Results for: conflict minerals

West Virginia v. EPA: SCOTUS gives its imprimatur to the “major questions” doctrine, shaking up the “administrative state”

West Virginia v EPA, the next-to-final decision handed down by SCOTUS this term, is a significant decision regarding a rule that the EPA said was never even in effect, that it had no intention of enforcing and that it planned to later replace with a new still-to-be-developed rule.  As the NYT phrased it, “it’s a case about a regulation that doesn’t exist.” (Sort of like an episode of Seinfeld—the show about nothing—except that it’s not the least bit funny.) So SCOTUS could have stopped right there, but the Court forged ahead—an indicator by itself—with a decision that is nevertheless shaking up administrative law and the extent of rulemaking authority that federal agencies have—or thought they had.  Its impact will likely be felt, not just at the EPA, but also at many other agencies, including the SEC.  Of course, the  conservative members of the Court have long signaled their desire to rein in the dreaded “administrative state.” (See, for example, the dissent of Chief Justice John Roberts in City of Arlington v. FCC  back in 2013, where he worried that “the danger posed by the growing power of the administrative state cannot be dismissed.”) With this new decision by the Chief Justice (joined by five other justices), that desire has now been sated—for a while at least.  In the majority opinion, SCOTUS declared that this case “is a major questions case,” referring to a judicially created doctrine holding that courts must be “skeptical” of agency efforts to assert broad authority to regulate matters of “vast economic and political significance,” requiring, in those instances, that the agency “point to ‘clear congressional authorization’ to regulate.’” In addition to the blow that the decision deals to climate regulation—“Court  Decision Leaves Biden With Few Tools to Combat Climate Change,” is one of the headlines from the NYT—we can now expect the major questions doctrine to be brandished regularly against significant agency regulations across the board, and, with Congress perpetually at loggerheads and limited in its ability to authorize much of anything these days, it could well stymie much agency rulemaking. Does anyone question that, with SCOTUS’s new imprimatur, the doctrine will be raised in anticipated litigation against whatever version of the SEC’s climate disclosure regulation is adopted? As reported by Reuters, when asked  by Bloomberg TV on Thursday about the impact of the decision on other agencies, Senator Patrick Toomey “singled out the SEC rule,” claiming that the SEC is “attempting to impose this whole climate change disclosure regime…with no authority from Congress to do that.” To better understand the major questions doctrine, it may be useful to take a closer look at the case.

A jam-packed Spring 2022 agenda for the SEC

The SEC has posted its Spring 2022 Reg-Flex agenda and it’s crammed with pending and new rulemakings—and they’re all going to be proposed or adopted in October! (Ok, admittedly, that’s an exaggeration, but not much of one.) Here is the short-term agenda and here is the long-term agenda. According to SEC Chair Gary Gensler, the “U.S. is blessed with the largest, most sophisticated, and most innovative capital markets in the world….But we cannot take that for granted. As SEC alum Robert Birnbaum and his team said decades ago, ‘no regulation can be static in a dynamic society.’ That core idea still rings true today.” Gensler’s public policy goals for the agenda are “continuing to drive efficiency in our capital markets and modernizing our rules for today’s economy and technologies.” As with recent prior agendas, SEC Commissioner Hester Peirce has almost no kind words for the agency’s plans—“flawed goals and a flawed method for achieving them.” In fact, she went so far as to characterize the agenda as “dangerous”: in her view, the agenda represents “the regulatory version of a rip current—fast-moving currents flowing away from shore that can be fatal to swimmers. Just as certain wave and wind conditions can create dangerous rip currents, the pace and character of the rulemakings on this agenda make for dangerous conditions in our capital markets.” There’s no dispute that the agenda is laden with major proposals—human capital, SPACs, board diversity. What’s more, many of these proposals—climate disclosure, cybersecurity, Rule 10b5-1—are apparently at the final rule stage. Whether or not we’ll see a load of public companies submerged by the rip tide of rulemakings remains to be seen, but there’s not much question that implementing them all would certainly be a challenge in any case.

Ukrainian-American Bar Association petitions SEC for rulemaking on Russia disclosure

We have all watched with anguish and trepidation the profound horror inflicted on Ukraine—transfixed by the brilliant and courageous fight of the Ukrainian people.  That fight is also being pursued in much smaller ways, even through action at the SEC.  The Ukrainian-American Bar Association, a former Ukrainian finance minister and a U.S. charity focused on Ukraine have just filed a rulemaking petition with the SEC, requesting that the SEC enact a rule requiring issuers to disclose their business dealings in and with the Russian Federation and the Republic of Belarus. Whether or not the SEC considers or accedes to the request remains to be seen, but let’s hope that Ukraine’s victory is so swift that this rulemaking becomes entirely unnecessary.  

Is the SEC’s new climate proposal within the traditions of the SEC disclosure regime?

Earlier this week, SEC Chair Gary Gensler gave the keynote address for an investor briefing on the SEC Climate Disclosure Rule presented by nonprofit Ceres.  In his remarks, entitled “Building Upon a Long Tradition,” Gensler vigorously pressed his case that the SEC’s new climate disclosure proposal (see this PubCo post, this PubCo post and this PubCo post) was comfortably part of the conventional tapestry of SEC rulemaking. Growing out of the core bargain of the 1930s that let investors “decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures,” Gensler observed, the SEC’s disclosure regime has continually expanded—adding disclosure requirements about financial performance, MD&A, management, executive comp and risk factors. Over the generations, the SEC has “stepped in when there’s significant need for the disclosure of information relevant to investors’ decisions.”  As has been the case historically, the SEC, he insisted, “has a role to play in terms of bringing some standardization to the conversation happening between issuers and investors, particularly when it comes to disclosures that are material to investors.” The proposed rules, he said, “would build on that long tradition.” But has everyone bought into that view?

SEC (finally) proposes new rules on climate disclosure

“Highly anticipated” is surely an understatement for the hyperventilation that has accompanied the wait for the SEC’s new proposal on climate disclosure regulation. The proposed rulemaking has been a subject of conjecture for many months, and internal squabbles about where the proposal should land have leaked to the press. (See this PubCo post.) As one of those hyperventilators, I’ve been speculating for months about what it might include, what it might exclude. Would it require disclosure of Scope 3 GHG emissions? Would a particular framework be selected or endorsed? Would the framework sync up with international standards or, if not, how would they overlap or conflict?  Would the framework be industry-specific? Would scenario analyses be mandated? Would companies be required to obtain third-party attestation or other independent assurance? Would reporting be scaled? There were a lot of questions.  Now, we finally know at least some of the preliminary answers: yesterday, the SEC voted, three to one, to propose new rules requiring public companies to disclose information about the material impact of climate on their businesses, as well as information about companies’ governance, risk management and strategy related to climate risk. The disclosure, which would be included in registration statements and periodic reports, would draw, in part, on disclosures provided for under the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. Compliance would be phased in, with reporting for large accelerated filers due in 2024 (assuming an—optimistic—effective date at the end of this year). The proposal would also mandate disclosure of a company’s Scopes 1 and 2 greenhouse gas emissions, and, for larger companies, Scope 3 GHG emissions if material (or included in the company’s emissions reduction target), with a phased-in attestation requirement for Scopes 1 and 2 for large accelerated filers and accelerated filers. The proposal would also require disclosure of certain climate-related financial metrics in a note to the audited financial statements.  For some, a sigh of relief, for others, not so much.

SEC offers another packed agenda for Fall 2021

The SEC’s new Fall reg-flex agenda is posted and, no surprise, it’s packed.  Here is the short-term agenda and here is the long-term version.  And just as with the spring agenda, Commissioners Hester Peirce and Elad Roisman have lambasted it in a dissenting statement.  The agenda is laden with major proposals that were on the Spring agenda, but didn’t quite make it out the door, such as plans for disclosure on climate and human capital (including diversity), cybersecurity risk disclosure, Rule 10b5-1, Rule 14a-8 amendments and SPACs, as well as a new, already controversial, proposal to amend the definition of “holders of record.”  Some of the agenda items have recently been proposed, for example, new rules regarding mandated electronic filings (see this PubCo post) and amendments to the proxy rules governing proxy voting advice (see this PubCo post). Similarly, three items identified as at the “final rule stage” have already been adopted: universal proxy (see this PubCo post), filing fee disclosure (see this PubCo post) and amendments under the Holding Foreign Companies Accountable Act (see this PubCo post). The agenda also identifies a couple of topics that are still just at the pre-rule stage, such as exempt offerings (updating the financial thresholds in the accredited investor definition, amendments to Rule 701 and amendments to the integration framework). Notably, political spending disclosure is not expressly identified on the agenda (see this PubCo post), nor is there a reference to a comprehensive ESG disclosure framework (see this PubCo post). Below is a selection from the agenda.

New challenge to Nasdaq board diversity rule

A new petition has been filed challenging the Nasdaq board diversity rule (see this PubCo post). The National Center for Public Policy Research filed the petition on Tuesday with the U.S. Court of Appeals for the Third Circuit, but asked the court to transfer the proceeding to the Fifth Circuit, where an earlier petition filed by the Alliance for Fair Board Recruitment is pending. (See this PubCo post.) The new Nasdaq listing rules, which were approved by the SEC on August 6, adopt a “comply or explain” mandate for board diversity for most listed companies and require companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards.

Peirce and Roisman object to SEC’s new agenda

Even the SEC’s new Reg Flex Agenda (which reflect the priorities of the SEC Chair) has now elicited a “dissent” from the two SEC Commissioners on the other side of the political aisle.  In this statement, posted yesterday, Commissioners Hester Peirce and Elad Roisman lambast the new Spring 2021 Agenda for “the regrettable decision to spend our scarce resources to undo a number of rules the Commission just adopted.” While the Agenda contains several “important and timely items”—which they identify as rules related to transfer agents and government securities alternative trading systems—the absence of other items was notable, including important rulemakings that would “provide clarity for digital assets, allow companies to compensate gig workers with equity, and revisit proxy plumbing.” (Of course, two of those rulemakings were not entirely absent, but have instead been moved to the long-term agenda.  See this PubCo post.) Perhaps, they suggest, too much attention to undoing existing rules rather than creating new ones? 

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.

Advocates make their voices heard on mandatory climate disclosure

Is mandatory climate risk disclosure a done deal yet? Acting SEC Chair Allison Lee has taken almost every opportunity to emphasize the importance of the SEC’s taking action to mandate climate risk disclosure. (See, for example, this NYT op-ed, her remarks at PLI entitled Playing the Long Game: The Intersection of Climate Change Risk and Financial Regulation and this statement, “Modernizing” Regulation S-K: Ignoring the Elephant in the Room.”) And now, according to Reuters, Acting Corp Fin Director John Coates remarked during a conference on climate finance that the SEC “‘should help lead’ the creation of a disclosure system for environmental, social and governance (ESG) issues for corporations.” But how to craft the new rules? With the new Administration in Washington, many of the think tanks and advocacy groups are making their voices heard on just that—crafting mandatory climate disclosure regulations. The reports of two are discussed below; there are definitely some common threads, such as the need for the SEC to onboard climate expertise and organize a platform or two for stakeholder input. Their recommendations may also provide some ideas for voluntary compliance and some insight into the direction the SEC may be going.