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Lawrence Heim recently noted on the PracticalESG.com blog that, last Wednesday, the NYSE withdrew its Natural Asset Company (“NAC”) listing standard proposal that had been pending with the SEC since September 2023. Liz blogged about the NYSE’s proposal when it was initially filed with the SEC, noting that an NAC would be a corporation with the primary purpose of actively managing, maintaining, restoring, and growing the value of natural assets and their production of ecosystem services.

The proposed listing standards, which were at least two years in the making before being submitted to the SEC, would have required a listed NAC to periodically publish an “Ecological Performance Report,” which would provide key information about the NAC’s performance under a framework developed by Intrinsic Exchange Group (“IEG”), which had been collaborating with the NYSE on the NAC product. An example of how an NAC might have been used in real life would be that a government or individual controlling a natural resource such as a rain forest could set up an NAC and raise capital through an offering of securities listed on the NYSE that would be invested in managing and maintaining that rain forest.

I have been closely following NACs for some time, because potential clients were interested in the novel concept. Admittedly, the proposal was somewhat difficult for people to understand and was potentially controversial, so it was difficult to predict exactly how this effort would ultimately play out once the SEC considered the proposal. It seemed at times that the proposal was somehow tied to the SEC’s efforts to adopt climate disclosure rules, because the NYSE would require its own standards for the information that investors would use when evaluating the performance of the product.

What actually happened with the proposal that ultimately resulted in last week’s withdraw by the SEC pretty unusual. Back in December, the SEC had taken the rare step of instituting proceedings under Section 19(b)(2)(B) of the Exchange Act to determine whether to approve or disapprove the proposed rule change, which involved soliciting additional comment on specific areas of concern and providing until January 18 for those additional comments. It is unusual for exchange proposals to get to this phase, because typically the exchanges will work closely with the SEC to avoid this embarrassing outcome. It appears that the NAC proposal encountered significant opposition, particularly with respect to how NACs could impact the management of public lands. The proposal faced opposition from the House Natural Resources Committee, trade groups, local and state public officials and others. The level of opposition suggests that we are unlikely to see a revised version of NACs come back to life.

– Dave Lynn