Happy April! If you’re one of the many companies finalizing their proxy statements (including the beneficial ownership table) and turning to annual meeting preparation, check out this 2024 Annual Meeting Handbook from Broadridge covering the nuts and bolts of the annual meeting process & sharing helpful tips — like what documents Corporate Secretaries should have in their annual meeting binders.
We also have a great “Conduct of the Annual Meeting” webcast lined up for Thursday, April 11, from 2 to 3 pm Eastern. We’re excited to hear Peter Farah, Deputy General Counsel and Assistant Secretary, The J.M. Smucker Company, Carl Hagberg, Independent Inspector of Elections and Editor of The Shareholder Service Optimizer, William Kennedy, VP – Product, Broadridge Corporate Issuer Solutions, and Erick Rivero, Senior Assistant General Counsel, Intuit, provide practice pointers and discuss trends in meeting format & logistics, rules of conduct, and other matters companies will confront at their 2024 annual meetings.
After other jurisdictions, including the EU and California, adopted climate-related disclosure requirements, many in-scope companies stopped worrying quite as much about the looming specter of final SEC climate disclosure rules. It seemed like those jurisdictions were already requiring a heavy lift that could be leveraged for SEC reporting. And, as expected, when the final rules were adopted, they were significantly scaled back from the proposal. But now that we are almost a month out from adoption and companies and their advisors have further digested the 885-page adopting release, they recognize just how prescriptive some of the requirements are (in ways that may differ from other reporting regimes) and how many complicated materiality judgments will need to be built into the climate reporting process — not to mention the work that will be involved for DCPs and ICFR.
As John and others have suggested, companies facing multiple reporting regimes should be engaging in a scoping exercise to determine what requirements apply to their operations and comparing what they will need to disclose in each jurisdiction. To that end, Kristina Wyatt of Persefoni recently addressed this topic in our related webcast, and now the ESG and Sustainability Advisory team at Cooley prepared this resource identifying key differences between the EEU’s Corporate Sustainability Reporting Directive (CSRD), California’s three climate disclosure laws (Senate Bills 253 and 261 and Assembly Bill 1305), and International Financial Reporting Standards (IFRS) S1 and IFRS S2 (which legislation in numerous jurisdictions may mandate). The alert includes helpful tables comparing the requirements and the timelines of each.
As the alert describes, the patchwork will only get more complicated. Check out the map of corporate sustainability disclosure requirements in this HLS blog from the ISS team. While the SEC said in the adopting release that “jurisdictions have not yet integrated the ISSB standards into their climate-related disclosure rules,” Cooley says that additional complication is imminent:
The reporting landscape is likely to become increasingly complex, with numerous jurisdictions, including Australia, Hong Kong, Singapore and the United Kingdom, planning to adopt, or having already adopted, legislation to integrate the climate-related disclosure framework developed by the International Sustainability Standard Board (ISSB) – International Financial Reporting Standards (IFRS) S1 and IFRS S2 – into their corporate reporting.
Companies will need to assess how global regulatory developments impact their SEC disclosures related to transition risk and in other, more specific ways. Here’s an example from the alert:
In addition, on March 15, 2024, the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) was approved by the Council of the EU. Subject to final approval by the European Parliament, expected in April, the CSDDD will become law and will apply to certain companies as early as 2027. For in-scope US companies, the CSDDD will generate additional climate-related obligations, including a mandatory requirement to adopt and put into effect a climate transition plan that aims to ensure, through best efforts, that their business models and strategies are compatible with the limiting of global warming to 1.5 °C. In addition to potentially impacting SEC climate target and transition plan disclosures, these CSDDD obligations may also impact how companies analyse climate risk and emissions materiality in future SEC disclosure.
As if the regulatory patchwork wasn’t complex enough, you can’t lose sight of investor demands, which the Cooley alert noted may drive further utilization of ISSB’s IFRS S-1 and S-2. You may also need to consider what tools investors use when assessing their own exposure to climate-related risk and how their investments in portfolio companies impact their risk exposure — even if you’re not using or disclosing how you use those tools. For example, ISS ESG, the sustainable investment arm of ISS STOXX, just announced last week that it’s expanding its suite of suite of Climate Solutions, which are intended to “help investors gain a better understanding of their exposure to climate-related risks and gain insights in managing their investment portfolios,” with a new Scenario Analysis Dataset.
The new dataset covers around 30,000 issuers. The outputs, such as Implied Temperature Rise or cross point year metrics, are based on the comparison of Scope 1, 2 and 3 emissions projections with sector- and region-specific pathways. The different approaches to emissions projections and the range of pathways contribute to an in-depth forward-looking analysis of climate-related risks and opportunities, at medium and long-term time horizons. For instance, ‘realized’ emissions and emissions projections that include issuers’ targets will allow investors to assess the level of ambition of, and progress towards, their own disclosed GHG reduction target.
Leading public climate pathways incorporated in the new Scenario Analysis Dataset include the International Energy Agency’s World Energy Outlook 2022 (IEA), The United Nations Environment Programme’s One Earth Climate Model (OECM) and the Network for Greening the Financial System (NGFS) Climate Scenarios Phase 3. The set also captures the Net Zero emissions by 2050 scenarios based on the Glasgow Financial Alliance for Net Zero (GFANZ) recommendations.
Companies that incorporate scenario analysis to assess the impact of climate-related risks or are considering doing so may want to dig deeper on the new Climate Scenario Analysis dataset to understand what information will be provided to ISS clients and how this may impact their portfolios.
Here’s something John shared last Friday on the DealLawyers.com blog:
The Chancery Court’s recent decisions in Crispo, Moelis, and Activision Blizzard have caused a lot of angst in the M&A community. Yesterday, the Delaware Bar took steps to calm the storm by recommending proposed amendments to the DGCL designed to address the uncertainty created by these decisions. Here’s an excerpt from this Richards Layton memo summarizing some of the proposed changes:
– Section 122, which enumerates express powers that a corporation may exercise, is being amended in response to the Delaware Court of Chancery’s opinion in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., — A.3d —, 2024 WL 747180 (Del. Ch. Feb. 23, 2024), to provide that a corporation may enter into governance agreements with stockholders and beneficial owners where the corporation agrees, among other things, to restrict itself from taking action under circumstances specified in the contract, require contractually specified approvals before taking corporation action, and covenant that it or one or more persons or bodies (which persons or bodies may include the board or one or more current or future directors, stockholders or beneficial owners of stock) will take, or refrain from taking, contractually specified actions.
– New Section 147 is being added in light of the Delaware Court of Chancery’s opinion in Sjunde AP-Fonden v. Activision Blizzard, Inc., 2024 WL 863290 (Del. Ch. Feb. 29, 2024), to provide that, where the DGCL requires the board of directors to approve an agreement, document or other instrument, the board may approve the document in final form or substantially final form. The new section will also provide that, where the board has previously taken action to approve an agreement, document or other instrument that is required to be filed with the Delaware Secretary of State (or required to be referenced in a certificate so filed (e.g., a certificate of merger or certificate of amendment)), the board may ratify the agreement, document or other instrument before the instrument effecting the act becomes effective.
– New Section 261(a)(1) is being added in light of Crispo v. Musk, 304 A.3d 567 (Del. Ch. 2023), to provide, among other things, that a target company may include in a merger agreement a provision that allows the target to seek damages, including damages attributable to the stockholders’ loss of a premium, against a buyer that has failed to perform its obligations under the merger agreement, including any failure to cause the merger to be consummated.
– New Section 261(a)(2) is being added to provide that stockholders may, through the adoption of a merger agreement, appoint a person to act as stockholders’ representative to enforce the rights of stockholders in connection with a merger, including rights to payment of merger consideration or in respect of escrow or indemnification arrangements and settlements.
Other proposed amendments would address additional concerns raised by these decisions. In response to Activision, Section 232 of the DGCL would be amended to provide that any materials included with a notice to stockholders would be deemed to be part of that notice, and a new Section 268 would be added to address ministerial matters relating to the adoption of a merger agreement.
Yesterday, the SEC’s climate disclosure rules made it into the Federal Register. That means that the rules will be effective on May 28th (although compliance with the rules will not be required until the various dates specified in the rules for different types of information and issuers). The timing of this publication diminishes the risk that any change in Presidential Administration would result in the undoing of the rules. Rather, as Dave blogged last week and discussed in our webcast earlier this week, a resolution under the Congressional Review Act would be going to President Biden for review (and likely would be vetoed).
Of course, as everyone knows, this does not mean the rule is out of the woods. This Cooley blog details the latest twists & turns in the 8th Circuit litigation, which involve petitioners requesting a new administrative stay and the SEC submitting a request that the stay be denied, as well as reporting that a new petition was submitted in the 5th Circuit after the consolidation order was issued.
Companies, meanwhile, are gearing up for compliance. I shared a redline of the rule text in yesterday’s blog. I’ve now been alerted to a streamlined alternative that weighs in at a breezy 63 pages (it strips out the intro language for each rule). It also provides coloring for each type of edit – e.g., red for deletion, blue for addition, green for movement. The redline is an appendix to Holland & Knight’s client alert on the new rules. At this stage, we are all continuing to get our arms (and minds) wrapped around the new requirements, and you really cannot have too many resources to help with that. We are continuing to post memos in our “Climate Change” Practice Area!
Earlier this month, Meredith blogged about a federal district court case out of Alabama that held that the Corporate Transparency Act is unconstitutional. She also wrote about FinCEN’s statement in response to this holding – which said that the government will continue to enforce CTA requirements against everyone except the specific plaintiffs in this case – and she predicted that the DOJ would appeal.
Sure enough, the DOJ has filed this notice of appeal. We do not yet know when the 11th Circuit will hear this case, what the decision will be, and whether a ruling will be issued before December 31, 2024, which is the compliance deadline for entities formed before January 1, 2024. This Denton’s blog points out that FinCEN could seek a stay of the District Court’s ruling on top of its previously issued statement – which may help companies read the tea leaves of where the court ultimately will come down.
Remember that public companies need to conduct a compliance review despite appearing to have an exemption from this statute. And this King & Spalding memo says it’s too early to write off the CTA. It encourages everyone to keep marching ahead – at least with respect to conducting the compliance review and establishing processes.
We know that many of you experienced significant problems with the live stream of Wednesday’s “The SEC’s Climate Disclosure Rules: Preparing for the New Regime” webcast. We sincerely apologize for the inconvenience and are working with our tech team to ensure this doesn’t happen again. We strive to offer our members high-quality programming in a user-friendly, accessible format. The webcast was excellent, and we think that those of you who listen to the archive – or read the transcript when it’s posted in the next week or so – will agree. However, the technical quality of the live webcast clearly did not live up to those standards, and for that we are truly sorry.
We don’t think simply saying “we’re sorry” is enough, so we’re also trying to make amends as best we can. Our team hustled to get the on-demand audio replay of the webcast posted as soon as possible. I’m pleased to say that it’s now available and does not have any of the audio problems experienced with the live feed. We are also applying for on-demand CLE credit for the webcast, so those of you who were counting on picking up credit for the webcast should be able to do that as well (pending approval from your state). You’ll need to follow the instructions on the webcast’s landing page to apply for on-demand CLE credit.
We sincerely appreciate your continued support of our sites and deeply value your membership. We will continue to strive to provide you with the quality resources and programming that you’ve come to expect from us, and we’re working hard to ensure that we don’t experience a problem like this again.
I am very sad to share that we have lost a true legend of the securities bar, former SEC Commissioner and Brooklyn Law School professor Roberta Karmel. Roberta passed away at her home in Hastings-on-Hudson, New York on March 23rd. Roberta made enormous contributions to the securities laws and to our profession, and I am truly heartbroken to have lost a wonderful friend and mentor.
As Roberta’s obituary notes, she grew up in Chicago and graduated from Radcliffe College and New York University School of Law. She started her career in the New York Regional Office of the SEC, rising to the position of Assistant Regional Administrator. Roberta moved from the SEC to private practice, and in 1977, President Jimmy Carter nominated her to serve as an SEC Commissioner. Roberta was subsequently confirmed by the Senate, and she became the first woman to serve as an SEC Commissioner. In 1980, Roberta returned to private practice and began her career in academia, where she distinguished herself as “a prolific scholar, publishing books and scores of articles on financial regulation and corporate law, and lectured as a visiting scholar at universities in Beijing, Bologna, Frankfurt, London, Melbourne, Paris, Shanghai, Seattle and Sydney.” Roberta retired as the Centennial Professor of Law of Brooklyn Law School, where she taught for 36 years. The title of one of Roberta’s most recent publications presents a very accurate description of her amazing career: Life at the Center: Reflections on Fifty Years of Securities Regulation.
After having admired Roberta from afar for many years, I was incredibly fortunate to have the opportunity to work with her as a trustee of the SEC Historical Society, where we all benefited from her keen insights and her far-reaching knowledge and wisdom. Roberta was a wonderful mentor and friend who helped me in so many ways. I had hoped that Roberta would join me for the webcast on materiality that I moderated for the SEC Historical Society just a few weeks ago, but unfortunately her health did not permit her to join us, and she expressed concern that she was unable to participate in the dialogue on such an important topic. I often think about the moving speech that Roberta delivered at my request to the ABA Business Law Section’s Federal Regulation of Securities Committee meeting back in 2016, where she noted “partisanship has undermined the SEC’s mission and credibility and made it very difficult for the SEC to complete rulemaking mandated by statute.” I distinctly recall how the entire audience attending in the ballroom was blown away by Roberta’s thoughtful words that day.
Of course, Roberta was not just a titan of the securities bar, she was beloved by her family, friends, colleagues, students and fellow SEC alumni, and to all of them I offer my deepest condolences.
On Tuesday of this week, BlackRock CEO & Chair Larry Fink published his letter to investors, which continues the theme in this week’s blogs of policies & reports from the world’s largest asset managers. BlackRock’s letter to shareholders doesn’t drop any bombshells about its portfolio company engagements or how it will vote at portfolio company meetings this spring – which is a good thing. Even without that drama, it understandably continues to get big headlines – and it is still an overall interesting read.
One thing I learned from this year’s letter is that, just like yours truly, Larry Fink’s dad owned a shoe store. The other thing I deduced is that this mid-March letter to investors could be the “new normal” for BlackRock communications. Based on the communication approach last year and this year, the January tradition of the “BlackRock Letter to CEOs” has fallen by the wayside, at least for now.
Something else that has fallen by the wayside is express “ESG” terminology, which has become too politically charged for Larry Fink’s tastes. However, BlackRock is not backing down from its multi-year messaging around the inevitable investment opportunity in the transition economy – specifically, with “energy infrastructure” as countries look to decarbonize their economies while at the same time achieving energy security. This year, though, the emphasis is on “energy pragmatism.” Here’s an excerpt:
Germany is a good example of how energy pragmatism is still a path to decarbonization. It’s one of the countries most committed to fighting climate change and has made enormous investments in wind and solar power. But sometimes the wind doesn’t blow in Berlin, and the sun doesn’t shine in Munich. And during those windless, sunless periods, the country still needs to rely on natural gas for “dispatchable power.” Germany used to get that gas from Russia, but now it needs to look elsewhere. So, they’re building additional gas facilities to import from other producers around the world.
Or look at Texas. They face a similar energy challenge – not because of Russia but because of the economy. The state is one of the fastest growing in the U.S., and the additional demand for power is stretching ERCOT, Texas’ energy grid, to the limit.
Today, Texas runs on 28% renewable energy – 6% more than the U.S. as a whole. But without an additional 10 gigawatts of dispatchable power, which might need to come partially from natural gas, the state could continue to suffer devastating brownouts. In February, BlackRock helped convene a summit of investors and policymakers in Houston to help find a solution.
Texas and Germany are great illustrations of what the energy transition looks like. As I wrote in 2020, the transition will only succeed if it’s “fair.” Nobody will support decarbonization if it means giving up heating their home in the winter or cooling it in the summer. Or if the cost of doing so is prohibitive.
“This is where the power of the capital markets can be unleashed to great effect,” the letter continues. And this ode to capital markets is the other big theme of the letter. In addition to highlighting BlackRock’s energy-related investments – such as a $12.5 billion agreement to acquire Global Infrastructure Partners (which owns things like pipelines, airports, wind projects, and more), the letter spotlights how capitalism makes America great. . . but not perfect.
Among other things, the letter discusses how BlackRock products can help solve not only our infrastructure problems, but also the looming global retirement crisis – and with that, the lack of hope among young people. While some might say that’s grandiose, I found it refreshing to read some traditional “marketing spin” in the annual letter to shareholders. Here are a few other interesting nuggets:
1. BlackRock will continue to invest in private markets in addition to public: “In private markets, we are prepared to capitalize on structural growth trends. Whether it’s executing on demand for much-needed infrastructure, or the growing role of private credit as banks and public lenders move away from the middle market, private capital will be essential. BlackRock is poised to capture share through our scale, proprietary origination, and track record. And we believe our planned acquisition of GIP will meaningfully accelerate our ability to offer our private markets capabilities to our clients.”
2. BlackRock will be offering more active equity funds (i.e., it’s not just “passive” index funds anymore): “BlackRock has been critical in expanding the market for ETFs by making them accessible to more investors and delivering new asset classes (like bonds) and investment strategies (like active).”
3. BlackRock will apply its voting policies to promote corporate governance & financial resilience: “we built one of the largest stewardship teams to engage with companies, often alongside our investment teams, because we never believed in the industry’s reliance on the recommendations of a few proxy advisors. We knew our clients would expect us to make independent proxy voting decisions, informed by our ongoing dialogue with companies – a philosophy that continues to underpin our stewardship efforts today. For our clients who have entrusted us with this important responsibility, we remain steadfast in promoting sound corporate governance practices and financial resilience at investee companies on their behalf.”
4. Voting Choice will continue to expand: “In 2022, BlackRock was the first in our industry to launch Voting Choice, a capability that enabled institutional investors to participate in the proxy voting process. Today, about half of our clients’ index equity assets under management can access Voting Choice. And in February, we launched a pilot in our largest core S&P 500 ETF, enabling Voting Choice for individual investors for the first time.”
When the Commission adopted climate disclosure rules earlier this month, it went to great lengths to demonstrate that the final rules incorporated feedback from the thousands of comment letters that were submitted in response to the proposal. In the open meeting at which the new rules were adopted, several of the Commissioners discussed ways in which the final rules differed from the proposal – which Meredith helpfully summarized for us all at the time.
To see how these accommodations are reflected in the actual line-item regulations, check out this 101-page redline that compares the final provisions of Reg S-X, Reg S-K, the affected forms and other statutes to what the Commission originally proposed. It’s wild that this redline tops 100 pages! But it is a lot quicker to read than the full 886-page adopting release – and it’s a good tool to help absorb the final rules.
