Disclosure

Subscribe to Disclosure RSS Feed

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. 
Continue Reading

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.
Continue Reading

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.
Continue Reading

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.
Continue Reading

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. 
Continue Reading

ISS Releases Policy Application Guidance For COVID-19’s Impact

On Wednesday, April 8, 2020, Institutional Shareholder Services Inc. (ISS) issued guidance on voting policies of various corporate governance-related issues that are likely to be implicated by the coronavirus (COVID-19) pandemic during the 2020 proxy season. The guidance does not introduce any new formal policies. Rather, the guidance provides ISS’s perspective on selected market developments and application of several of its existing policies relevant to the U.S. markets. Importantly, the guidance sheds some light on which company-specific and market-specific facts and circumstances are more likely to influence the proxy advisor’s determinations during and following the pandemic.

EXECUTIVE SUMMARY

The guidance makes three points relevant to the U.S.
Continue Reading

Glass Lewis Reports: Companies Can Now Include Unfiltered Opinions

Late yesterday, Glass Lewis (GL) announced that a company now has the option of having its opinion or position included in GL’s proxy research reports without being edited by the proxy advisor. This new service ensures that a company’s position will be delivered directly to every GL investor client and included on or accessible from the front page of the report. The option to include a statement is offered at no extra cost, but only upon purchase of the relevant GL report and satisfying other eligibility requirements. Shareholder proponents may also use the service.

A company wishing to use the new service must submit a Report Feedback Statement (RFS) within the 7-day window immediately following the publication of the GL research report, and no later than 14 days before the applicable annual or special meeting.
Continue Reading

BlackRock Releases Its 2020 Public Company Engagement Priorities

While managing COVID-19 related risks and impacts may be the current priority for many public companies, BlackRock provided a reminder yesterday that environmental, social and governance (ESG) issues will form a core part of its engagement strategy this proxy season.  Publishing its investment stewardship team’s public company engagement priorities for 2020 (Priorities), BlackRock stressed, among other things, that it intends to hold board directors accountable for demonstrating “material progress” on ESG-related disclosures and practices.

BlackRock’s 2020 Investment Stewardship Engagement Priorities

The Priorities place an enhanced focus on sustainability-related issues and disclosures. Moreover, the Priorities articulate key performance indicators against which the asset manager will track companies’ progress and identify those directors whom it will hold responsible for demonstrating progress on these issues. 
Continue Reading

EU Publishes Final Taxonomy Report to Support its Sustainable Finance Regulations

Last week, the European Commission’s Technical Expert Group on Sustainable Finance (TEG) published its final report along with a technical annex setting forth its recommendations regarding the design and implementation of a unified classification system, known as EU Taxonomy, which will define what economic activities are considered environmentally sustainable under the EU’s sustainable finance regulations.  The final report is the result of a nearly two year long process conducted at the direction of the European Commission to assist in the implementation of the Taxonomy regulation.  The European Commission will consider the final report as it develops legislation to implement elements of the Taxonomy regulation.
Continue Reading

SEC Closely Monitors the Impact of the Coronavirus and Offers Conditional Regulatory Relief and Assistance

Yesterday, the Securities and Exchange Commission (SEC) announced that the agency was concurrently issuing an Order that provides relief, subject to certain conditions, for publicly traded companies affected by the coronavirus (COVID-19). The relief is necessitated by the fact that COVID-19 may impede certain companies’ timely communication to the trading markets, the SEC and shareholders. Chairman Clayton observed that, “The health and safety of all participants in our markets is of paramount importance. While timely public filing of Exchange Act reports is a cornerstone of well-functioning markets, [the SEC] recognize[s] that this situation may prevent certain issuers from compiling these reports within required timeframes.”
Continue Reading

SEC and PCAOB Leadership Announce Potential Relief to Companies Affected by the Coronavirus

Yesterday, senior leaders of the Securities and Exchange Commission (SEC) and the Chairman of the Public Company Accounting Oversight Board (PCAOB) issued a joint statement (Statement) noting the potential effect that the coronavirus (COVID-19) may have on reporting companies, reminding companies of their disclosure obligations and notifying companies affected by the virus that they may contact the SEC for guidance or a determination of their eligibility for relief from filing deadlines. The Statement comes in the wake of numerous articles contemplating the virus’ effect on businesses that rely on global supply chains. On Tuesday, one Wall Street Journal commentator posited that “the coronavirus could cause supply-chain disruptions that are unlike anything we have seen in the past 70 years.”
Continue Reading

SEC Chairman Releases Statement on Proposed Changes to Financial Reporting and Discusses Climate-Related Disclosure

Today, the U.S. Securities and Exchange Commission (“SEC” or “Commission”) voted to propose amendments to certain financial disclosure requirements under Regulation S-K, specifically those requirements related to Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).  In addition to these proposed amendments, the SEC issued guidance for registrants to consider when using metrics and key performance indicators in their MD&A disclosures.  The press release announcing these developments explains that the proposals are part of an overarching effort by the SEC to improve and “modernize” the disclosure regime for the benefit of both investors and issuers.

SEC Chairman Jay Clayton issued a statement in support of the proposed amendments and related guidance, a statement that largely focuses on a topic that the Chairman himself notes is “not the particular focus of today’s Commission action” – environmental and climate-related disclosures.
Continue Reading

Glass Lewis Is Currently Accepting Peer Group Submissions

Glass Lewis is currently accepting peer group submissions on its website until next Friday, January 31, 2020, from public companies making proxy filings through July 31, 2020. For all other companies making proxy filings through January 31, 2021, the deadline for submissions is July 31, 2020.

Glass Lewis utilizes its Pay-for-Performance Model with its A-F grading system (the “P4P Methodology”) to assess the degree to which a company’s executive compensation aligns with the company’s performance. In turn, these assessments inform the quantitative input for Glass Lewis’ Say-on-Pay voting recommendations. Glass Lewis advises that its new proprietary peer group methodology now drives the P4P Methodology and is critical to its Say-on-Pay recommendations.
Continue Reading

A Snapshot of Board-Shareholder Engagement Trends

Directors of SEC-registered public companies are increasingly taking a more active role in the shareholder engagement process given the evolving corporate governance landscape, including the increasing number of requests for their participation by some of the largest institutional investors. The Conference Board and Rutgers University’s Center for Corporate Law and Governance have recently published a report showing the emerging practices surrounding when and how corporate directors engage with shareholders based on a survey administered in 2018. Because board-shareholder engagements are often undisclosed and private, the results from this survey provide greater insight about how these communications are evolving and may help public company boards prepare for their shareholder engagements going forward.
Continue Reading

A Profile of Some of the Largest U.S. Tech Boards

The 2019 U.S. Technology Spencer Stuart Board Index (Tech Index) reflects the board practices and trends of 200 public tech companies with the highest revenues based on proxy statements released between July 1, 2018 and July 1, 2019.

I. Selected Spencer Stuart Perspectives

  • Like the S&P 500 companies, the largest tech companies are enhancing board diversity on multiple fronts including gender, skills and experiences as they add new independent directors.
  • The profile of the new director class is shifting, and CEO experience is required less often. While a technology background remains a priority, tech boards are also adding directors with more diverse functional and industry backgrounds.

Continue Reading

SEC Chairman Clayton Testifies Before Senate Banking Committee

On Tuesday, December 10, 2019, Chairman Jay Clayton testified before the Senate Committee on Banking, Housing, and Urban Affairs (Committee) on the “Oversight of the Securities and Exchange Commission.” After Committee Chairman Mike Crapo delivered his opening remarks, which were supportive of the agency, Chairman Clayton gave an overview of the agency’s initiatives over the past year. Given that most of the governance-related topics that Chairman Clayton addressed were also raised back in September before the House Financial Services Committee, which we discussed, there were no real surprises.

Nonetheless, Chairman Clayton verbally reiterated that during SEC examinations, examiners will be looking for and reviewing the nature and extent of climate change disclosures, made both inside and outside SEC filings.
Continue Reading

Davis Polk Client Memo: Human Capital and Climate Risk Disclosure – Analysis of 2019 Mandatory and Voluntary Reporting

To help guide public companies in preparing their annual reports and proxy statements for the 2020 season, we examined the climate change and human capital management disclosures that have been provided by the largest public companies in six industries. A key finding is that to date 10-Ks and proxy statements have generally contained only disclosures that are required by law. Nonfinancial information – which may be important to certain stakeholders, though may also be immaterial under federal securities laws – is overwhelmingly limited to standalone, voluntary ESG reports. Our memo looks at broad trends shaping this ever-changing disclosure landscape and what may be to come.
Continue Reading

What Risk Trends in 2020 Should Be on Directors and Officers’ Radar Screens?

Last week, a global insurance company identified what it believes are the risk trends in 2020 that “have significant implications” to directors and officers (D&Os). The firm’s perspective provides a window into the types of trends insurers and underwriters are watching.

1. “Bad news” events resulting in more litigation

The insurer notes that there has been a rise in nonfinancial-based claims against D&Os stemming from what the firm calls “bad news” events, such as cybersecurity attacks, toxic culture (i.e., #MeToo movement), product liability, corruption and environmental disasters. The insurer warns that “bad news” events can prompt a regulatory investigation or cause share prices to fall, which the report states can “often result in significant securities or derivative claims.
Continue Reading

SEC’s Fall 2019 Reg Flex Agenda

The SEC’s 2019 fall 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 Chairman anticipates the SEC will complete in the short term (within a year) and the long term (longer than a year).  As you may recall, Chairman Jay Clayton reduced the number of agenda items roughly two years ago in hopes that the agenda would be viewed more as a transparency and accountability tool of the agency’s initiatives, as opposed to merely aspirational goals.

The RFA mandates that each federal agency semiannually publish in the Federal Register an agenda identifying rules that the agency expects to consider in the next 12 months that are likely to have a significant economic impact on a substantial number of small entities.
Continue Reading

Davis Polk Client Alert: Chamber of Commerce Releases Best Practices for Voluntary ESG Disclosure

The U.S. Chamber of Commerce released this month a set of ESG voluntary reporting best practices. By releasing its best practice guide, the Chamber makes clear that it believes further regulatory requirements mandating ESG disclosures are not warranted. A departure from a one-size-fits-all approach, the best practices guide asserts that each company should have the discretion to determine which ESG factors and related metrics are relevant to it without necessarily being tied to the various third-party frameworks and standards currently in existence. Finally, the best practices guide emphasizes that ESG reports need not be incorporated into filings with the SEC, nor should ESG information be required as part of an SEC filing if it is not “material”.
Continue Reading

SEC Investor Advisory Committee Panel on ESG – Data, Disclosure and Materiality

Last Thursday, the SEC’s Investor Advisory Committee (IAC) held an open meeting, which included a session to discuss investor use of environmental, social and governance (ESG) data in their investment and capital allocation decisions. During this session, the IAC heard insights from and asked questions of a panel consisting primarily of ESG-focused investors, as well as one academic. The panelists represented investment management firms Neuberger Berman, AllianceBerstein, State Street Global Advisors and Calvert Research and Management, as well as Columbia University’s program in sustainability management.

SEC Chairman’s Written Comments

SEC Chairman Clayton was not in attendance, though he submitted written remarks to the IAC, expressing his views on the matters to be considered at the meeting.
Continue Reading

Spencer Stuart Shows How Boards Are Transforming

The 2019 U.S. Spencer Stuart Board Index (Index) reflects the board practices and trends of S&P 500 companies. According to the Index, boards are responding to investors’ increasing calls for greater diversity of “gender, age, race/ethnicity and professional backgrounds.” Spencer Stuart found that “boards are accelerating the addition of women and minority directors,” which in turn is driving notable changes in board composition. Spencer Stuart predicts that the biggest drivers of board refreshment will be replacing retiring directors and adding new skills to the board.

The Index covers public companies in the S&P 500 as of May 15, 2019 and the proxy statements released between May 30, 2018 and May 15, 2019.
Continue Reading

Next SEC Investor Advisory Group Meeting–How Are Investors Using ESG Data?

Earlier this week, the Securities and Exchange Commission (SEC) announced that its Investor Advisory Committee (IAC) will be holding a meeting on Thursday, November 7, 2019, at 9:30 a.m. E.T. The agenda includes a morning discussion on whether and how investors use environmental, social and governance (ESG) data in their investment and capital allocation decisions. The agenda and press release provide no further details on the session topic other than the panelist list provided below.

Brief Backdrop

SEC Chairman Clayton has raised a similar question at prior IAC meetings on human capital management (HCM) as the one posed for the November 7, 2019 meeting.
Continue Reading

SEC Commissioners Testify Before House Financial Services Committee on ESG, Proxy and Other Topics

On Tuesday, September 24, 2019, SEC Chairman Jay Clayton, along with Commissioners Jackson, Lee, Peirce and Roisman, testified before the House Financial Services Committee (Committee) in a hearing titled “Oversight of the Securities and Exchange Commission, Wall Street’s Cop on the Block.” Chairwoman Maxine Waters observed that the last time all the SEC Commissioners had been before the Committee was over a decade ago, in 2007.

The SEC submitted written remarks that begin with the agency’s “tripartite mission—to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation . . . .” The remarks describe the agency’s strategic plan and highlight the 2019 initiatives in the following areas: (1) enforcement and compliance; (2) market developments and risks; (3) regulatory and policy agenda; and (4) investor education.
Continue Reading

LexBlog