Over the past five years, international organizations ranging from the United Nations and the G20 to the World Economic Forum and the International Organization of Securities Commissioners (IOSCO) have advocated expanding environmental, social, and governance (“ESG”) or “non-financial” reporting by public companies. In 2019, the European Union introduced a new “taxonomy” to standardize how sustainability measures are integrated into financial systems and announced new ESG disclosure rules for investment managers. This past February, the European Securities Market Authority (ESMA) rolled out a Sustainable Finance Strategy that builds on these frameworks for transparency around sustainability factors and risks. European governments … Read more
Shareholder proposals urging corporate boards to report on climate‑related risk made headlines in 2017 when they earned majority support from investors at ExxonMobil, Occidental Petroleum, and PPL. The key to this historic vote was the support of the Big Three index fund managers – BlackRock, State Street, and Vanguard, which broke with management and cast their votes for the proposals. The 2018 proxy season saw several more climate‑related proposals earn majority support, and in 2018 and 2019 record numbers of proposals were withdrawn after the companies agreed to respond to shareholders’ requests.
The highly visible 2017 proposal, … Read more
In 2018 and 2019, the SEC released the first amendments to Regulation S-K to emerge from its decades-long project to “modernize and simplify” the disclosure obligations that apply to publicly traded companies. New proposed amendments released for public comment in August are currently pending. Largely missing, however, are changes to the basic rules governing how companies provide information to investors about risk, including emerging environmental, social, and governance (ESG) risks. The SEC’s caution is due largely to persistent concerns in the business community that any effort to standardize how companies report ESG risk factors will overload investors and obscure … Read more
2017 was a year of major developments that are changing how companies disclose nonfinancial environmental, social, and governance (ESG) risk to investors. In January, regulations implementing the European Union’s 2014 Nonfinancial Reporting Directive took effect for certain large companies operating in Europe and the U.K. Under these rules, affected companies must prepare a non-financial statement disclosing material environmental, social, human rights, anti-bribery, and diversity matters. In March, Nasdaq’s Nordic and Baltic stock exchanges introduced voluntary ESG reporting guidelines as part of their contribution to the United Nation’s Sustainable Stock Exchanges initiative on nonfinancial disclosure reform. And in June, the Task … Read more
In 2016, the Securities and Exchange Commission (SEC) issued a Concept Release on Regulation S-K as part of its comprehensive review of the effectiveness of federal disclosure rules. The release included for the first time a request for comment on whether and how sustainability information should be incorporated into periodic reporting under federal securities law. The SEC previously issued guidance in 2010 showing how information on material climate-related risks should be disclosed in companies’ financial reports. Other studies have also shown that nonfinancial information (referred to generally as “environmental, social, and governance” (ESG) disclosure) is material to firms, depending on … Read more
The following post comes to us from Virginia Harper Ho, Associate Professor of Law and Docking Faculty Scholar at the University of Kansas School of Law. It is based on her recent paper, “Shareholder Activism & the Risk Hypothesis,” which is available here.
Over the past decade, a seismic shift in U.S. corporate governance toward shareholder empowerment has occurred at the same time as new regulatory mandates focused on risk management and risk oversight. Many of these reforms have been motivated in part by the risk hypothesis of shareholder activism – the view that shareholder empowerment promotes greater corporate … Read more