Category: ESG
Is tax transparency the new ESG disclosure demand?
When the press publishes articles alleging that a slew of profitable businesses are, quite legally, not paying much—if anything—in income taxes, and politicians argue that companies are just not paying their fair share, it’s bound to raise a few hackles. Now, this article in Bloomberg reports that tax transparency has become one of the “under-the-radar” elements of ESG disclosure that’s “gaining traction.” According to the article, ESG-oriented investors “want large public companies to disclose where they shift their profits and how much they pay in taxes, and to cut back on aggressive tax planning.”
SEC Advisory Committee makes recommendations on ESG disclosure
Yesterday, at a meeting of the SEC’s Asset Management Advisory Committee, the Committee adopted recommendations (developed by the ESG Subcommittee) regarding ESG disclosure by issuers, intended to improve the information and disclosure used by investment managers for ESG investing. While addressing a broad array of issues regarding ESG investment products, the Committee recognized “that issuer disclosure is the starting discussion point for all ESG matters.” Given the dependence of the investment management industry on issuer disclosure regarding ESG matters and the resulting demand for consistent and comparable ESG disclosure, the recommendations are surprisingly mild—designed to prod rather than mandate.
Commissioner Lee discusses board’s role in ESG oversight
On Monday, in a keynote address before the Society for Corporate Governance 2021 National Conference, SEC Commissioner Allison Herren Lee discussed the challenges boards face in oversight of ESG matters, including “climate change, racial injustice, economic inequality, and numerous other issues that are fundamental to the success and sustainability of companies, financial markets, and our economy.” Shareholders, employees, customers and other stakeholders are now all looking to corporations to adopt policies that “support growth and address the environmental and social impacts these companies have.” Why is that? Because actions or inactions by our largest corporations can have a tremendous impact. According to Lee, a 2018 study showed that, of the top 100 revenue generators across the globe, only 29 were countries—the rest were corporations, that is, corporations “often operate on a level or higher economic footing than some of the largest governments in the world.”
Commissioner Roisman asks: Is the SEC the right agency for rulemaking about ESG disclosure?
In a recent speech, SEC Chair Gary Gensler conveyed a sense of full steam ahead with regard to mandatory disclosure requirements about climate and human capital. (See this PubCo post.) The day before, Commissioner Elad Roisman also addressed potential ESG disclosure requirements, but from quite a different perspective—concern. While he understands that there is a demand for consistent standardized ESG disclosure, especially about climate, is it premature to attempt to standardize, he wonders? To what extent does the SEC have a legislative mandate to construct ESG disclosure rules? And how is the SEC—a bunch of lawyers and accountants and economists—ever going to craft and oversee ESG regulation effectively? When you get down to it, his question is this: Is the SEC the right agency for rulemaking about ESG (particularly climate) disclosure?
Shareholder proposals for political spending disclosure make headway this proxy season
The January 6 attack on the Capitol and the subsequent efforts to rewrite voting and vote-counting laws led many companies and CEOs to speak out, sign public statements and pause or discontinue some or all of their political donations. However, as companies and executives increasingly take positions and express views on important social issues such as voting and democracy, climate change and racial injustice, there are many who want to hold them to it. As an MIT Sloan lecturer suggested in this article in the NYT, a signed statement from a CEO expressing commitment to an issue “gives people who want to hold corporations accountable an I.O.U.” One way the public has tried to call companies to account is to examine any dissonance or contradiction between those public statements and the company’s political contributions—to the extent those contributions are publicly available. A piece published recently in the NYT’s DealBook, On Voting Rights, It Can Cost Companies to Take Both Sides, explores how that concept has played out dramatically this year, particularly as investors have sought accountability by submitting more shareholder proposals than ever seeking political spending and lobbying disclosure—and actually winning. As the executive director of the Black Economic Alliance contended in the article, “[b]eyond C.E.O. statements[,] businesses demonstrate their values by how they allocate their resources.” And investors are increasingly compelling companies to disclose their allocation of resources on political spending.
Lots to see on the SEC’s Spring 2021 Reg Flex Agenda
Late Friday, the SEC announced that its Spring 2021 Regulatory Flexibility Agenda—both short-term and long-term—has now been posted. And it’s a doozy. According to SEC Chair Gary Gensler, to meet the SEC’s “mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation, the SEC has a lot of regulatory work ahead of us.” That’s certainly an understatement. While former SEC Chair Jay Clayton considered the short-term agenda to signify rulemakings that the SEC actually planned to pursue in the following 12 months, Gensler may be operating under a different clock. What stands out here are plans for disclosure on climate and human capital (including diversity), cybersecurity risk disclosure, Rule 10b5-1, universal proxy and SPACs. In addition, with a new sheriff in town, some of the SEC’s more recent controversial rulemakings of the last year or so may be revisited, such as Rule 14a-8. The agenda also identifies a few topics that are still just at the pre-rule stage—i.e., just a twinkle in someone’s eye—such as gamification (behavioral prompts, predictive analytics and differential marketing) and exempt offerings (updating the financial thresholds in the accredited investor definition and amendments to the integration framework). Notably, political spending disclosure is not expressly identified on the agenda, nor is there a reference to a comprehensive ESG disclosure framework (see this PubCo post). Below is a selection from the agenda.
Lee agrees on easing cost of ESG compliance
How often does this happen? SEC Commissioners Allison Lee (D) and Elad Roisman (R) on the same page? Ok, well, maybe they’re just on the same fragment of a sentence, but still…. Bloomberg is reporting that, at the WSJ’s CFO Network Summit, Lee expressed her view that companies’ compliance with any new SEC disclosure requirements on ESG should not be subject to “gotcha” enforcement, instead indicating that companies will be cut plenty of slack in experimenting with any new ESG rules that the SEC may adopt. She also offered several suggestions that, interestingly, were quite consistent with suggestions made last week by Roisman to mitigate the cost of compliance.
Commissioner Roisman suggests ways to reduce the costs of ESG disclosure
In remarks yesterday before the ESG Board Forum, Putting the Electric Cart before the Horse: Addressing Inevitable Costs of a New ESG Disclosure Regime, SEC Commissioner Elad Roisman weighed in with his views on mandatory prescriptive ESG requirements and the likely associated costs. As he has indicated before, he’s not really keen on the idea, particularly the environmental and social components of potential requirements. As a general matter, while investors want to see comparable standardized environmental data, in his view, standardization of that type of information is really hard to do; some of it “is inherently imprecise, relies on underlying assumptions that continually evolve, and can be reasonably calculated in different ways. And ultimately, unless this information can meaningfully inform an investment decision, it is at best not useful and at worst misleading.” But, if a new regulatory regime requiring ESG disclosure is adopted—and it certainly looks that way— he has some ideas for ways to make it less costly for companies to comply.
White House issues Executive Order on climate
The White House has issued an Executive Order expressing its policy “to advance consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risk… including both physical and transition risks.” The EO states that the “intensifying impacts of climate change present physical risk to assets, publicly traded securities, private investments, and companies—such as increased extreme weather risk leading to supply chain disruptions. In addition, the global shift away from carbon-intensive energy sources and industrial processes presents transition risk to many companies, communities, and workers. At the same time, this global shift presents generational opportunities to enhance U.S. competitiveness and economic growth, while also creating well-paying job opportunities for workers.”
Acting Corp Fin Director Coates says ESG disclosure requirements “overdue”
As reported by Bloomberg, Acting Corp Fin Director John Coates told a webinar audience that mandatory ESG disclosures were “overdue,” and that the SEC was moving quickly on related rulemaking. In the webinar, sponsored by NYU’s Institute of Accounting Research and the Institute for Corporate Governance & Finance, Coates said that he expects the SEC to soon be in a position to review and consider staff proposals for mandatory prescriptive rules on ESG addressing both general and industry-specific requirements. These actions are expected to be the SEC’s most significant action on climate since the 2010 guidance. (See this PubCo post.)
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