Last year, the NYSE proposed to adopt new listing standards for the common equity securities of a “Natural Asset Company,” a new type of public company defined by the NYSE as “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.” Although existing regulatory and listing requirements would continue to apply to NACs, the proposal contemplated, in addition, a fairly elaborate new NAC governance and reporting ecosystem involving specific provisions in corporate charters, new mandatory policies (environmental and social, biodiversity, human rights, equitable benefit sharing), new prescribed responsibilities for audit committees and a new reporting framework, including mandatory “Ecological Performance Reports.” (See this PubCo post.) Why did the NYSE introduce this proposal? Notwithstanding all of the developments in ESG disclosure and investing (such as ESG funds), the NYSE contended that “investors still express an unmet need for efficient, pure-play exposure to nature and climate.” According to the Intrinsic Exchange Group, which pioneered the NAC concept and advises public sector and private landowners on the creation of NACs, “[b]y taking a NAC public through an IPO, the market transaction will succeed in converting the long-understood—but to-date unpriced—value of nature into financial capital. This monetization event will generate the funding needed to manage, restore, and grow healthy ecosystems around the world and bring us closer to achieving a truly sustainable, circular economy.” At the time of the proposal, I asked whether this proposal would be a game changer to rescue our environment or merely a chimera? The answer, at least for now, seems to be chimera. In December, the SEC instituted proceedings to determine whether to approve or disapprove the proposal, asking for comment on a number of questions that were based broadly on concerns raised by commenters, such as issues regarding the licensing arrangements for NACs and the relationship between NYSE and IEG. Then, on January 17, 2024, the NYSE withdrew its proposal. Why?
Why was the proposal withdrawn? An NYSE spokesperson told Newsweek that, “[a]fter reviewing feedback from regulators, market participants and others, we have withdrawn our proposed rule filing to enable the listing of Natural Asset Companies.” I randomly checked out some of the comment letters that were submitted on the proposal. While there were certainly some that favored the proposal and even offered technical comments and suggestions, most of the comment letters that I saw were quite negative—references to “Satan,” (that’s always a bad sign), “land grab by elites,” “ponzi scheme,” “hostile foreign powers,” “‘rights grabbing’ idiots” who “sit in dark rooms thinking of ways they can make rules that tie our hands and yet make no sense at all,” and “what the heck is wrong with you people?” You know, the usual.
Some of the opposition, however, was quite serious and some reflected an organized effort, such as a letter from 25 attorneys general who argued that the proposed rule exceeded the SEC’s statutory authority, in part because it did not protect investors and the public interest but rather “threaten[ed] substantial harm on multiple fronts.” In addition, the AGs contended that the proposed rule would work in unison with and serve as a “funding mechanism” for a rule recently proposed by the Bureau of Land Management, which the AGs believed would “lock up land to prohibit productive economic uses.” They maintained that the NYSE rule was “part of an interlocking scheme designed to facilitate another agency’s [the BLM’s] violation of the law.” One Congressman, a member of the House Committee on Natural Resources, wrote to say that “NACs contradict both public lands and securities law….The NYSE has financial interests in IEG and a seat on its board, with IEG being ‘entitled to a share of the revenues generated by the Exchange from the listing and trading of NACs on the NYSE,’…an unusual business relationship to say the least. This proposal is thus not in the best interest of the U.S. or the investing community, but solely in the best interest of the entity proposing the change and its business partner.” The Idaho State Treasurer’s office argued that the “proposals for NACs to acquire ‘ecological performance’ rights on public resources is alarming. This concept stands to vastly disrupt the current regime of land management, and the public participation in management decisions mandated by federal law, by enabling non-government corporate control over activities that occur on public lands. Allowing ecological interests in federal lands to be monetized and traded by private investment portfolios could lead to outcomes on public lands harmful to the very communities where these resources are located.”
The Chair and CEO of the IEG told Newsweek that “most of the criticism was based on misinformation about the Natural Asset Companies, or NACs. ‘I think there were the misconceptions that NACs would lock away resources or force government controls onto private lands, and none of that is accurate….When you start with misinformation, those conspiracies can grow and we got caught up in it.’”
