While big institutional investors push the SEC for climate disclosure rules that would make it easier to compare corporate info, the grassroots effort among smaller shareholder proponents also shows no signs of stopping. Climate proposals are proliferating in both number & type, according to the 112-page “Proxy Preview” issued last week by As You Sow, Si2 and Proxy Impact. Here’s an excerpt (also see the resources in our “Proxy Season” and “Shareholder Proposals” Practice Areas):
Climate change has jumped to the top of the proxy season agenda this year and is the biggest single topic. Climate-related concerns undergird a growing number of proposals that seek consistency between corporate policy and political influence, too. Resolutions about environmental management also implicitly address the climate, but so do new human rights resolutions about environmental justice. In all, there are 145 proposals about the environment, up substantially from 91 last year.
The report also shares these stats:
– The number of proposals specifically on climate change has nearly doubled to 110, up from 79 last year.
– A striking change is the near-total focus on greenhouse gas (GHG) emissions targets, with most proposals asking for a transition to net-zero status by 2050. Only eight ask about deforestation and water. Sixty-eight of the 101 resolutions about carbon asset risk address emissions (up from 29 at
this point last year).
– Proponents are starting from a position of strength established last year when average support for climate proposals topped 50 percent for the first time.
– New proposals are targeting use of carbon offsets, accounting & reporting controls for emissions, cryptocurrency carbon footprint, financing of fossil fuels, and social inequities relating to a “just transition”
– After gradually diminishing from a high of nearly 50 proposals 10 years ago, the number of environmental management proposals has risen again, to 35, with more likely. These include proposals about plastics, repairing products to reduce waste, chemical footprints, agricultural practices, and mining.
These trends don’t just create headaches for management and securities lawyers – they’re affecting director support. That’s one reason why creating, maintaining & disclosing a viable net-zero transition plan is becoming so important.
Join us tomorrow at 2pm ET for the webcast – “Shareholder Insights: 2022 Priorities” – to hear from Council of Institutional Investors’ Glenn Davis, Dimensional Fund Advisors’ Kristin Drake, Sustainable Governance Partners’ Rob Main, and Federated Hermes – International’s Tim Youmans. We’ll be discussing key priorities, voting policy adjustments and how to maximize engagement opportunities during the heart of the proxy season.
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.
Members of TheCorporateCounsel.net are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, subscribe now by emailing sales@ccrcorp.com – or call us at 800.737.1271.
This morning, the Commission will consider a climate disclosure proposal that could significantly change controls & reporting practices. The flurry of recent proposals – including on Rule 10b5-1 plans, buybacks and cyber disclosure – suggests that the floodgates are opening for Chair Gary Gensler’s regulatory agenda. And it comes on the heels of a very active conclusion to the term of prior SEC Chair Jay Clayton. The Commission has now bestowed us with 20+ rule changes and proposals over the past two years! Are you keeping up?
Maybe it’s middle-age or lack of sleep (thanks, kids), but I for one am having a hard time remembering what has recently changed – and what might be changing in the near future. In response to member requests, we’ve created this “cheat sheet” to track selected rulemaking and show where on our site you can find practical guidance on each topic. You can find the cheat sheet via the blue nav bar at the top of the home page.
We are always open to suggestions on new ways to help our members look good. Email us any time to share what would make your work life easier.
To someone who doesn’t spend their days advising on securities law compliance, the procedural ins & outs of the Commission’s rulemaking might seem about as interesting as watching paint dry. But around here, we get pretty jazzed about the nuances, and it’s not just because Schoolhouse Rock was one of the most impactful shows of my childhood.
Dave, Alan, and many of our speakers and members have spent big parts of their career on the Staff, where they have had a hand in creating and interpreting rules and regulations. Many of our members also actively participate in the rulemaking process through comments and meetings. We share details that a lot of folks gloss over because our community is so involved and because the backstory can be important to understanding why a rule turned out the way it did and how the SEC wants it to be applied. We’ve written about:
A lot goes in to the rulemaking process, with the goal of creating disclosure rules that are both workable for companies and informative to investors, to support the SEC’s 3-part mission. For a great “101” of how the SEC rulemaking process works, check out this 2-minute video from Persefoni’s Kristina Wyatt.
As we head into proxy season, make sure to stay in-the-know on the latest developments by subscribing to our “Proxy Season Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply entering their email address on the left side of that blog. Here are some of the latest entries:
– Vote No Campaigns: Getting More Sophisticated?
– T. Rowe Completes Spin-Off That Could Affect Smaller Co Voting & Engagements
– Big Decline in 14a-8 No-Action Requests: New Normal?
– Sustainable Packaging Proposal Achieves Record-Breaking 94.2% Support
– What to Do Now to Get Your Retail Vote
– 2022 Proxy Season: Be On Alert for Eroding Director Election Support
If you’re not already a member and able to access our daily updates, sign up today by emailing sales@ccrcorp.com – or call 1-800-737-1271. This blog and our many other proxy season resources will equip you with practical guidance on disclosure, shareholder resolutions & voting trends, so that you’re not caught off-guard during the busiest time of year.
We’re seeing a tremendously positive reception to our new membership site, PracticalESG.com. Thank you to everyone who’s signed up so far!
In the first couple of weeks of being live, we’ve continued to build out our organized content library with practical checklists and analysis – and we’ve held the following webcasts for members:
Don’t miss out! Only one week remains in our offer for 25% off the regular subscription pricing. You can sign up online – or email sales@ccrcorp.com today or call 1-800-737-1271 – to take advantage of this one-time promo event and get tools to make your ESG efforts easier & more successful.
Yesterday, the SEC gave notice of an open meeting next Wednesday, March 9th. There’s one item on the agenda:
The Commission will consider whether to propose amendments regarding cybersecurity risk management, strategy, governance, and incident disclosure.
This meeting isn’t too much of a surprise. It comes on the heels of last month’s cybersecurity proposal for registered investment advisers and investment companies – and at a time when cyber threat levels have reached new heights. Lawmakers have been urging SEC Chair Gary Gensler to follow through on his plan to propose rules. John blogged a couple months ago about what the new disclosure rules might include.
In a webcast last year – “Cyber, Data & Social: Getting in Front of Governance” – we talked about the importance of social media oversight & controls. The guidance is more on-point than ever now that shareholders have filed a class action complaint against a company for mistakenly tweeting just a portion of financial results (the good part, about a revenue jump).
The tweet – which was subsequently deleted – went out before the scheduled release time for the official earnings release, which provided a less rosy full picture (net loss and a miss of analyst estimates). Shareholders are therefore alleging that the tweet omitted material information and violated Section 10(b) and Rule 10b-5. Over on the “D&O Diary” blog Kevin LaCroix provides analysis:
This lawsuit has only just been filed and it remains to be seen how it will fare. Among other challenges the plaintiffs will face is demonstrating that the defendants acted with scienter – this pretty obviously was a goof-up of some kind, not some devious plan to hoodwink the market. Pretty clearly, something got short-circuited in the social media publication process. Arguably, the mistake was planning any type of social media release in advance of the release of the full results. But while these missteps may be deeply regrettable and even arguably negligent, it remains to be seen whether they will prove to be sufficient to establish securities fraud.
Among the many unusual features of this complaint is the unusually short class period. The putative class of investors on whose behalf the complaint was filed consists of investors who traded during a very short time period on the afternoon of February 10. I am sure there are readers out there who will point out similarly short class periods, but a class period this short is, in my experience, highly unusual if not unique. In addition to the short class period, the complaint itself –– which weighs in at nine pages in length – might be the shortest securities class action lawsuit complaint I have ever seen.
The one thing that is for sure is that the allegations in this complaint underscore the need for companies to build some protective processes around their social media practices, particularly when it comes to using social media to transmit news about the company’s operating and financial performance. As I noted above, the real error here may have been using social media to release partial financial results ahead of the full financial release. At a minimum, the allegations show that if the company is going to incorporate social media activities as part of its release of financial results, the social media activities should be carefully coordinated with the more traditional releases. Arguably, the use of social media should be as fully supervised as a full release would be.
In a sign that the height of shareholder engagement season is approaching, BlackRock Investment Stewardship has released its 2022 Engagement Priorities. The asset manager’s priorities are broadly the same as last year – which mapped to the UN Sustainable Development Goals – and signal a continued focus on board processes and accountability for long-term value creation.
The 10-page summary document identifies “Key Performance Indicators” for each of the main priorities. On top of the summary, BIS issued updated versions of its very detailed commentary on its engagement approach to:
1. Board Quality & Effectiveness – For companies with which BlackRock wishes to engage to understand the board’s role, it wants dialogue with a non-executive director. BlackRock assesses boards based on independence, tenure limits, time commitments, election cycles and diversity. BlackRock also wants companies to disclose their approach to ensuring meaningful board diversity and wants to see self-identified demographics on an aggregate basis, and understand how board composition aligns with the company’s strategy & business model.
2. Strategy, Purpose & Financial Resilience – BlackRock wants companies to set out how they’ve integrated business-relevant sustainability risks & opportunities. BIS encourages companies to disclose industry- or company-specific metrics to support their narrative on how they have considered key stakeholders’ interests in their business decision-making.
3. Incentives Aligned with Value Creation – BIS looks to companies to disclose incentives that are aligned with long-term value creation and sustained financial performance, underpinned by material and rigorous metrics that align with the company’s long-term strategic goals.
4. Climate Risk & Energy Transition – BlackRock encourages companies to discuss in their reporting how their business model is aligned to a scenario in which global warming is limited to well below 2°C, moving towards global net zero emissions by 2050. BIS encourages disclosures aligned with the four pillars of the TCFD—including scope 1 and 2 emissions, along with short-, medium-, and long-term science-based reduction targets, where available for the company’s sector. BlackRock won’t consider Scope 3 emissions disclosures & commitments “essential” for supporting directors.
5. Natural Capital – BlackRock wants info on how companies are managing material business risks & opportunities relating to natural resources such as air, water, land, minerals and forests.
6. Human Capital Management – BIS wants companies to provide info that shows how their approach to human capital management aligns with their stated strategy and business model, and to disclose actions they’re taking to support a diverse & engaged workforce.
7. Human Rights Impacts – BlackRock wants companies to discuss in their disclosures how the board oversees management’s approach to due diligence & remediation of adverse impacts to people arising from their business practices.
Each of these commentaries walks through BlackRock’s specific expectations and lists typical questions that they ask in engagement meetings. In total, the Investment Stewardship team published 53 pages of comprehensive guidance – on top of the 23-page voting guidelines and 20-page investment stewardship principles already issued. Hopefully that means that companies will be able to avoid any “gotchas” or surprises during engagements – and even more importantly, when it comes time to vote.
According to its updated “human capital management” commentary, BlackRock continues to believe that companies that have strong relationships with their workforce are more likely to deliver long-term shareholder value. Particularly in this labor market, robust HCM can be a competitive advantage – so companies need to explain how they set themselves apart. The commentary outlines several workforce-related topics that BIS is expecting to understand through disclosures & engagements – which may be mapped to the SASB materiality framework or other standards.
BlackRock isn’t alone. According to this WSJ article, other asset managers, as well as pension funds, are also continuing to clamor for more “human capital” info. In response to this investor appetite for specific data, the SEC is aspiring to propose amendments to the human capital disclosure requirements in Item 101 of Regulation S-K. Here’s a reminder of what a more prescriptive rule could include:
Commission staff have been working on a rule that would mandate additional disclosures around human capital since SEC Chairman Gary Gensler took office last April. The new requirements would likely be mandatory for public companies and could touch on turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety, he has said.
According to investors quoted in the article, most disclosure being provided in response to the principles-based 2020 rule isn’t getting them the info they want. In particular, the events of the past few years have heightened investor interest in turnover, health & safety, pay equity, and broader DEI progress – but only a small minority of companies publish specific metrics for those topics. Check out the memos in our “Human Capital Management” Practice Area for more analysis of disclosure trends under the current rule.
