Category: ESG
Corporate Sustainability Reporting Directive receives final approval, applicable to US companies with EU presence
On Monday, according to this press release from the Council of the European Union, all 27 members of the European Council voted in favor of the adoption of the Corporate Sustainability Reporting Directive, the last step for the CSRD to become law in the EU. The new rules require subject companies […]
Should we link pay to ESG measures?
According to this report by The Conference Board, in collaboration with Semler Brossy and ESGAUGE, the vast majority (73% in 2021) of companies in the S&P 500 are “now tying executive compensation to some form of ESG performance.” To be sure, some companies have long tied executive comp to particular […]
What happened at the 2022 PLI Securities Regulation Institute?
At the PLI Securities Regulation Institute last week, the plethora of SEC rulemaking took some hits. It wasn’t simply the quantity of SEC rules and proposals, although that was certainly a factor. But the SEC has issued a lot of proposals in the past. Rather, it was the difficulty and complexity of implementation of these new rules and proposals that seemed to have created the concern that affected companies may just be overwhelmed. Former Corp Fin Director Meredith Cross, a co-chair of the program, pronounced the SEC’s climate proposal “outrageously” difficult, complicated and expensive for companies to implement, and those problems, the panel worried, would only be compounded by the adoption of expected new rules in the EU that would be applicable to many US companies and their EU subsidiaries. (See this Cooley Alert.) The panel feared that companies would be bombarded with a broad, complicated and often inconsistent series of climate/ESG disclosure mandates. Single materiality/double materiality anyone? But it wasn’t just the proposed climate disclosure that contributed to the concern. Recent rulemakings or proposals on stock buybacks, pay versus performance and clawbacks were also singled out as especially challenging for companies to put into effect.
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Spooktacular Cooley Alert on the new EU rules on ESG and their application to US companies
Trick or treat! Public companies in the US may be haunted by concerns about the breadth and complexity of the SEC’s climate disclosure proposal, but if you are a US company with a presence in the EU, you may have something new to spook you—and it‘s not a ghost. We’re talking about expansive ESG reporting requirements under new EU rules expected to be finalized this fall.
Is there an “ESG backlash” among CFOs?
While a recent survey of CEOs (discussed in this PubCo post yesterday) showed increasingly favorable reactions to ESG and its potential impact—transforming ESG “from a nice-to-have to integral to long-term financial success”— what about CFOs? According to this survey of CFOs from CNBC, they’re just not all that into it. Granted, this survey of CFOs was minuscule compared to the KPMG survey of CEOs—actually, compared to any survey. But the results were strikingly different. CNBC labeled it an “ESG backlash.”
How do CEOs view ESG?
KPMG has recently posted its 2022 CEO Outlook. With inflation raging and a possible recession looming, KPMG found that CEOs were “ready and prepared to weather current geopolitical and economic challenges while still anticipating long-term global growth.” According to the survey, confidence in economic growth over the next three years has risen to 71%. Of particular interest were the survey results related to ESG. According to KPMG, “ESG has gone from a nice-to-have to integral to long-term financial success.” But will a potential recession curtail their enthusiasm?
SEC’s Investor Advisory Committee discusses human capital and beneficial ownership
On Wednesday, the SEC’s Investor Advisory Committee held a jam-packed meeting to discuss, among other matters, human capital disclosure and the SEC’s proposal on Schedule 13D beneficial ownership. Wait, didn’t this Committee just have a meeting in June about human capital disclosure, part of the program about non-traditional financial information? (See this PubCo post.) Yes, but, as the moderator suggested, Wednesday’s program was really a “Part II” of that prior meeting, expanding the discussion from accounting standards for human capital disclosure to now consider other labor-related performance data metrics that may be appropriate for disclosure. The Committee also considered whether to make recommendations in support of the SEC’s proposals regarding cybersecurity disclosure and climate disclosure.
Corp Fin speaks at “SEC Speaks”
At last week’s PLI program, SEC Speaks, Corp Fin Director Renee Jones and crew discussed a number of topics, among them disclosure of emerging risks, recent rulemakings, staff focus on Part III disclosures, shareholder proposals and MD&A disclosures. But there’s no denying that the most entertaining moments came from the caustic side commentary provided by former SEC Commissioner Paul Atkins, whose perspective on current trends is, hmmm, distinctly at odds with the zeitgeist currently prevailing at the SEC.
What do the public comments on the SEC’s climate disclosure proposal tell us?
In this July report, Responses to the SEC’s Climate Proposal, KPMG discusses various themes and observations that it gleaned from its review of comment letters on the SEC’s 510-page comprehensive and stunningly detailed climate disclosure proposal issued in March. As you probably recall, the proposal was designed to require disclosure of “consistent, comparable, and reliable—and therefore decision-useful—information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments.” KPMG found that the sentiment about climate standard-setting as a general concept was favorable, with 29% of those commenting very supportive and 50% supportive of the concept. Only 21% had a negative response—12% very unsupportive and 9% generally unsupportive. But that positive attitude toward the general concept did not necessarily translate to support for the specific proposal from the SEC.
State legislation targets company policies on ESG—how will it affect the corporate balancing act?
Over the past several years of political discord, many CEOs have felt the need to voice their views on important political, environmental and social issues. For example, after the murder of George Floyd and resulting national protests, many of the country’s largest corporations expressed solidarity and pledged support for racial justice. After January 6, a number of companies announced that their corporate PACs had suspended—temporarily or permanently—their contributions to one or both political parties or to lawmakers who objected to certification of the presidential election. Historically, companies have faced reputational risk for taking—or not taking—positions on some political, environmental or social issues, which can certainly impair a company’s social capital and, in some cases, its performance. These types of risks can be more nebulous and unpredictable than traditional operating or financial risks—and the extent of potential damage may be more difficult to gauge. As if it weren’t hard enough for companies to figure out whether and how to respond to social crises, now, another potent ingredient has been stirred into the mix: the actions of state and local governments—wielding the levers of government—to enact legislation or take executive action that targets companies that express public positions on sociopolitical issues or conduct their businesses in a manner disfavored by the government in power. As described by Bloomberg, while “companies usually faced mainly reputational damage for their social actions, politicians are increasingly eager to craft legislation that can be used as a cudgel against businesses that don’t share their social views.” And many of these actions are aimed, not just at expressed political positions, but rather at environmental and social measures that companies may view as strictly responsive to investor or employee concerns, shareholder proposals, current or anticipated governmental regulation, identified business risks or even business opportunities. How will these legislative trends affect the difficult corporate balancing act?
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