I recently co-authored an article for Corporate Counsel with Stephanie Bignon, assistant general counsel at Delta Air Lines, highlighting key environmental, social and governance (ESG) disclosure developments. “Public companies are facing a rapidly changing regulatory and investor landscape with respect to climate and other environmental, social and governance (ESG) disclosures,” the authors observed.

One area of particular regulatory focus from the Securities Exchange Commission (SEC) is climate change, as several new initiatives aim to revamp the existing disclosure framework in this area, including:

  • Indications from SEC Chairman Gary Gensler that new climate change disclosure rules will be proposed in late 2021 or early 2022.
  • Significantly enhanced focus of the SEC’s Division of Corporation Finance on climate-related disclosure in public company filings, including a sample SEC Staff comment letter sent to at least dozens of companies questioning whether consideration had been given to including climate-related disclosures in SEC filings.
  • SEC Division of Enforcement announcement in early 2021 that it is creating a Climate and ESG Task Force, and signaling that enforcement actions in the climate change area under existing SEC rules may be forthcoming.

With this heightened focus, we concluded the article with five practical takeaways for companies:


Continue Reading Key ESG Disclosure Developments

In light of the increasing level of investor and Securities and Exchange Commission (SEC) focus on environmental, social and governance (ESG) disclosure matters and the associated increase in the scope of ESG disclosures included by public companies both within and outside of SEC filings, public companies are well-advised to assess whether their disclosure control and procedures should be modified to address ESG disclosures.

Background on ESG Disclosures

As background, the SEC rules that implemented the Sarbanes-Oxley Act of 2002 require public companies to have disclosure controls and procedures (which are designed to ensure that the information required to be disclosed by a public company in its Exchange Act filings is recorded, processed, summarized and reported in accordance with SEC rules).  Additionally, the SEC recommended that public companies establish disclosure committees as a component of their disclosure controls and procedures, and a significant majority of public companies have disclosure committees consistent with the SEC’s recommendation.

Disclosure committees may also be helpful to public companies as a means to support the Section 302 and 906 certifications required to be provided by the CEO and CFO on a quarterly basis under the Sarbanes-Oxley Act in connection with disclosures provided in periodic reports.

The amount of ESG disclosures included in SEC filings has significantly increased in recent years. This trend will no doubt continue once the SEC’s climate change rules expected to be proposed later this year or early next year become effective.  Additionally, there has been a significant expansion in the scope of ESG disclosures being provided by many public companies (particularly large-cap companies) outside of SEC filings, including via corporate social responsibility or similar reports, and company website disclosures.


Continue Reading Should Public Companies Establish an ESG Disclosure Committee?

I am excited to announce that Bass, Berry & Sims has formally launched its Environmental, Social and Governance (ESG) Advisory Practice Group. Businesses are facing increased pressure from regulators and stakeholders to meet ESG expectations and the area is rapidly evolving. To help our clients manage these new expectations, the firm has assembled a multidisciplinary

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.

“Oftentimes,

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.

Overview of Board Diversity Rules

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:

Enhance Board Diversity for New Perspectives

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 IIRC

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