Tune in tomorrow from 1-2pm Eastern Time for our PracticalESG.com webcast – “Parsing the SEC’s New ‘Climate Disclosure’ Proposal.” We’ve gathered an excellent mix of perspectives – Morrison & Foerster’s Dave Lynn and Sidley’s Sonia Barros, who both previously served in high-level Staff roles at the Commission; Travelers’ Yafit Cohn and NuStar Energy’s Mike Dillinger, who have been assessing the proposal and overseeing ESG disclosures in-house; and our very own Lawrence Heim, Editor of PracticalESG.com with 35+ years of experience in the ESG field from a technical, auditing and management perspective. We will also be making this program available to members of TheCorporateCounsel.net.
This program will cover aspects of the proposal that are fundamentally different than the SEC’s current disclosure regime – and how to understand that. But we won’t stop there – we’ll also be discussing practical actions and realities companies need to know right now in preparing for climate disclosures aligned with SEC’s proposal. Not only will compliance require a long lead time, but investors may also push for the information regardless of the rule’s adoption and compliance date.
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to fill out this form to submit your state and license number and complete the prompts during the program.
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We’ve posted the transcript for our recent webcast for members, “Shareholder Insights: 2022 Priorities.” This was a very informative discussion amongst Council of Institutional Investors’ Glenn Davis, Dimensional Fund Advisors’ Kristin Drake, Sustainable Governance Partners’ Rob Main, and Federated Hermes – International’s Tim Youmans. Here’s an interesting point raised by Rob & Tim:
Main: As we’ve entered into this 2022 season, it does feel like the burden of proof when it comes to shareholder proposals has shifted.
If I think back three, four, five years ago when there was a proposal, the clear burden of proof was on the shareholder proposal proponent. Now, it does feel like the notion of supporting shareholder proposals is becoming more mainstream. There is an inclination from the proxy advisors, but I think increasingly from the mainstream institutional investors as well, who start at a point of supporting the proposal and then must be convinced to walk it back if they’re not going to support that specific proposal at the company. I don’t know if there’s any reactions to that view from my fellow panelists.
Youmans: This is a good segue into a trend that’s happening, which is if you look at the leadership last year of IBM, Wendy’s, arguably Morgan Stanley, BlackRock, and then also on responses to racial equity audits and then on the board of GE regarding climate shareholder proposals, we are seeing more boards supporting shareholder proposals. That’s very interesting.
When that happens, the board can then seize the narrative, and pretty much control the entire discussion about this. It’s moving beyond the shift that you talked about, Rob. Boards are being self-active holders of their own narrative. This is a very interesting trend, and we hope to see more of this.
If you are not a member of TheCorporateCounsel.net, email sales@ccrcorp.com to sign up today and get access to the full transcript – or sign up online.
This week, President Biden announced his intent to nominate two individuals to serve on the Securities and Exchange Commission. The Commission currently has one open seat for a Republican and one seat for a Democrat when Commissioner Allison Herren Lee’s term expires in June.
The first nominee is Jaime Lizárraga, who currently serves as Senior Advisor to Speaker of the House Nancy Pelosi. Lizárraga oversees issues relating to financial markets, housing, international financial institutions, immigration, and small business policy and serves as the Speaker’s liaison to the Congressional Hispanic Caucus. He previously served on the Democratic staff of the House Financial Services Committee, and as a presidential appointee at the U.S. Department of the Treasury and the U.S. Securities and Exchange Commission.
The second nominee is Mark T. Uyeda, who is a career attorney with the SEC, currently on detail to the U.S. Senate Committee on Banking, Housing, and Urban Affairs, where he serves as Securities Counsel on the Committee’s Minority Staff. Uyeda joined the SEC in 2006 and has worked in various capacities, including as Senior Advisor to Chairman Jay Clayton and Acting Chairman Michael S. Piwowar, and as Counsel to Commissioner Paul S. Atkins. He has also served as Assistant Director and Senior Special Counsel in the SEC’s Division of Investment Management.
Once the President formally nominates these individuals, they will move on to the Senate confirmation process. There is no telling how long that might take.
While on the topic of Presidential appointments, I wanted to take the opportunity to celebrate the historic confirmation of Judge Ketanji Brown Jackson to serve as a Supreme Court Justice. She will be sworn in when Justice Breyer retires at the end of the Court’s current term. It is certainly a rare opportunity to celebrate when a former colleague is confirmed to serve as a Supreme Court Justice! Judge Jackson was a partner at Morrison & Foerster from 2007 to 2010, immediately prior to her appointment to serve as vice chair of the United States Sentencing Commission. I am confident that she will be an extraordinary Supreme Court Justice and we are all very fortunate that Judge Jackson is willing to serve our country in this important role.
Over the course of this year, I have been taking a walk down memory lane and looking back on 15 years of contributing to CCRcorp publications. Since the beginning of my time with CCRCorp, I have been a contributor to The Corporate Executive newsletter, and now I serve as Senior Editor of that publication. The Corporate Executive newsletter is a very useful publication with a focus that differs somewhat from The Corporate Counsel newsletter. I always think of the The Corporate Executive and The Corporate Counsel as two publications that work together to provide coverage of the full range of topics that are of particular interest to lawyers, compensation professionals and executives.
While it is hard to tell because The Corporate Executive and The Corporate Counsel do not have bylines, I have written many articles that have been published in The Corporate Executive over the past 15 years. With so many pieces out there, it is difficult to pick just one as a favorite. But if I have to choose, I would say that the January-February 2008 issue of The Corporate Executive was my favorite project for the publication, because it involved developing “best practice” disclosures for Compensation Discussion and Analysis. You may recall that the SEC’s 2006 executive compensation disclosure rule changes (which I had worked on while at the SEC) were still relatively new, and by the time the 2008 proxy season rolled around, we had the benefit of the SEC’s observations on the first round of CD&A disclosures from the 2007 proxy season. The article that I wrote for The Corporate Executive surveyed issuer practices and the Staff guidance and presented model disclosures for key areas required by the rules. To this day, I still find that article useful as a reference and I think it represents the sort of practical advice that make both The Corporate Counsel and The Corporate Executive indispensable resources for those practicing in this area.
If you do not have a subscription to The Corporate Executive, email our sales team at sales@ccrcorp.com.
One of the problems that becomes abundantly clear when working at the SEC is that you are always tasked with doing more with less. Like so many government agencies, the SEC has to wisely use its limited resources to regulate a substantial part of the financial services industry and the capital raising activities and disclosure of all public companies. I recall that it can be quite daunting at times to know that the odds are distinctly stacked against you when facing a much larger and better resourced contingent on the outside.
That is why, with the SEC’s ever-expanding regulatory reach, it is not surprising that the agency is looking to substantially beef up its Staff. In in the SEC’s fiscal 2023 budget request, the agency is looking to increase its budget to over $2 billion (from just under $2 billion in fiscal year 2022). In terms of staffing, the SEC is seeking to add an eye-popping 400 positions, with 65 of those positions going to the Division of Corporation Finance and 125 going to the Division of Enforcement.
The SEC’s budget request cites the following key priority areas that will affect its needs going forward:
– Initial Public Offerings and Special Purpose Acquisition Companies
– Private Funds
– Crypto-Assets
– Financial Technology
– Agency Use of Data Analytics
– Enhance IT and Cybersecurity
Not surprisingly, the budget request cites the SEC’s expanding role with respect to climate change risks and human capital in its request for additional resources and staff.
The budget request also includes money for the SEC’s move to a new headquarters. It feels like the agency just moved from 450 Fifth Street to 100 F Street just yesterday, but I realize now that it has been almost 17 years since that happened! I can still remember packing and unpacking the many accumulated documents stashed in the Office of Chief Counsel “library” and moving filing cabinets myself during that very chaotic move.
It did not take long for several Senators to come out in opposition to the SEC’s climate change rule proposal. Senator Joe Manchin, perhaps not surprisingly, sent a letter to SEC Chair Gary Gensler criticizing the proposed rules as unduly burdensome.
In his letter, Senator Manchin states:
I firmly believe that the SEC has a duty and responsibility to every American to uphold their mission and prevent an unraveling of our U.S. economy; however, that duty and responsibility unfortunately becomes tainted when the Commission publishes rules that seemingly politicize a process aimed at assessing the financial health and compliance of a public company. As the SEC collects public comment on this rule, I urge both you and your fellow Commissioners to reassess the structure and need for these additional disclosures and to consider alternative reporting requirements, particularly for those that are already required to disclose emissions and climate risk data to other agencies. For instance, as you aware, the U.S. Environmental Protection Agency (EPA) collects such information from fossil fuel companies through its Greenhouse Gas Reporting Program (GHGRP) and shares its public reports in October of each year. Enacting rules that are seemingly duplicative in nature–particularly for our nation’s energy companies– may add additional burdens that are both timely and costly for publicly traded companies and may also serve to create unnecessary confusion for investors. Ultimately, I am interested in the implementation of rules that are rational and ensure that the system is fair. Reassessing the responsibilities of our nation’s energy companies within these disclosures is a critical component to reaching that fairness.
A group of Senate Republicans also sent a letter to Chair Gensler, requesting that the SEC withdraw the proposal, indicating that the SEC was overstepping its authority to seek climate change disclosure. The letter concludes with the statement: “We believe devising climate policy is the job of elected lawmakers, not unelected regulators at the SEC.”
Last week, the PCAOB released a staff Spotlight document, “Auditing Considerations Related to the Invasion of Ukraine.” The Spotlight highlights important considerations for auditors of issuers and broker-dealers as they plan and conduct audits in this evolving environment.
The PCAOB guidance addresses a number of audit-related matters, including:
– Identifying and assessing risks;
– Planning and performing audit procedures;
– Possible illegal acts;
– Reviews of interim financial information; and
– Acceptance and continuance of clients and engagements.
For audits nearing completion, the Spotlight addresses considerations with respect to subsequent events, other information, and auditor reporting.
In recent years, it seems that the Commission has tried to be more transparent about its own control deficiencies. This week, the Commission issued a statement providing details regarding its latest control deficiency, which this time took place in the Adjudication and Enforcement function.
One job that the Commission has which does not receive a great deal of attention is that the Commission itself serves an administrative “court,” serving in an adjudication role on certain matters. For example, if someone wishes to appeal the ruling of one of the SEC’s Administrative Law Judges, then they would go to the Commission itself as the appellate body. The Commission is supported by the Adjudication staff in the Office of General Counsel, who generally manage the process and prepare recommendations for the Commission on the matters. When I first started at the SEC I worked for the agency’s Administrative Law Judges and became familiar with this administrative process, and then worked closely with the Adjudication staff when I served as Chief Counsel of Corp Fin.
The Commission’s control deficiency related to the separation of the Adjudication staff and the staff in the Division of Enforcement. A level of separation is important to be maintained in order to preserve the integrity of the process, because the Division of Enforcement is always a party to the appellate process the plays out before the Commission. The control deficiency involved access by staff in the Division of Enforcement to certain memoranda prepared by the Adjudication Staff through databases maintained by the Office of Secretary, which the Commission described as follows:
The Commission has determined that, for a period of time, certain databases maintained by the Commission’s Office of the Secretary were not configured to restrict access by Enforcement personnel to memoranda drafted by Adjudication staff. As a result, in a number of adjudicatory matters, administrative support personnel from Enforcement, who were responsible for maintaining Enforcement’s case files, accessed Adjudication memoranda via the Office of the Secretary’s databases. Those individuals then emailed Adjudication memoranda to other administrative staff who in many cases uploaded the files into Enforcement databases.
The good news here is that, while the internal memos from the Adjudication staff were available to all of the staff in the Division of Enforcement for a period of time, the Enforcement staff attorneys who were working on the two matters identified in the Commission’s statement did not actually access those memos while they were investigating and prosecuting the matters. The Commission indicates that it is taking remedial steps to prevent this sort of thing from happening again. It is obviously a serious control lapse, given that there is already a perception (whether right or wrong) that the deck is stacked against the individuals and entities that have their cases litigated through the administrative process rather than in a court of law.
Things are moving surprisingly fast with the International Sustainability Standards Board (ISSB), which was established in November 2021 at COP26 to develop a comprehensive global baseline of sustainability disclosures. This new standard setter consolidates the CDSB and the Value Reporting Foundation (the combination of SASB and IIRC) under the auspices of the IFRS Foundation.
Wasting no time, last week the ISSB announced the publication of exposure drafts that it says build upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements derived from SASB Standards. The ISSB is seeking feedback on the proposals over a 120-day consultation period closing at the end of July, and it plans to issue new Standards by the end of the year.
For more in-depth coverage of these developments, be sure to sign up for PracticalESG.com today!