SEC Called Upon to Take Action on Diversity & Inclusion in the Asset Management Industry

The SEC’s Asset Management Advisory Committee hosted a meeting on July 16, 2020 to discuss the current state of diversity and inclusion (D&I) in the asset management industry.  SEC Chairman Jay Clayton, SEC Commissioner Elad Roisman and Director of the SEC’s Division of Investment Management Dalia Blass opened the meeting.  Each expressed an interest in understanding why minority- and women-owned firms make up only approximately 1.3% of the total assets under management in the global asset management industry. They asked what efforts the industry is taking to increase this percentage.

Meeting participants included Gilbert Garcia of the asset management firm, Garcia, Hamilton & Associates, Robert Raben of the public policy firm, The Raben Group, Juan Martinez of the Knight Foundation, Brenda Chia of the Association of Asian American Investment Managers, Ron Parker of the National Association of Securities Professionals, Solange Brooks of the New America Alliance and Robert Greene of the National Association of Investment Companies.
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ESG Disclosure Frameworks – Recent Updates

Updates in the past two months to voluntary ESG disclosure frameworks raise questions for companies about these overlapping and arguably competing standards.

GRI Launches Sector-Specific Disclosure Framework

On July 8, 2020, the Global Reporting Initiative (GRI) published an initial draft of a standard for ESG disclosures for the oil & gas industry. The draft, open for public comment until October 6, 2020, marks the first sector-specific ESG disclosure framework created by GRI, which, unlike the Sustainability Accounting Standards Board (SASB), has before now provided only a uniform framework for all industries.

The GRI sector program, currently in its pilot phase, “focus[es] reporting on the sustainability issues that matter most” to an industry. 
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Legal Liability for ESG Disclosures – Investor Pressure, State of Play and Practical Recommendations

Davis Polk ESG co-heads, Joseph A. Hall and Betty M. Huber, and Katherine J. Brennan and Connor Kuratek of Marsh & McLennan Companies are authors of the 13th edition of The International Comparative Legal Guide: Corporate Governance 2020: Legal Liability for ESG Disclosures – Investor Pressure, State of Play and Practical Recommendations, the second chapter in the guide. The chapter discusses litigation related to ESG voluntary disclosures and what companies can do to limit that risk. It also describes the current pressure leading to more ESG disclosures and the SEC response to these trends.

Read the full publication here.
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ISS Peer Group Submission Window Is Currently Open

Each proxy season, Institutional Shareholder Services Inc. (“ISS”) constructs a peer group for each company prior to the company’s next proxy disclosure. ISS’ methodology for constructing the peer group is based in part on the company’s self-selected peer group. ISS recently invited submissions from certain U.S. and Canadian companies with annual meetings scheduled between September 16, 2020 and January 31, 2021. The submission deadline is next Friday at 8:00 PM EDT, July 17, 2020.

As one input in its peer group selection methodology, ISS will generally look to the peer group disclosed in the company’s last proxy and utilized by the company in determining CEO pay.
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SEC’s Q2 Roundtable Offers Insight to Investor Views

On June 30, 2020, Chairman Jay Clayton moderated a virtual roundtable titled “Q2 Reporting: A Discussion of COVID-19 Related Disclosure Considerations” to solicit views from a small panel of highly experienced and well-informed private investors and asset managers (“Roundtable”).  The Roundtable included the following panelists: Gary Cohn, Former Director of the U.S. National Economic Council; Glenn Hutchins, Chairman of North Island and Co-Founder of Silver Lake; Tracy Maitland, President and CIO of Advent Capital Management; and Barbara Novick, Vice Chair and Co-Founder of BlackRock. The Director of the Division of Corporation Finance, William H. Hinman, also participated in the Roundtable.

Standardization, Transparency and Forward-Looking Information

There was a general consensus among panelists that companies’ providing greater transparency and forward-looking information is crucial when there is a lot of economic uncertainty, such as presented by the COVID-19 pandemic.
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SEC’s Spring 2020 Reg Flex Agenda Indicates Universal Proxy Rule May Be Coming Soon

The SEC’s 2020 spring agenda of its rulemaking actions under the Regulatory Flexibility Act (RFA) has been posted. The agenda, commonly referred to as the “Reg Flex Agenda,” is published semiannually and reflects the actions the SEC Chairman anticipates the agency will complete in the short term (within a year and almost all items are listed in the “Proposed Stage” or “Final Rule Stage”) or the long term (longer than a year and the items are listed as “Long-Term Actions”).  Under Chairman Jay Clayton’s leadership the agenda is meant to be viewed as a transparency and accountability tool of the agency’s initiatives, as opposed to a list of merely aspirational goals. 
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Department of Labor Proposes Investment Duties Rule Affecting ESG Investments

The U.S. Department of Labor issued a proposed rule on June 23, 2020 to clarify how and when ERISA fiduciaries can select and monitor plan investments based on environmental, social or corporate governance (“ESG”) and similar objectives.

  • Who is subject?

The proposed rule would apply to fiduciaries of private-sector retirement plans, such as company-sponsored defined benefit pension plans and 401(k) plans. Fiduciaries of public pension plans are not subject.

  • Why was the rule proposed?

The Labor Department believes that the proposed rule will help plan fiduciaries navigate ESG investing and separate the consideration of risk-return factors from investments that may sacrifice investment return, increase costs or assume additional investment risk to promote “non-pecuniary” objectives.
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SEC Urged to Mandate Disclosures on COVID-19 Risks and Responses

On June 15, 2020, Americans for Financial Reform (AFR), a nonprofit coalition founded in the wake of the 2008 financial crisis, called on the Securities and Exchange Commission (SEC) to require public companies to disclose how they are protecting employees from coronavirus (COVID-19), citing that consistent, comprehensive information is critical to investors and public health.

Although the SEC Division of Corporate Finance issued Staff Guidance in March 2020 providing companies with its views on COVID-19 disclosures, followed by a joint statement on COVID-19 disclosures in April 2020 by SEC Chairman Clayton and Corp Fin Director Hinman which statement recommended that companies “provide as much information as is practicable” about how they are responding to the pandemic, AFR claims that these efforts were only one step in the right direction.
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SEC Asset Management Advisory Subcommittee Provides Report on ESG Practices in Asset Management Space

Earlier today, the Securities and Exchange Commission (“SEC”) held an open virtual meeting with the Asset Management Advisory Committee to discuss the impact of the coronavirus (“COVID-19”) and, in particular, to hear updates and recommendations from its subcommittee on ESG (the “ESG Subcommittee”).  The ESG Subcommittee provided an overview of its current areas of research, which has taken the form of five separate workstreams.  Moreover, the ESG Subcommittee offered preliminary recommendations for regulatory measures which could provide consistency to ESG investment policies and disclosures in light of the growing push by asset management stakeholders to implement ESG practices, which has become a particularly important consideration in light of COVID-19.
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COVID-19: Reductions in Executive Pay

Recent market volatility due to the coronavirus (COVID-19) pandemic has disrupted many companies’ day-to-day operations resulting in economic hardship that has caused companies to consider or implement various measures to reduce personnel costs, including pay cuts, furloughs and/or layoffs. When implementing such personnel cost-cutting measures, a number of companies have reduced executive pay, including reductions in base salary and bonus opportunities, and some have also reduced director retainers.

This memo summarizes the actions that a number of companies have already taken and provides guidance for companies considering reductions in executive or director pay.

Read the full memo here.

The COVID-19 pandemic and the ensuing market uncertainty, as well as recently enacted legislation, have upended the compensation and benefit programs of many companies.
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