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The SEC issued its Spring 2021 regulations list, which is bursting with proposed regulations that would improve ESG-related disclosures for public companies in areas such as climate change, governance diversity, human capital management and cybersecurity risk management.
SEC Chairman Gary Gensler and executives expressed their views on their belief that public companies should provide more information to investors about how climate change is impacting their bottom line and what those companies are doing to reduce their carbon footprint. At present, most of the proposed regulations are little more than a wish list, with a one-sentence explanation of the regulations the agency plans to pursue.
The division [of Corporation Finance] Considering recommending that the Commission propose rule changes to improve disclosure by registrants regarding climate-related risks and opportunities from issuers, the proposal proposes a potential rule on climate change disclosure. Companies will be interested to hear more details, such as whether the SEC is defining the risks of climate change and choosing an established metric for companies to use to measure their progress.
Ditto for board diversity and human capital disclosure rules: They will be proposed, the SEC says, with more information to follow.
The appearance of cybersecurity risk management on the list of proposed rules should raise some eyebrows, given that the SEC has not taken a firm stand on the issue since Gensler was installed as agency chairman. Officially pursuing a disclosure rule on cybersecurity risk management would be an amendment to existing rules, almost certainly in response to the spate of recent cyberattacks targeting US businesses and government agencies, including high-profile ransomware attacks on Colonial Pipeline and meat producer JBS US.
Before Genslers arrived, the SEC had laid the groundwork for climate change and ESG-related regulations, and created a new senior advisor position on ESG and climate change and a task force that will investigate the issues, among other announcements.
The SEC has indicated that it will also propose a rule for investment companies and investment advisers about ESG-related claims and disclosures related to certain funds. The rule will almost certainly impose stricter requirements on what companies must disclose about how funds promoted as guided by ESG-related factors operate and whether their marketing materials comply with applicable procedures.
Gensler has been candid during his short tenure about using regulation to address identified market weaknesses exposed by the meme stock craze, including the effect on the market of short sellers, gamification of stock purchases, and payment for order flow. All these issues are reflected in the proposed rules.
The SEC will also look closely at special purpose acquisition companies (SPACs) to determine whether they are structured to favor certain investors over others and whether there is anything the agency should do to protect all SPAC investors.
To fulfill our mission to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation, the SEC has a lot of regulatory work ahead of it, Gensler said in a statement. press release that were attached to the regulatory list. I look forward to working with my fellow commissioners and the dedicated staff to propose and finalize rules that will strengthen our markets, increase transparency and protect investors.
The SEC regulatory list also represents a promise by the agency to complete implementation of some of the 11 rules of the Dodd-Frank Act of 2010 that are still unfinished, including reforming the disclosure of short sales (section 929Xa) , conflicts of interest relating to certain securitisations (Section 621), and a list of standards for recovery of fees wrongly awarded (Section 954).
Gensler made finalizing Dodd-Frank’s remaining lines a priority during his time as chairman of the Commodity Futures Trading Commission.
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