The long wait is over. The SEC on March 21 proposed a new set of rules that would standardize disclosure requirements for U.S. exchange-listed companies in the areas of climate risk. Included for the first time are rules that would require companies to disclose detailed information about the effects their operations currently have or will have on greenhouse gas emissions.
The Commission is seeking public comment on these proposed amendments, which would require both domestic and foreign registrants to include certain climate-related information in their registration statements and periodic reports, such as on Form 10-K.
According to the SEC statement:
The proposed rule changes would require a registrant to disclose information about (1) the registrant’s governance of climate-related risks and relevant risk management processes; (2) how any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term; (3) how any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook; and (4) the impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.
The proposed rules also would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a registrant would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions. These proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a registrant’s exposure to, and management of, climate-related risks, and in particular transition risks.
The proposed rules would provide a safe harbor for liability from Scope 3 emissions disclosure and an exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies. The proposed disclosures are similar to those that many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.
In a dissenting statement headlined “We are Not the Securities and Environment Commission—At Least Not Yet,” Commissioner Hester Peirce said that existing rules already cover material climate risks.
“Contrary to the hopes of the eager anticipators, the proposal will not bring consistency, comparability, and reliability to company climate disclosures,” said Peirce. “The proposal, however, will undermine the existing regulatory framework that for many decades has undergirded consistent, comparable, and reliable company disclosures. We cannot make such fundamental changes to our disclosure regime without harming investors, the economy, and this agency. For that reason, I cannot support the proposal.”
The Commission’s proposal outlined a phase-in period for all registrants, with the compliance date dependent on the registrant’s filer status.
The SEC has proposed a new, tougher set of rules that would require public companies to regularly file on cyber risk management, governance and strategy. Companies also would be required to report cyber breaches within four days.
The proposed amendments would require, among other things, current reporting about material cybersecurity incidents and periodic reporting to provide updates about previously reported cybersecurity incidents.
The proposal also would require periodic reporting about a registrant’s policies and procedures to identify and manage cybersecurity risks; the registrant’s board of directors’ oversight of cybersecurity risk; and management’s role and expertise in assessing and managing cybersecurity risk and implementing cybersecurity policies and procedures. The proposal further would require annual reporting or certain proxy disclosure about the board of directors’ cybersecurity expertise, if any.
The proposal was approved by the Commission in a 3-1 vote, with the lone dissent coming from Commissioner Hester Peirce, who said the SEC’s proposal “flirts with casting us as the nation’s cybersecurity command center, a role Congress did not give us.”
In taking issue with the proposal, Commissioner Peirce continued, “Our role with respect to public companies’ activities, cybersecurity or otherwise, is limited. The Commission regulates public companies’ disclosures; it does not regulate public companies’ activities”.
In her published statement Peirce added, “…the governance disclosure requirements embody an unprecedented micromanagement by the Commission of the composition and functioning of both the boards of directors and management of public companies.”
The SEC is seeking comment on the proposal, with the comment period remaining open for 60 days following publication on the SEC’s website, or 30 days following publication in the Federal Register, whichever is longer.
Brace for Another Challenging Proxy Season
In its annual review of Shareholder Voting Trends, The Conference Board is anticipating that the 2022 proxy season will be more contentious than 2021, as investors step up activism on environmental and social issues, while continuing to push back on proposed board candidates.
The report, entitled “Bracing for Challenge” said that voting activities in 2022 will build on 2021, which saw the proxy season as “unprecedented, with record support for shareholder proposals on environmental and social (E&S) issues, growing opposition to director elections, and significant support for governance proposals, especially at midsized and smaller companies.”
The report described the 2021 proxy season as “unpredictable,” noting: “Not only did institutional investors move faster than ever to implement their views through voting—thereby often getting ahead of proxy advisory firms and leaving companies with little time to adjust their practices—at times they surprised boards and management teams by voting against the company’s position after what seemed to be positive discussions.”
The Conference Board said these voting practices are reflective of the “underlying shifts currently underway in corporate America,” including changes in what companies are supposed to address, such as E&S issues, and with companies “placing a higher priority on serving the long-term welfare of constituents, such as employees, beyond their shareholders.”
The report said that in addition to a push by institutional investors, the two major driving forces behind the accelerated focus on E&S issues include the ongoing COVID-19 pandemic and the current U.S. administration’s agenda.
The report added that in addition to E&S, corporate political activity was “under intense scrutiny in 2021, and it will continue to be in 2022.”
Expect that shareholders will look more deeply into political contributions, including seeking disclosure on companies’ campaign financing policies and practices.
Shareholders also are expected to ask companies how their political expenditures align with their stated corporate values. Disclosures on traditional lobbying also “will remain an area of tension between shareholders and companies.”
The Conference Board’s report was prepared in collaboration with Rutgers University Center for Corporate Law and Governance, advisory firm Russell Reynolds Associates, and ESG data analytics firm ESGAUGE.
SHOW ME THE MONEY…and some respect!
Workers who quit their jobs during the “Great Resignation” are finally returning to work, with many reporting that their new jobs offer higher pay, more advancement opportunities and more work-life balance and flexibility.
Most workers cited those three reasons for why they quite their jobs last year and helps explain why the nation’s “quit rate” reached a 20-year high.
That’s according to a just released Pew Research Center survey, where respondents cited low pay (63%), no opportunities for advancement (63%) and feeling disrespected at work (57%) as reasons why they quit.
The survey found that “those who quit and are now employed elsewhere are more likely than not to say their current job has better pay, more opportunities for advancement and more work-life balance and flexibility.”
When asked if their reasons for quitting were related to the COVID-19 outbreak, 31% identified that as a factor, with even fewer (18%) saying they quit because their employer required vaccination.
In conducting this survey, which took place February 7-13, 2022, Pew surveyed 6,627 non-retired U.S. adults. That number included 965 who reported leaving their job by choice in 2021.
Veteran Tax Expert Joins Weinberg
Weinberg is pleased to announce that Dick Cole has joined as Tax Director in the Los Angeles office.
“Dick is a highly experienced professional who will be a terrific asset to our expanding Tax Practice,” said Corey Fischer, Firm Managing Partner. “Clients will benefit from his extensive knowledge and years of experience in Corporate Tax, Mergers & Acquisitions, International Tax and IRS controversies.”
Prior to joining, Dick was a Managing Director at Andersen Tax, and earlier he was a Tax Partner at Grant Thornton.
He began his accounting career as a Tax Law Specialist at the IRS, following military service with the US Army, where he was a Captain and Intelligence Officer.
He holds an LLM, Taxation from Georgetown University Law Center and a JD from Boston College Law School.