March 26, 2021

Political Spending: Congress Might Remove Roadblock to SEC Action

John blogged last December about a provision in the Consolidated Appropriations Act, 2021 restricting the SEC from finalizing a rule requiring company political spending disclosures. So as much as it could be a while before the SEC could take action relating to company political spending, Congress has shown interest in allowing it to happen.

First, H.R. 1, the For the People Act has not only been introduced in the House, but it also passed. The bill would require additional disclosure of campaign-related fundraising and spending. The Shareholder Protection Act of 2021, which has been introduced in the Senate, takes things a bit further.

The Senate bill, would among other things, require political spending disclosure and prohibit company political spending unless it has been approved by shareholders. Cydney Posner, in this Cooley blog, runs through some of the bill’s other requirements, which include penalties for officers or directors who authorize any political contribution expenditures without shareholder approval.

Members of the Commission have also expressed interest in the topic. Although a lot of commentary about SEC interest in ESG disclosures centers on climate risk, another topic Acting Chair Lee addressed in a speech last week was political spending disclosure. In her speech, Acting Chair Lee said political spending disclosure deserves attention and that it’s “inextricably linked to ESG issues.”

As a potential sign the Commission wants to take action in this area, some may have read commentary that Gary Gensler, the nominee for SEC Chair, and Commissioner Caroline Crenshaw each voiced interest too. Back in early March at his Senate confirmation hearing to serve as SEC Chair, Gary Gensler expressed support for the SEC to consider company political spending disclosures. Commissioner Crenshaw recently expressed her thoughts on company political spending disclosures in a HLS Corporate Governance post co-authored with HBS Professor Michael Porter. In that post, Commissioner Crenshaw urges business leaders to call on Congress and the SEC to provide investors with political spending disclosures.

After the events of January 6, interest in company political spending has certainly intensified. One sign that this increased interest has had an impact can be found in company announcements about pausing political contribution activity. More recently, Popular Information reported that at least two companies have paused or suspended contributions in response to voter suppression bills introduced in Arizona. Although far from certain (see commentary in yesterday’s NYT Dealbook column about Senator Pat Toomey’s letter to Acting Chair Lee), it’s possible company pauses on political contributions will lead to some Congressional action. As Cydney observes in her blog, if the Senate bill is signed into law, political spending and more will be on the SEC’s plate.

Auditors & ESG Data Assurance: High-Level Summary for Audit Committees

With ESG reporting the topic du jour, ESG data assurance continues garnering attention. Besides issuing a roadmap for attestation services, the Center for Audit Quality issued another memo, this one directed at audit committees to help them understand the role of auditors in connection with company-prepared ESG information.

For companies reporting ESG information, the memo outlines high-level information to help audit committees understand what’s involved with third-party assurance services by answering questions about reasons a company might engage an auditor to provide third-party assurance, ESG information within the scope of an attestation engagement, levels of attestation services and ESG information readiness assessments.  The memo summarizes factors that differentiate auditor third-party assurance services from those provided by other service providers, such as engineering or consulting firms, and notes other service providers may or may not be required to adhere to an independence framework.  It also includes this Q&A about auditor independence:

Can a public company use the same independent accounting firm for its financial statement audit and attestation over its ESG information?

Yes, performing a review or examination engagement of a public company’s ESG information is considered a permissible service for the independent accounting firm performing the financial statement audit, subject to pre-approval from the audit committee.  The performance of review or examination attestation services by an independent accounting firm requires that firm to meet certain independence requirements.

Free ESG Scores: S&P Global Joins In

Last month, I blogged about how Refinitiv has started making its ESG rating information, including sub-theme scores, publicly available. At that time, I wondered whether other firms would start doing the same, and now we know at least one firm is following Refinitiv’s path. Not too long ago, S&P Global joined in by making S&P Global ESG scores publicly available. S&P Global’s announcement says the firm has ESG scores on 9200 companies.

S&P Global says it’s committed to providing more transparent and comparable insights on ESG performance. The firm also recently announced the addition of 400 new data points that it uses to inform company ESG scores.

The newly released data points encompass information across companies’ environmental, social and governance performance, including environmental reporting disclosures, biodiversity commitments, direct and indirect CO2 and greenhouse emissions, waste/hazardous disposal, energy consumption, water usage, social disclosures across safety, human rights and codes of ethics, and policies across anti-crime, corruption & bribery, board governance, executive compensation and supply chain management, among others.

– Lynn Jokela