Category: ESG
Cooley Alert: Impacts for US Companies of the Proposed EU Omnibus Package
Here’s a recent Cooley Alert that some companies may be delighted—or at least relieved—to read: Impacts for US Companies of the Proposed EU Omnibus Package, from Cooley’s international ESG and sustainability advisory team. As you may know, the EU has adopted a plethora of legislation related to sustainability—the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy Regulation, the Corporate Sustainability Due Diligence Directive (CSDDD) and the Carbon Border Adjustment Mechanism (CBAM), to name some—and many of them are applicable to US companies that meet the reporting threshold. Some US companies have already begun preparing for compliance. But, as discussed in the Alert, perhaps that won’t be necessary just yet.
Cooley Alert: Policy updates regarding board diversity and proxy season considerations
How to deal with the issue of board diversity has become quite the conundrum. After the killing of George Floyd, many companies enhanced and championed their policies and commitments to DEI. But recent changes to the legal and political landscape—there’s an understatement for you—have had repercussions. Consider, for example, the collective impact of the Fifth Circuit decision vacating the SEC’s order approving Nasdaq’s board diversity rules (see this PubCo post), the 2023 decision by SCOTUS effectively ending affirmative action based on race in higher education admissions (with political, if not yet legal, spillover into the corporate world), the new Administration’s executive orders intended to put the kibosh on DEI programs altogether (which have been, and are likely to continue to be, mired in litigation, see this Cooley Alert), along with the increasing volume of anti-DEI activism and political pressure, manifested in part in litigation and anti-DEI shareholder proposals. (And see this article in The Atlantic about the implications of the absence of consensus on the meaning of “DEI.”) As discussed in this new Cooley Alert, Board Diversity: Policy Updates and Considerations for Proxy Season, from our Capital Markets group, this fraught and shifting environment has compelled some proxy advisors and institutional investors to craft dramatically revised policies on board diversity that companies will need to consider this proxy season. As the Alert highlights, “[c]ompanies will need to make decisions about proxy statement disclosures amid ongoing uncertainty… while balancing competing stakeholder priorities.” Not to mention, to the extent that companies are faced with recalibrating their corporate commitments related to board diversity and DEI generally, obvious concerns with retaining authenticity and adhering to company values.
Corp Fin does a one-eighty on shareholder proposals under Rule 14a-8
In June 2023, then-Commissioner Mark Uyeda (currently, Acting Chair) spoke to the Society for Corporate Governance 2023 National Conference on the topic of shareholder proposals under Rule 14a-8. Alluding to the frequent reversals in interpretations of Rule 14a-8, he said that “[r]elying on the Commission’s rules, or its staff’s positions in this area is akin to building a sand castle on the beach. Any rule or interpretation, no matter how recently adopted, is at risk of being erased by the next wave.” No matter that Uyeda is now at the helm, that “next wave” tradition is continuing with the issuance by Corp Fin last week of new Staff Legal Bulletin 14M, which rescinds the prior Administration’s interpretation in SLB 14L and does an about-face on interpretations of two Rule 14a-8 shareholder proposal exclusions. Turnabout is fair play? (See this Pubco post.) The new SLB revises Corp Fin’s views on the scope and application of Rule 14a-8(i)(5), the economic relevance exception, and Rule 14a-8(i)(7), the ordinary business exception. The effect of new SLB 14M is to reverse some of the interpretations of “economic relevance,” “micromanagement” and “significant social policy” imposed under now rescinded SLB 14L, which had reversed interpretations of those same issues by rescinding Clayton-era SLBs 14I, 14J and 14K. Got it? Grounding its revised approach in the historical antecedents of 1998 and earlier SEC releases—as did now rescinded SLB 14L—Corp Fin takes the position that, under new SLB 14M, “where relevant to the arguments raised to the staff by companies and proponents, the staff will consider whether a proposal is otherwise significantly related to a particular company’s business, in the case of Rule 14a-8(i)(5), or focuses on a significant policy issue that has a sufficient nexus to a particular company, in the case of Rule 14a-8(i)(7).” Moreover, the new approach will involve, as a “key factor in the analysis of shareholder proposals that raise significant policy issues,” a “‘case-by-case’ consideration of a particular company’s facts and circumstances.” Where SLB 14L made exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies, new SLB 14M is expected to provide a framework for exclusion of proposals that will likely be more accommodating for companies. Companies will certainly welcome the revamp.
Corp fin posts two new CDIs on Schedules 13D and 13G
Corp Fin has posted two new CDIs regarding filing of Schedules 13D and 13G under Exchange Act Sections 13(d) and 13(g) and related Rule 13d-1. The new CDIs address issues related to determining, for purposes of eligibility to file a Schedule 13G, whether the shareholder acquired the securities with the purpose or effect of changing or influencing control of the issuer. One of the CDIs suggests that, in the context of Schedule 13G eligibility, the process of shareholder engagement with management might be trickier to navigate than perhaps originally contemplated.
Acting SEC Chair seeks a pause in SEC climate disclosure rule litigation
Yesterday, Acting SEC Chair Mark Uyeda issued a statement advising that he is requesting that the Court presiding over the SEC’s climate disclosure rule litigation not “schedule the case for argument” in order to allow time for the SEC to rethink its position. As you may know, a number of challenges to the climate disclosure rule were consolidated as State of Iowa v. SEC in the Eighth Circuit, where briefs in the case have been filed. However, for reasons explained in the Statement, Uyeda believes that the “rule is deeply flawed and could inflict significant harm on the capital markets and our economy.” As such, he said, the positions taken in the SEC’s briefs defending the SEC’s adoption of the rule are not reflective of his views. He believes that these views, particularly his concern that the SEC had no authority to adopt the rule, together with “the recent change in the composition of the Commission, and the recent Presidential Memorandum regarding a Regulatory Freeze, bear on the conduct of this litigation.” As a result, he maintains that “the Court and the parties should be notified of these changes.” Accordingly, he has directed the SEC staff to “notify the Court of the changed circumstances and request that the Court not schedule the case for argument to provide time for the Commission to deliberate and determine the appropriate next steps in these cases. The Commission will promptly notify the Court of its determination about its positions in the litigation.” Commissioner Caroline Crenshaw voiced her dissent, contending that what has really changed here has been “politics and not substance.” Does Uyeda’s move sound the death knell for the SEC’s climate disclosure rule?
In Chamber of Commerce v. CARB, Federal District Court dismisses two claims challenging California’s climate disclosure laws
As we’ve pointed out before, given the prevailing views on climate disclosure among folks in the new Administration, including the nominee for SEC Chair—and all that portends for the SEC’s climate disclosure regulation—the States may, in many ways, take on much larger significance. Case in point: California’s climate disclosure laws and the ongoing litigation challenges there. In January last year, the U.S. and California Chambers of Commerce, the American Farm Bureau Federation and others filed a complaint (and in February, an amended complaint) against two executives of the California Air Resources Board and the California Attorney General challenging these two California laws. The lawsuit seeks declaratory relief that the two laws are void because they violate the First Amendment, are precluded under the Supremacy Clause by the Clean Air Act, and are invalid under the Constitution’s limitations on extraterritorial regulation, particularly under the dormant Commerce Clause. The litigation also seeks injunctive relief to prevent CARB from taking any action to enforce these two laws. (See this PubCo post.) California then filed a motion to dismiss the second and third causes of action in the amended complaint for lack of subject matter jurisdiction (Rule 12b-1) and failure to state a claim (Rule 12b-6). Interestingly, however, the motion did not seek dismissal of Plaintiffs’ First Amendment claim (except as to the Attorney General, whom the motion sought to exclude altogether on the basis of sovereign immunity), even though California asserted that Plaintiffs’ First Amendment challenge was “legally flawed.” Plaintiffs then moved for summary judgment on the First Amendment claim, and California moved to deny that motion or to defer it, enabling the parties to conduct discovery. In November of last year, in this Order, the Federal District Court for the Central District of California denied Plaintiffs’ motion to dismiss as to that first claim (violation of the First Amendment) and granted California’s motion to deny or defer the motion for summary judgment. (See this PubCo post.) Now, in Chamber of Commerce v. California Air Resources Board, the Court has issued an Order granting California’s motion to dismiss and dismissing Plaintiffs’ second and third causes of action under the Supremacy Clause and dormant Commerce Clause (as invalid extraterritorial regulation). Stay tuned.
Commissioner Peirce offers her prescription for a “path back to normal”
This week, SEC Commissioner Hester Peirce delivered the keynote address at the Northwestern Securities Regulation Institute in San Diego. Her theme: that public companies are “confronting a symptom of a larger societal malady—importing politics and contentious social issues into everything we do.” According to Peirce, the “SEC, so-called stakeholders, and the burgeoning industry of advisers, consultants, accountants, and attorneys peddling their costly wares to public companies, sometimes with the agreement of corporate executives, drag companies into social and political melees. Their efforts, an insidious form of rent-seeking, are often quite convincingly disguised in a cloak of ethics and morality.” In her remarks, she proposed seven steps toward regaining what, in her view, was the “path back to normal.” A harbinger of what is to come in the next four years?
In case there was any doubt, SEC approves Nasdaq proposal to remove Board diversity rules
In August 2021, the SEC approved a Nasdaq proposal for new listing rules regarding board diversity and disclosure. The new listing rules adopted a “comply or explain” mandate for board diversity for most listed companies and required companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. (See this PubCo post.) A court challenge to these rules quickly materialized: the Alliance for Fair Board Recruitment and, later, the National Center for Public Policy Research petitioned the Fifth Circuit Court of Appeals for review of the SEC’s final order approving the Nasdaq rule. (See this PubCo post and this PubCo post.) In December last year, the en banc Fifth Circuit issued its opinion in Alliance for Fair Board Recruitment v. SEC vacating the SEC’s order approving Nasdaq’s board diversity proposal by a vote of nine to eight. According to an article in Bloomberg Law, following the decision, a “Nasdaq representative said the exchange disagreed with the court’s decision, but doesn’t plan to appeal the ruling. An SEC spokesperson said the agency is ‘reviewing the decision and will determine next steps as appropriate.’” (That, of course, was prior to the last election.) That question is now moot: Nasdaq filed a proposal with the SEC seeking to remove from the Nasdaq rules the relevant board diversity provisions to reflect “a Federal court’s vacatur of the Commission’s order of August 6, 2021, approving rules related to Board diversity disclosures. Nasdaq has requested that the Commission waive the operative delay to allow the proposed rule change to become effective on February 4, 2025.” And, this past Friday, the SEC declared the proposal to be immediately effective. Just in case anyone was unsure about the status of the board diversity rules, the effect of the proposal will be to “clarify Nasdaq’s rules by aligning them with the court’s decision.”
Cooley Alert—Climate and Sustainability Regulations: 2024 End-of-Year Review
Just because we’re highly likely to see a monkey wrench thrown into the current SEC’s efforts to adopt regulations on climate and sustainability (see this PubCo post and this PubCo post) doesn’t mean that we won’t be seeing a lot of activity in connection with state and international ESG requirements, along with voluntary reporting standards and various stakeholder policies, that will affect many US and other companies in this new year. This new Cooley Alert, Climate and Sustainability Regulations: 2024 End-of-Year Review, from our Public Companies and ESG and Sustainability Advisory groups, provides a rundown of developments regarding current key climate and sustainability regulations, such as the California climate statutes and the EU’s Corporate Sustainability Reporting Directive, and the scoop on significant stakeholder developments as of the end of 2024. The Alert also highlights “critical areas of focus for the year ahead.” If your company may be subject to any climate or sustainability frameworks—whether mandatory or voluntary—this is a comprehensive Cooley Alert that you need to read!
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