Category: Securities

Time to catch up on recent proposals at the Exchanges

Time to catch up on some of the recent proposals at the Exchanges.

TCFD 2019 status report on climate-related disclosure finds improvement, but “progress must be accelerated”

At the WSJ’s CFO Network Annual Meeting this week, the WSJ reported, speakers warned that finance chiefs were “underestimating how climate-related risks, such as extreme weather and changing consumer views on environmental issues, could affect their companies’ bottom lines, and they need to make climate risk assessments a bigger priority.” As reported by the NYT, a member of the CFTC has cautioned that it is “‘abundantly clear that climate change poses financial risk to the stability of the financial system,’” comparing the financial risks from climate change “to those posed by the mortgage meltdown that triggered the 2008 financial crisis.” And, in a survey conducted by a major investment bank of over 600 investors with about $21.5 trillion in assets globally, large investors indicated that they “expect environmental factors will become more pertinent to their investments than traditional financial criteria over the next five years, with more than 80 percent indicating it would be a ‘material risk’ not to integrate ESG factors.” NGOs and other stakeholders have emphasized that transparency is important to allow investors and the financial markets to understand companies’ risk management and corporate governance practices and to make informed decisions regarding capital allocation. In that context, the 2019 status report on company  disclosure regarding climate-related risks and opportunities, just released by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, sheds some light on the extent of the progress companies are making in helping investors and others better understand those risks.

Companies report financial impact of climate risk

Non-profit CDP (fka the Carbon Disclosure Project) has released its analysis of the responses to its climate change questionnaire for 2018 from two groups of companies—a large group of almost 7,000 respondents and, analyzed separately, a group of 366 respondents that were among the world’s 500 largest companies (by market cap). The analysis focused on the risks and opportunities presented by climate change and, for the first time, the analysis considered companies’ expectations regarding the potential  financial impact of climate risk. In the aggregate, the amount reported was eye-popping, if not exactly surprising, and, given that many companies did not respond at all, is undoubtedly an underestimate.  Notably, however, the aggregate amount companies attributed to potential climate-related opportunities was even “bigger than the risks.” The significance of the potential financial implications, together with the imminence of these risks, suggest that companies may need to think hard about climate risks and the associated financial implications in crafting their public disclosures.

Mandatory arbitration shareholder proposal to J&J takes on larger dimensions

Here’s an interesting turn of events with regard to the case involving the mandatory arbitration shareholder proposal to Johnson & Johnson. You may recall that, last year, a Harvard law professor submitted a shareholder proposal to Johnson & Johnson requesting that the company adopt mandatory shareholder arbitration bylaws. Corp Fin issued a no-action letter to J&J granting relief if the company relied on Rule 14a-8(i)(2) (violation of law) to exclude the proposal. (See this PubCo post.) In that letter, the staff relied on an opinion from the Attorney General of the State of New Jersey advising the SEC that the proposal was excludable under Rule 14a-8(i)(2) because “adoption of the proposed bylaw would cause Johnson & Johnson to violate applicable state law.” The issue was so fraught that SEC Chair Jay Clayton felt the need to issue a statement supporting the staff’s hands-off position and advocating, in effect, that the parties seek a binding answer in court—which is exactly what happened.  On March 21, the proponent of the proposal filed this complaint.  (See this PubCo post.) Now, two big public pension funds have sought to intervene and, as a result, the case may have just taken on larger dimensions.

What’s on the SEC’s new RegFlex Agenda?

SEC Chair Jay Clayton has repeatedly made a point of his intent to take the Regulatory Flexibility Act Agenda “seriously,” streamlining it to show what the SEC actually expected to take up in the subsequent period.  (Clayton has previously said that the short-term agenda signifies rulemakings that the SEC actually planned to pursue in the following twelve months. See this PubCo post and this PubCo post.)  The SEC’s Spring 2019 short-term and long-term agendas have now been posted, reflecting the Chair’s priorities as of March 18, when the agenda was compiled. What stands out is not so much the matters that show up on the short-term agenda—although there are plenty of significant proposals to keep us all busy—but rather the legislatively mandated items that have taken up protracted residency on the long-term (i.e., the maybe never) agenda.

New PCAOB guidance on auditor communications regarding CAMs

The PCAOB has just published new guidance on auditors’ communication of critical audit matters in the auditor’s report.  The guidance includes some new FAQs related to how auditors should describe their principal considerations in determining CAMs, how they should describe audit procedures and the outcome of audit procedures, as well as the relationship between CAMs and company disclosures and the treatment of recurring CAMs.  While the FAQs are intended for auditors, they can provide some insight for company management into the process and the resulting auditor communications.

Whistleblower receives award after internal reporting resulted in SEC case

In February 2018, SCOTUS handed down its decision in Digital Realty v. Somers, holding that the Dodd-Frank whistleblower anti-retaliation protections apply only if the whistleblower blows the whistle all the way to the SEC; internal reporting to the company alone would not suffice. As Justice Gorsuch remarked during oral argument, the Justices were largely “stuck on the plain language” of the statute.  However, by requiring SEC reporting as a predicate, it was widely thought that the decision might have a somewhat perverse impact:  while the win by Digital would limit the liability of companies under Dodd-Frank for retaliation against whistleblowers who did not report to the SEC, the holding that whistleblowers were not protected unless they reported to the SEC could well discourage internal reporting by driving all securities-law whistleblowers directly to the SEC to ensure their protection from retaliation under the statute—which just might not be a consequence that many companies would favor. (See this PubCo post.)