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US Securities and Exchange Commission

ESG, SPAC Among Fiscal 2021 Priorities for SEC Investor Advocate

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

· 5 minute read

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

· 5 minute read

Environmental, social, and governance (ESG) disclosure will be the top policy priority for SEC Investor Advocate Rick Fleming in fiscal 2022, which begins in October 2021.

The SEC Office of the Investor Advocate, according to a report to Congress published on June 28, 2021, will also focus on:

  • Rule 10b5-1 Plans
  • Capital-Raising Alternatives
  • Equity Market Structure
  • Novel Exchange-Traded Funds
  • Registered Fund Disclosure
  • Cryptocurrency
  • Broker Conduct
  • Financial Exploitation of Senior Investors

ESG Focus

The focus on ESG follows SEC Chair Gary Gensler’s direction to propose disclosure rules on climate change and human capital management in the fall this year in response to increasing investor demand.

The report noted that last year, the SEC’s Investor Advisory Committee urged the commission to begin work on updating public company reporting requirements because voluntary private-sector reporting initiatives have been inadequate to meet investor demand for reliable and material ESG information. Likewise, the SEC’s Asset Management Advisory Committee (AMAC) is also drafting recommendations for ESG-related rules for the commission to consider. AMAC is set to discuss its recommendations at its next meeting on July 7.

“In Fiscal Year 2022, we will help to ensure that as the Commission takes up this complicated issue, investors’ interests remain at the forefront of the discussion,” the report states. “In our opinion, investors would benefit from a careful balance of prescriptive and principles-based ESG disclosure requirements.”

Fleming’s report noted that principles-based measures can generate decision-useful information that is most relevant within the context of a particular company. But principles-based requirements also tend to generate disclosures that are difficult to compare.

“Accordingly, we favor prescriptive requirements to promote comparability wherever possible, particularly with respect to disclosure requirements for objectively-determinable facts,” the report noted.

On climate change risk, the investor advocate office pointed to Release No. 33-9106Commission Guidance Regarding Disclosure Related to Climate Change, published in February 2010.

“The Climate Change Guidance was intended to clarify what companies should have been doing all along: making disclosures about the effects of climate-related legislation, regulation, and international accords, as well as other developments concerning climate change, if material to their businesses,” the report stated. “Since the issuance of the Climate Change Guidance, however, some have criticized the Commission for what they view as inconsistent efforts to ensure issuers’ compliance.”

During this year’s proxy season, climate proposals received record support. For example, 98 percent of General Electric shareholders approved a shareholder resolution asking the company to explain how it will achieve net zero emissions under the Paris Agreement.

The Investor Advocate noted that the SEC’s Division of Enforcement recently formed a task force to find ESG-related misconduct. The Division of Examinations is also putting a greater focus on climate-related risks for its 2021 exam priorities. The division examines investor advisers and broker-dealers.

“We will monitor these efforts in parallel with our work on rulemaking proposals, as whatever the law requires, investors benefit from consistent enforcement,” the report said.

Capital-Raising Alternatives: SPACs

The Office of the Investor Advocate, among other areas of focus, will also study whether different capital-raising methods such as SPACs sufficiently protect investors.

This comes as there has been a surge in SPAC—special purpose acquisition company—transactions.

Fleming noted that providing more than a binary choice between the private market and a traditional initial public offering (IPO) increases opportunities for investors and may lower companies’ cost of capital.

“Yet, we worry that even in the public market, investors may not understand the full implications of the capital-raising strategy a company chooses to implement,” the report stated. “For example, those raising capital may be selecting a path to investors by asking which method best enables them to limit their liability to those investors.”

Fleming noted that his office will work with the Division of Corporation Finance, the Office of the Chief Accountant, and others to assess additional guidance, regulatory changes, or clarification on Private Securities Litigation Reform Act.

“Whether or not SPACs enjoy long-term popularity, they represent an evolution in the process of going public and present an opportunity for the Commission to consider how to assess future evolutions,” the report stated. “We will study the SPAC phenomenon to determine whether additional regulatory refinements may be necessary to prepare for future innovations in the capital markets.”


This article originally appeared in the July 1, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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