March 15, 2021

ESG: Corp Fin’s Coates Calls for Global Reporting Framework

I was really hoping to lead with something other than an ESG-related topic this morning, but thanks to Acting Corp Fin Director John Coates, that’s not going to happen. Coates issued a statement on Thursday setting forth his views on ESG disclosure, and he had a lot to say. He addressed some of the key considerations in developing an ESG disclosure system, the costs of non-disclosure of ESG information, and, in this excerpt, called for the development of global disclosure standards:

On the issue of global comparability, in the first instance, arguments in favor of a single global ESG reporting framework are persuasive. ESG issues are global issues. ESG problems are global problems that need global solutions for our global markets. It would be unhelpful for multiple standards to apply to the same risks faced by the same companies that happen to raise capital or operate in multiple markets. In this regard, the work of the IFRS Foundation to establish a sustainability standards board appears promising.

This Davis Polk blog on the statement provides some additional color on the efforts to establish the sustainability standards board to which John Coates referred:

The IFRS is an international non-profit organization that has been steadily working on creating global sustainability reporting standards. By the end of September 2021, IFRS plans to release its definitive proposal, complete with a roadmap and timeline, on whether it will create a sustainable standards board to sit beside the International Accounting Standards Board, IFRS’s accounting standard-setting body.

In February 2021, the International Organization of Securities Commissions, or IOSCO, issued a public statement in support of IFRS’s work. IOSCO’s members include 34 international securities regulators, including the SEC and the CFTC, and the securities regulators of Brazil, China, France, Hong Kong, Spain and the UK, among others.

IOSCO said that it “sees an urgent need for globally consistent, comparable, and reliable sustainability disclosure standards and announces its priorities and vision for a Sustainability Standards Board under the IFRS Foundation.” However, despite the apparent consensus, the blog notes one particular challenge that needs to be confronted – getting all parties to agree upon a definition of “materiality” in the ESG context.

SEC Enforcement: Commissioner Crenshaw Throws a Grenade

Last week, Commissioner Caroline Crenshaw gave a speech at the CII’s spring meeting.  She didn’t make much news – well, I mean unless you consider throwing a grenade at 15 years of SEC enforcement policy to be news. Over on Radical Compliance, Matt Kelly seemed to think this was kind of a big deal:

Compliance officers, clear your schedule and retreat to your reading nook! We have an important speech to consider on the future of enforcement at the Securities and Exchange Commission. Commissioner Caroline Crenshaw, a Democratic appointee who joined the SEC only seven months ago, spoke Tuesday at the spring meeting of the Council of Institutional Investors — and took a wrecking ball to longstanding assumptions about how large the penalties should be in cases of corporate misconduct.

Specifically, Crenshaw faulted an SEC enforcement policy in place since 2006 that says the agency should be careful not to impose a penalty that might unduly burden shareholders of the company in question. The logic behind that policy has been that a company’s current shareholders at the time of resolution might not have benefitted from the misconduct that happened earlier; and that those current shareholders would suffer because paying the penalty leaves that much less money for the company to put to good use.

Crenshaw’s response: what does any of that have to do with the need to, ya know, punish misconduct?

Commissioner Crenshaw said that in lieu of focusing on “amorphous concepts” like corporate benefits and shareholder harm, the SEC should set penalties based on the actual misconduct and the extent of cooperation with the Division of Enforcement staff. Higher penalties should be imposed for violations that cause more harm, and for those that are more difficult to detect. Stay tuned. . .

Tomorrow’s Webcast: “The Top Compensation Consultants Speak”

Tune in tomorrow for the webcast – “The Top Compensation Consultants Speak” – to hear Blair Jones of Semler Brossy, Ira Kay of Pay Governance and Marc Ullman of Meridian Compensation Partners discuss what compensation committees should be learning about – and considering – evolving views of pay-for-performance, expanding roles for compensation committees, goal-setting and adjustments, and an early look & predictions for the 2021 proxy season.

If you attend the live version of this 60-minute program, CLE credit will be available! You just need to submit your state and license number and complete the prompts during the program.

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Transcript: “Private Offerings – Navigating the New Regime”

We have posted the transcript for the recent webcast “Private Offerings – Navigating the New Regime.”

John Jenkins