Yesterday we covered a lot of ground at our Climate Disclosure Event. We discussed the expectations for the climate disclosure rules and the steps that companies should be taking now to prepare for adoption of the final rules. We also addressed the expectations from investors and other users of climate data. You will definitely want to check out the model disclosures that are based on the rules as proposed, as well as our useful checklist. Go to PracticalESG.com today to get access to the resources you will need to prepare for the SEC’s climate disclosure rules.
I often advise clients to wait for the SEC to adopt final rules before formulating their compliance efforts, because the final rules can often differ from what is proposed. The SEC’s proposed climate disclosure rules are different, and they demand your attention now. When adopted, these rules will require extensive compliance efforts on the part of companies and their advisers in what will ultimately be very short timeframes given the overwhelming amount of work that must be done to prepare the anticipated disclosures.
I encourage you to jumpstart your efforts by participating in our program today and attending our 1st Annual PracticalESG Conference. There is no cost to sign up for our Climate Disclosure Event today, so please register now.
On Monday, the Financial Stability Board (FSB), a group of financial regulators, treasury officials and central bankers from the G-20 nations, announced that it will be proposing robust global rules for cryptocurrencies in October of this year.
Back in February, the FSB published an updated risk assessment on crypto-assets, which outlined the group’s concerns over the rapid growth in crypto-assets. The report warned that crypto-asset markets are fast evolving, and could reach a point “where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system.” In its statement earlier this week, the FSB notes:
The recent turmoil in crypto-asset markets highlights their intrinsic volatility, structural vulnerabilities and the issue of their increasing interconnectedness with the traditional financial system. The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from crystallisation of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem. It may have spill-over effects on important parts of traditional finance such as short-term funding markets. An effective regulatory framework must ensure that crypto-asset activities posing risks similar to traditional financial activities are subject to the same regulatory outcomes, while taking account of novel features of crypto-assets and harnessing potential benefits of the technology behind them.
The FSB plans to report to the G-20 Finance Ministers and Central Bank Governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets. The FSB plans to work with international standard-setting bodies on a global regulatory approach to crypto-assets.
The work of the board of directors seems to be always expanding, which makes it all the more important to implement an effective committee structure. Over on the Mentor Blog on TheCorporateCounsel.net, Emily recently highlighted findings that were published by The Society for Corporate Governance and Deloitte on the structure of board committees, based on a survey of nearly 180 public companies. Here are some highlights from the report:
– Forming new committees: Just 13% of respondents added or are considering adding at least one new standing committee. Among those that added a new committee, a technology committee was most common; others included cybersecurity, sustainability, and ESG-related committees.
– Expanding board oversight responsibilities: 55% of respondents reported their board expanded oversight responsibilities of one or more of its standing board committees. Many respondents indicated that their boards expanded committee oversight responsibilities to include ESG, either by delegating individual topics to specific committees or by delegating ESG as a whole to the nominating and governance committee.
– Onboarding program: 45% reported having an onboarding program for new committee members; however, the prevalence correlates positively with market cap size. Many respondent comments indicated that committee onboarding typically occurs as part of new director onboarding.
– Rotation of members: While mandatory rotation remains rare, 39% of large-caps and 27% of mid-caps indicated their boards have non-mandatory policies or practices to rotate committee chairs; for other committee members, such policy was reported by 36% of large-caps and 24% of mid-caps.
I look forward to speaking with a great group of panelists tomorrow during our Climate Disclosure Event: The New SEC Climate Disclosures: Key Action Items Now. This two part program will focus on the practical steps that you can take to prepare for the adopting of climate disclosure rules and the expectations of those that will be reading your climate disclosure.
Part 1 of the program is Preparing Your Climate Disclosure: Practical Steps to Take Right Now, and this session will cover:
How to convey to your bosses & colleagues the major differences between this proposal and traditional SEC reporting, and existing ESG disclosures;
Tips for overcoming the new challenges that this disclosure will create;
Key steps for companies to take right now to prepare for compliance;
Former regulators’ perspectives; and
Lessons learned from preparing our model disclosures.
Part 2 of the program is Who’s Reading Your Climate Disclosure: Action Items to Meet Their Needs, and this session will cover:
ESG data that investors and others want, compared to what’s SG data that investors and others want, compared to what’s currently available;
Types of questions and disclosure reviews companies can expect from regulators;
How companies can prepare disclosure with an eye toward minimizing questions & risks;
How asset managers, institutional investors and other external audiences use climate disclosure; and
A look at our model disclosure and how it anticipates these issues.
There is no cost to attend this virtual program, so be sure to register today. Live event attendees are eligible for a $100 discount off our PracticalESG Conference and/or a $200 discount towards an annual subscription to PracticalESG.com.
It is not surprising that one of the areas of focus in the comment letters submitted to the SEC regarding the climate disclosure proposal is the SEC’s authority to adopt a comprehensive climate change disclosure regime. It is widely expected that, if adopted, the SEC’s rulemaking will be challenged in court, and that litigation is very likely to address the question of whether the SEC has the authority from Congress under the federal securities laws to address this topic in its disclosure rules.
As any student of administrative law will tell you, historically federal agencies have a good deal of latitude in crafting their rules, particularly in light of the “Chevron doctrine” or “Chevron deference.” In 1984, the Supreme Court decided Chevron v. Natural Resources Defense Council, which created the doctrine that courts normally must defer to a government agency’s reasonable interpretation of a law that it administers when that law’s language is ambiguous. The SEC has argued that Chevron deference should be accorded to its actions over the years, often to the agency’s advantage.
West Virginia limits Chevron by fleshing out the “major questions doctrine,” a longstanding judicial presumption that when an administrative agency asserts authority over questions of great economic and political significance, it may act only if Congress has clearly authorized it to do so. Or, as the Constitution puts it: “All legislative powers herein granted shall be vested in a Congress of the United States.”
With respect to the SEC, the piece goes on to note:
West Virginia and the major questions doctrine are certain to surface again soon. Take the Securities and Exchange Commission’s proposed climate-change disclosure regulations. The SEC has a statutory directive to protect investors, facilitate capital formation, and maintain the efficient operation of capital markets. It has neither the expertise nor the statutory authority to regulate greenhouse-gas emissions. In light of West Virginia, the SEC ought to withdraw its proposal.
It seems pretty unlikely to me that the SEC would withdraw its climate change disclosure proposal in light of the West Virginia decision, but perhaps the authority considerations in a post-West Virginia world could be taken into account by the agency when it is considering the adoption of final rules.
Last week, the SEC announced the filing of an insider trading enforcement proceeding with allegations that sounded very familiar:
The SEC’s complaint, filed in federal district court in the District of Columbia, alleges that in January 2020, NTRP invited Haywood to participate in a registered direct offering of shares. Before being told about the offering, Haywood expressly agreed not to trade on the material, nonpublic information he was about to receive. Notwithstanding this agreement, after receiving information about the offering, Haywood immediately sold more than 100,000 shares of NTRP stock. As alleged in the complaint, NTRP’s stock price dropped nearly 50 percent after the offering was announced. The complaint alleges that Haywood avoid losses of approximately $179,297.
Those allegations – trading after agreeing to keep information about a pending offering confidential – are exactly the same as those brought in the SEC’s complaint against Mark Cuban. That one didn’t go so well for the agency & it will be interesting to see if it fares better in this case.
Rule 14a-8(l) allows companies to decide whether or not to include information in its proxy statement about a proponent (name, address, and number of shares held), but should they? This Perkins Coie blog suggests a couple of reasons why companies should consider disclosing that information:
There is a growing trend of proposals that appear to try to drive votes through using buzzwords that are of interest to certain types of investors, such as greenwashing or diversity – but in fact may espouse views that are the opposite of what a casual reader might think the proposal says. Knowing the identity of the proponent may help investors to better understand the context of the proposal.
There can be other benefits to providing information about proponents as well. Investors might read a proposal from a proponent with 200 shares differently than one from a proponent with 20,000. They might also be interested to know when a proposal has been made by a representative that is in the business of submitting these proposals, and not by the shareholder themselves.
This Goodwin blog reminds everybody that it’s time to conduct the public float calculation that you’ll need to determine your filer status for next year:
For public companies with a calendar year-end, now is the time of year for a company to conduct its public float calculation that will determine its Exchange Act reporting status as an accelerated filer, large accelerated filer, non-accelerated filer, smaller reporting company (SRC), and/or emerging growth company (EGC). The following is a very brief summary of the complex rules that govern filer status and qualification as an SRC or EGC.
For calendar year-end companies, a company’s filing status for Exchange Act reporting purposes is determined based in part on the company’s public float as of the end of the second fiscal quarter. As such, public companies with a calendar-year end should perform their public float calculations as of June 30, 2022 to determine what their filing status will be as of December 31, 2022 so that they can plan their SEC filing calendar accordingly. The filing status will determine the due date for the Form 10-K for the fiscal year ended December 31, 2022, as well as the due dates for the three 10-Qs filed in 2023.
The blog also notes that while public float doesn’t affect eligibility for EGC status, it can indirectly affect termination of EGC status. That’s because if an EGC becomes a large accelerated filer, its EGC status will terminate as of the last day of the current fiscal year.
