I recently discussed the growing importance of environmental, social and governance (ESG) concerns in private deals in an article and podcast for Smart Business Dealmakers. While ESG has been a popular aspect in public deals for a while, its relevance in private deals is gaining in popularity and investors are starting to demand it.
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On August 6, 2021, the Securities and Exchange Commission (SEC) approved Nasdaq’s proposed rule that would require a listed company to comply with certain board diversity requirements, or explain why it does not (the Board Diversity Rules). Nasdaq proposed this rule late last year (see our blog post about Nasdaq’s proposed board diversity rules) to help make more transparent diversity in the boardroom.
In its approved form, the Board Diversity Rules set a “recommended objective” for most Nasdaq-listed companies with more than five directors to include at least one woman on their board of directors, along with one person who is an underrepresented minority or self-identifies as LGBTQ+. Smaller companies with five or fewer total directors may satisfy the recommended objective with one director from a diverse background rather than two. An “underrepresented minority” is defined as “an individual who self-identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities.” “LGBTQ+” is defined as “an individual who self-identifies as any of the following: lesbian, gay, bisexual, transgender, or as a member of the queer community.”Continue Reading It’s a Rule! SEC Approves Nasdaq’s Board Diversity Proposal
On July 28, Securities and Exchange Commission (SEC) Chair Gary Gensler delivered remarks at the Principles for Responsible Investment’s Climate and Global Financial Markets Webinar. In his remarks, he offered a glimpse of responses received by SEC Commissioner Allison Herren Lee to her March 2021 call for input on climate change disclosures. (See our recent blog post summarizing recent efforts by the Biden administration.) Chairman Gensler also covered some of the items he has asked the Staff to consider as part of its proposal for mandatory climate risk disclosure to be developed by the end of this year.
Chairman Gensler noted that more than 550 unique comment letters were submitted in response to Commissioner Lee’s statement on climate disclosures in March. He pointed out that three out of every four of these responses supported mandatory climate disclosure rules.
The demand for climate risk disclosure is strong and supports Chairman Gensler’s simple rationale for the SEC’s recent focus on climate risk disclosure – “So why am I talking about climate risk? Simple: because investors are . . . Investors are looking for consistent, comparable, and decision-useful disclosures so they can put their money in companies that fit their needs.” Required climate risk disclosure might help bring the clarity and consistency that investors have been seeking in this regard.Continue Reading A Glimpse into Required Climate Risk Disclosure Considerations by the SEC
On June 28, Commissioner Allison Herren Lee delivered the Keynote Address at the 2021 Society for Corporate Governance National Conference. In it, she spoke on the ever-increasing role a company’s board of directors has within the environmental, social and governance (ESG) space. Notably, she provided some “key steps” for boards seeking to embrace their growing role in ESG matters and capitalize on the opportunities they present. Some of these key steps are highlighted below:
Despite the plentiful evidence that makes clear the important role that ESG plays in a company’s long-term growth and capital raising opportunities, Commissioner Lee referred to some evidence that suggests directors have been relatively slow to appreciate the need to integrate ESG into governance practices. In her view, board refreshment introduces opportunities to put new directors on boards, and prioritizing diversity helps increase the chance that new directors will bring new perspectives. This, in turn, may facilitate more up-to-date and proactive approaches to ESG governance by a company’s board.Continue Reading “You Cannot Direct the Wind, But You Can Adjust Your Sails.” – The SEC Speaks on a Board’s Role in ESG Matters
We’ve seen the many efforts by the Securities and Exchange Commission (SEC) to regulate environmental, social and governance (ESG) disclosure on the domestic front (see here for our blog post that summarizes recent activity). Alongside these efforts, the SEC has not overlooked support for global ESG standards to address this global matter.
Earlier this year, then-acting SEC Corporation Finance Director John Coates (and as of June 21, 2021, SEC General Counsel) expressed interest in developing global ESG disclosure standards, stating that the SEC “should help lead the creation of an effective ESG disclosure system.”
The rationale for a global standard was simple – in his words:
ESG issues are global issues. ESG problems are global problems that need global solutions for our global markets. It would be unhelpful for multiple standards to apply to the same risks faced by the same companies that happen to raise capital or operate in multiple markets.
In particular, Coates showed support for the work of the International Financial Reporting Standards (IFRS) Foundation to establish a sustainability standards board. The IFRS Foundation is an international nonprofit organization that has been steadily working on creating global sustainability reporting standards.Continue Reading ESG, SEC and the World Around Us
While we have seen an increased focus on environmental, social and governance (ESG) disclosure the last few years, there has been a whirlwind of activity during the last six months by President Biden, Congress and the Securities and Exchange Commission (SEC) in this regard.
In March 2021, the SEC’s 2021 Examination Priorities Report included ESG-related matters. The same month the SEC also announced the creation of the Climate and ESG Task Force within the Division of Enforcement to focus on climate-related disclosure by U.S. public companies under existing rules and issued a public statement considering far-reaching changes to the SEC’s existing disclosure rules regarding climate change (public comments were due by June 13, 2021).
In April, President Biden announced a new target for the United States to achieve a 50-52% reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030 to help “tackle the climate crisis.” In May 2021, SEC Chairman Gensler confirmed the Staff was working on recommendations for proposed rules regarding issuer disclosure of climate-related risks and human capital alongside President Biden’s May 2021 Executive Order on Climate-Related Financial Risk. Among other things, the Executive Order contemplates a government-wide strategy to mitigate climate-related financial risk and calls for assessment of risks that climate change presents to the financial system.Continue Reading Potential Federal Regulation of ESG Disclosure: A Whirlwind of Activity
The number of frameworks and standards in the environmental, social and governance (ESG) space can be overwhelming. While various organizations have set up different standards and frameworks, last year five of them — the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Global Reporting Initiative (GRI), the Climate Disclosure Standards Board (CDSB), and the Carbon Disclosure Project (CDP) — announced plans to harmonize their standards and frameworks to provide more consistency. (See our blog post for additional information on this initiative).
In December 2020, this “group of five” published a prototype climate-related financial disclosure standard that illustrates how the concepts from their joint paper can be applied to climate disclosure and consolidates content and metrics into a single, practical guide. Notably, the publication of the prototype coincided with the fifth anniversary of the Paris Agreement.
SASB and the IIRC also announced plans to combine under the oversight of a new organization to be called the Value Reporting Foundation. The official merger was formalized just this month. The merger of two entities focused on enterprise value creation represents meaningful progress toward simplifying ESG reporting.Continue Reading ESG Organizations: The Journey Toward Consolidation and Collaboration Continues
Institutional investors and proxy advisory firms continue to develop and refine their policies regarding board diversity. While gender diversity on public company boards has been in focus for some time now, institutional investors and proxy advisory firms are also increasingly focusing on racial and ethnic diversity as part of their evolving approach to board diversity.
This post is a summary of published board diversity policies of certain institutional investors and proxy advisory firms into a singular resource for ease of reference. Below the initial breakdown, certain policies concerning board diversity shareholder proposals are described. Continue Reading A Summary of Certain Proxy Advisory Firm and Institutional Investor Board Diversity Policies
Bass, Berry & Sims attorneys Kevin Douglas, Eric Knox and Sehrish Siddiqui were co-presenters alongside Stephanie Bignon, Assistant General Counsel, Delta Air Lines and Priya Galante, Vice President, Assistant General Counsel & Assistant Secretary, AutoZone at the Society for Corporate Governance’s Southeastern Chapter webinar earlier this month.
This program, titled, “Preparing for the Upcoming Proxy
From a focus on climate change to a push for diverse corporate boards, ESG matters – those related to environmental, social and corporate governance – have become the focus of corporations and investors alike. Regarding ESG-related disclosure standards in particular, investors and corporations are both anxious to adopt and challenged to choose a standard that is both comprehensive and relevant to the respective company or industry.
Though the CDP (formerly the Carbon Disclosure Project), Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) have gained a great amount of attention and influence in recent years, they often appear to be multiple attempts toward the shared goal of integrated and comprehensive sustainability reporting. Investors and corporations alike have called for simplifying corporate reporting in this space.
In September 2020, all five of these framework and standard-setting institutions issued a joint statement reflecting a vision to develop a comprehensive global corporate reporting system for sustainability disclosure. While that statement did not specify the precise form of such collaboration and did not include a specific timeframe, a recent announcement brought this vision one step closer to actualization.Continue Reading One Step Closer Toward Consolidating Corporate Sustainability Reporting Standards