Disclosure

Well, it looks like this blog has to continue with its “All ESG, All the Time” format for at least another day. The latest event that’s preventing me from taking my preferred approach & blogging about literally any other topic is yesterday’s announcement from Acting SEC Chair Allison Herren Lee that the agency is soliciting public comment on climate change disclosure.

The announcement identifies 15 specific climate disclosure-related questions on which the SEC would like public input. These range from the fairly mundane (What are the advantages & disadvantages of rules that incorporate or draw on existing frameworks?) to the downright hair-raising (How should the SEC’s rules address climate change disclosure by private companies?).

The final question notes that the Staff is evaluating a range of ESG disclosure issues & asks if climate-related requirements should be one component of a broader ESG disclosure framework. That’s a good segue into the speech that Acting Chair Lee also gave yesterday at the Center for American Progress, in which she outlined her views on the SEC’s climate change & ESG agenda. In case you haven’t already figured it out, this excerpt indicates that the SEC is going to be a very different place than it has been over the past several years:

Human capital, human rights, climate change – these issues are fundamental to our markets, and investors want to and can help drive sustainable solutions on these issues. We see that unmistakably in shifts in capital toward ESG investing, we see it in investor demands for disclosure on these issues, we see it increasingly reflected on corporate proxy ballots, and we see it in corporate recognition that consumers and investors alike are watching corporate responses to these issues more closely than ever.

That’s why climate and ESG are front and center for the SEC. We understand these issues are key to investors – and therefore key to our core mission.

While climate change & ESG may be front and center, Acting Chair Lee indicated that they aren’t the only items on the agenda. Others include potentially undoing last year’s changes to the shareholder proposal process, revisiting the SEC’s guidance on proxy voting by investment advisors and finalizing a universal proxy rule.

Non-GAAP: Companies Aren’t Pushing the “EBITDAC” Envelope

Throughout the pandemic, we’ve been keeping an eye on how companies have been reporting the financial impact of Covid-19. Early on, some companies were disclosing non-GAAP adjusted EBITDA that reflected pandemic-related expenses, such as PPE and other safety-related expenses and high comp for on-site employees.

This adjusted EBITDA presentation was derisively called “EBITDAC”  by its critics. Last fall, the WSJ questioned how long companies could continue to characterize additional expenses like these as one-time charges justifying an “adjusted EBITDA” presentation. According to this CFO Dive article, it looks like companies are backing away from this approach in their Q4 disclosures:

Few companies are reporting adjustments to earnings before interest, taxes, depreciation and amortization (EBITDA) to account for COVID-19-related costs at this late stage of the pandemic. Some analysts say that’s not a bad thing. Adjustments to EBITDA, a non-GAAP performance measure, are intended to account for one-time events. The idea is to show that, but for these unique circumstances, the company’s sustained performance would show a different result.

In the first few quarters after the pandemic’s start, some companies were reporting adjusted EBITDA to account for purchases of personal protective equipment (PPE), higher pay to on-site employees and operational restructuring. Uber, for example, increased its adjusted EBITDA by $19 million in March to account for assistance payments to its drivers. Iron Mountain, an information management and storage company, included almost $10 million in expenses for PPE, plexiglass shields and facility cleaning in its second quarter financial results.

The article cites a Bass Berry blog which said that only 16% of large, public companies made COVID-related adjustments at the end of 2020. The blog says that most of the companies that presented adjusted EBITDA dumped the charges into a single “Covid-19 related charges” line item, but that 37% provided more granular detail on the nature of the charges.

“Technoking” & “Master of Coin”? Elon Strikes Again

Not too long ago, Tesla went through three General Counsels in a single year. My guess is that you need look no further than the Item 8.01 Form 8-K that Tesla filed yesterday if you want to know why the company finds it so hard to hang on to senior lawyers. Yesterday’s filing announced the following:

Effective as of March 15, 2021, the titles of Elon Musk and Zach Kirkhorn have changed to Technoking of Tesla and Master of Coin, respectively. Elon and Zach will also maintain their respective positions as Chief Executive Officer and Chief Financial Officer.

Ha Ha! Oh, that Elon – what a jokester! I’m not sure the Tesla board is laughing though, particularly since they were just sued again in Delaware for allegedly allowing Elon to continue to engage in “erratic” tweets that the plaintiffs contend violate the terms of the company’s settlement with the SEC.

One wit wondered via tweet if the 8-K filing also disclosed that the GC’s title had been changed to “He Who Sits In The Revolving Door Of Saying ‘No’ And Creating Forms?”

John Jenkins