SEC’s Disclosure Rules to Touch Climate, Human Capital and More

Akin Gump Strauss Hauer & Feld LLP

[co-author: Jacob Shapiro]

According to media reports, during last week’s annual Conference on Financial Market Regulation—hosted jointly by the Securities and Exchange Commission’s (SEC) Division of Economic and Risk Analysis, Lehigh University and the University of Maryland—SEC Chair Gary Gensler announced that the SEC plans to propose a rule requiring public companies to provide certain human capital disclosures. These disclosures would include, among other things, workforce metrics relating to diversity, turnover rate and a breakdown of the number of full and part-time employees.

This statement comes in the midst of an effort within the SEC to develop a robust reporting framework for Environmental, Social and Governance (ESG). Mr. Gensler’s statement also confirms that the SEC’s yet-to-be revealed approach will extend well beyond sustainability. Consistent with Gensler’s statements and a bill recently reintroduced by congressional Democrats, future rules will include extensive climate-related disclosures (which we discussed in a recent piece). 

ESG practices have gained momentum in the private sector for a number of years, with interest in part fueled by investor demands, proxy advisory firms, advocacy groups and third-party rating agencies. While the SEC initially took a hands-off approach during prior administrations that preferred disclosure based on principles rather than rules, the SEC’s new leadership seeks to cement ESG principles into its securities regulatory regime.

On March 3, for example, the SEC’s Division of Examinations announced the release of its 2021 examination priorities and stated that it will enhance its focus on climate and ESG-related risks. On March 4, the SEC then announced the launch of a Climate and ESG Task Force in the Division of Enforcement to identify violations in addition to enforcing ESG-related misconduct. We discussed these announcements here. The SEC also issued a statement, discussed here, requesting the investment community’s input as to the adequacy and effectiveness of the agency’s disclosure rules in order to facilitate “consistent, comparable, and reliable information on climate change,” and even created a webpage devoted to up-to-date information relating to ESG and agency action.

Last week’s statement by Gensler is the latest development showcasing the SEC’s ESG priorities and foreshadows future regulatory actions to codify ESG disclosure principles.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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