Sustainability Reporting After the Paris Climate Accord

It’s fair to say that President Trump’s June 1 announcement that the U.S. will withdraw from the Paris climate accord has been widely reported. It’s also fair to say that the announcement triggered a host of passionate reactions, positive and negative, around the world. Within corporate America, a number of high-profile corporations (for example, Apple, Disney, Facebook, General Electric, Google, Salesforce, Tesla and Twitter) pledged to continue their efforts to cut greenhouse gas emissions and adhere to the spirit of the accord. This leads one to wonder whether withdrawal from the Paris climate accord might, per the law of unintended consequences, actually increase investor emphasis on corporate social responsibility (CSR) and the number of companies that voluntarily report their sustainability initiatives. It’s an intriguing possibility. Momentum for sustainability reporting has been building for years. In fact, the vast majority of S&P 500 companies now publish some type of sustainability or CSR report, and disclosures have begun to appear in SEC filings, particularly proxy statements. Mid-size and smaller companies, lacking the resources of their larger brethren, have been slower to do so, though some have begun and others are giving it serious consideration. Increased pressure from institutional investors, employees and other stakeholders, now coupled with widespread concern over withdrawal from the accord, could tip the reporting balance, especially for companies in sustainability-sensitive industries or companies that otherwise want to send a certain message. One challenge for all companies is to make sense out of the CSR reporting landscape. First of all, the terminology itself—sustainability, CSR, environmental, social and governance (ESG), and triple bottom line, to name a few—is confusingly ambiguous...

Jay Clayton Confirmed as SEC Chairman

A new era at the SEC officially began last week when Jay Clayton was sworn in as the 32nd Chairman of the SEC. The Senate’s confirmation of Mr. Clayton on May 2nd by a 61 to 37 vote continued the Trump Administration’s practice of tapping well-known Wall Street professionals to serve in key government positions. In this case, Mr. Clayton was a partner in the New York office of Sullivan & Cromwell, where according to the SEC’s news release he advised companies on “securities offerings, mergers and acquisitions, corporate governance and regulatory and enforcement proceedings.” These companies notably included Goldman Sachs, which has been a recurring theme with President Trump’s appointees. While his former ties will, no doubt, prevent Mr. Clayton from participating in SEC matters directly related to Goldman Sachs, his Wall Street background could well influence his perspective regarding the SEC’s future regulatory agenda. That agenda is expected to shift toward re-analyzing the regulations implemented as a result of Dodd-Frank while Congress seeks to roll back many of that act’s statutory imperatives. For example, a bill currently making its way through the House, known as the Financial Choice Act, would among other things and according to its executive summary: Provide an “off-ramp” from the post-Dodd-Frank supervisory regime and Basel III capital and liquidity standards for banking organizations that maintain high levels of capital, including easing restrictions on their ability to pay dividends and the maintenance of leverage ratios, Repeal the designation of firms as “systematically important financial institutions” and modify the bankruptcy code to accommodate the failure of large, complex financial institutions, thereby eliminating Dodd-Frank’s “orderly liquidation...

Securities Act and Exchange Act Form Revisions

In 2012, the Jumpstart Our Business Startups (JOBS) Act created a new category of companies known as “emerging growth companies (EGCs).” The JOBS Act also requires that, once every five years, the SEC indexes various EGC thresholds to reflect changes in the Consumer Price Index for All Urban Consumers. Last week, those new thresholds became effective upon their publication in the Federal Register. The SEC simultaneously revised the cover pages of various Securities Act and Exchange Act forms used by virtually all public companies. Two new check boxes must now appear on the covers of: Forms S-1, S-3, S-4, S-8, S-11 and the corresponding foreign private issuer “F” forms, and Forms 10-K, 10-Q, 8-K and 10. The new boxes must indicate: Whether the person filing the report is an EGC, and If so, whether the company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. The takeaways Due to the form changes, almost every public company (not just EGCs) is impacted. The cover page revisions are now effective for all future filings on the forms listed above. Click here to see the new text of the forms themselves and the related new instructions. All the...

Don’t Forget the Say-on-Frequency Form 8-K

The proxy rules require that public companies submit a nonbinding proposal to their shareholders every six years regarding how often they should hold say-on-pay votes, known as “say-on-frequency.” Most companies held their first say-on-frequency vote in 2011 and will be including another vote in their 2017 proxy statements. (“Smaller reporting companies” were not required to hold their first say-on-frequency vote until 2013, meaning that they won’t have to do it again until 2019, and there are special rules for “emerging growth companies.”) Shareholders may choose to vote on executive compensation every year, every two years or every three years, or they may choose to abstain. Though the vote is nonbinding, the charter of most compensation committees requires them to consider the outcome of the shareholder vote when deciding how best to proceed. Indeed, companies must amend their initial post-meeting Item 5.07 Form 8-K (which reports voting results) no later than 150 calendar days after the end of the shareholder meeting at which the vote was taken in order to “disclose the company’s decision in light of such vote as to how frequently the company will include a shareholder vote on the compensation of executives in its proxy materials….” Back in 2011 when these rules were still new, more than a few companies failed to make the necessary Form 8-K disclosures. While this may not sound like a big deal, in fact it is. A missed Form 8-K filing can render a company ineligible to use Form S-3 during the 12 months following the date that the Form 8-K should have been filed. For companies planning to raise capital in...

It’s Official–Exhibit Hyperlinks are Here (Almost)

Last August, the SEC proposed rule amendments that would require companies to include a hyperlink to each exhibit listed in the exhibit index of a registration statement, periodic report or current report. At the time, I wrote that “these amendments are unlikely to be controversial, and you should expect them to be final in short order.” (See this Doug’s Note.) And while that observation admittedly did not require special powers of clairvoyance, it nevertheless turned out to be true. This week the SEC issued final rules designed to make it easier to access and retrieve exhibits to company filings through the use of hyperlinks. This will avoid the cumbersome process of first determining the filing in which an incorporated-by-reference exhibit physically appears and then searching through the company’s EDGAR filings to locate the relevant document. Hyperlink requirement. Item 601 of Regulation S-K requires companies to include an exhibit index that lists each exhibit included with the filing. Item 601 has now been amended to require that each exhibit to Forms S-1, S-3, S-4 and S-8 (among others) under the Securities Act and Forms 10, 10-K, 10-Q and 8-K (among others) under the Exchange Act include an active hyperlink to the particular document. This applies whether or not the exhibit is incorporated by reference. For periodic reports, an active hyperlink must be included for each exhibit listed when the report is filed. For registration statements, a hyperlink must be included in the initial filing and in each amendment (pre-effective and post-effective) thereafter. (This is a change from the proposed rule, which limited hyperlinks to the registration statement that becomes effective.)...

More Conflict Minerals Drama

Well, it wouldn’t be February without a “helpful” reminder that Form SD filings are due on May 31st and a new development that casts confusion over the process. This year, the confusion comes in the form of last week’s statement from Acting SEC Chairman Michael S. Piwowar declaring that he has “directed the staff to reconsider whether the 2014 guidance on the conflict minerals rule is still appropriate and whether any additional relief is appropriate.” Leaving aside the bigger issue of whether anything about conflict minerals reporting is appropriate, this development once again means that companies will be approaching their filing deadlines without a clear understanding of what is going on. Prior conflict minerals developments… In April 2014, the Court of Appeals for the D.C. Circuit in National Association of Manufacturers v. SEC held that the rule’s requirement that companies state that their products have not been found to be “DRC conflict free” violated the First Amendment. Subsequently, the SEC staff released guidance relieving issuers of the obligation to put those labels in their reports. The case was subsequently remanded to the district court for further consideration and continues to work its way through the litigation process. In the meantime, companies have been filing Form SDs without stating that their products are “DRC conflict free” since doing so, according to the SEC’s guidance, would trigger the requirement for an independent private sector audit. Acting Chairman Piwowar’s recent statement… Acting Chairman Piwowar supported his statement, in part, with some personal observations: “While visiting Africa last year, I heard first-hand from the people affected by this misguided rule. The disclosure requirements...