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On Friday, the SEC posted the notice & request for comment for a proposed listing standard from the NYSE that would create a new asset class for “Natural Asset Companies.” Here’s an excerpt that defines what an “NAC” is:

For purposes of proposed Section 102.09, a NAC is a corporation whose primary purpose is to actively manage, maintain, restore (as applicable), and grow the value of natural assets and their production of ecosystem services. In addition, where doing so is consistent with the company’s primary purpose, the company will seek to conduct sustainable revenue-generating operations. Sustainable operations are those activities that do not cause any material adverse impact on the condition of the natural assets under a NAC’s control and that seek to replenish the natural resources being used. The NAC may also engage in other activities that support community well-being, provided such activities are sustainable.

NYSE announced that it was working to develop this new asset class way back in 2021, so it’s been at least two years in the making. A lot has changed since then! ESG sentiment has become more discerning, and many companies have become more transparent over the past two years about environmental risks and emissions. But the proposal predicts that demand for this separate type of investment opportunity exists and will continue to grow because “investors still express an unmet need for efficient, pure-play exposure to nature and climate.”

Under the proposed standard, in addition to GAAP financial reporting provided in SEC filings, NACs would be required to periodically publish an “Ecological Performance Report.” Here’s more detail:

The EPR provides statistical information on the biophysical measures (e.g., tons of carbon, acre feet of water produced), condition, and economic value of each of the ecosystem services produced by the natural assets managed by the NAC. This will allow investors to gauge the effectiveness of management. The information will be consistently produced and periodically reported, following best practices from accepted valuation methodologies, as outlined in the Reporting Framework (as defined below).

The EPR produced by a NAC must follow IEG’s Ecological Performance Reporting Framework (the “Reporting Framework”). The Framework, in turn, is based on the natural capital accounting standards established in the United Nations System of Environmental- Economic Accounting – Ecosystem Accounting Framework (“SEEA EA”).

The EPR will measure, value, and report on the ecosystem services and natural assets managed by a NAC. Under the proposed amendments to the Manual, NACs will conduct a Technical Ecological Performance Study (“Technical EP Study”) annually, following the Reporting Framework. This Technical EP Study will generate the information used to prepare and publish the EPR. The EPR and Technical EP Study must be examined and attested to by a public accounting firm that is registered with the Public Company Accounting Oversight Board (“PCAOB”) and is independent from the NAC and NAC licensor, if applicable, under the independence standard set forth in Rule 2-01 of Regulation S-X (“Independent Reviewer”).

NACs would also be required to adopt policies on biodiversity, human rights, and other matters and post those on their website. The proposal gives more detail on the reporting framework, license, charter & policy requirements, corporate governance standards, and more. The standard, if adopted, will also come with a bunch of new terms to add to your “ESG glossary,” because it includes a whole section dedicated to definitions. The SEC is requesting comments on the proposal.

– Liz Dunshee