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State Board Report

October 2016

The Securities and Exchange Commission continued to receive comments on its April 13 concept release on “Business and Financial Disclosure Required by Regulation S-K,” in October, though its comment period ended weeks earlier. The concept release was part of the SEC Division of Corporation Finance’s efforts to review registrants’ disclosure requirements to determine how to improve them. When the concept release was published on April 22 in the Federal Register, it was 92 pages long, including four pages on disclosure of public policy and sustainability matters; however, the Sustainability Accounting Standard Board (SASB) points out that of 276 non-form comment letters received by the SEC, two-thirds addressed sustainability-related concerns.

“Most of these letters support improved sustainability-disclosures in SEC filings; for many commenters this was the only matter of concern,” the SASB reports. “This groundswell of interest in sustainability means that, in the words of one of Wall Street’s leading law firms [Sullivan & Cromwell, LLP] ‘the sustainability topic is clearly on the table at this point, and the Commission will sooner or later have to – and should – address it.’ ” According to the SASB’s review, the comment letters most frequently suggested requiring disclosures on: climate change, human capital and/or human rights, political spending and lobbying, diversity, and water.

Not all groups agree, as the Financial Executives International made clear in their letter to the SEC on October 3. FEI Chairman Richard Levy wrote: “We believe the SEC should avoid calls to expand disclosure requirements intended to address societal issues unrelated to the SEC’s core mission of investor protection, and that may not appropriately consider materiality or whether such information is useful to a reasonably knowledgeable investor…. The Commission should not pursue an approach where all issues that are ‘important’ to a particular subset of stakeholders are required to be disclosed.”

How important such sustainability considerations may be was brought into question when the Wall Street Journal reported in September that the SEC had asked Exxon Mobil Corp. and its auditor, PricewaterhouseCoopers, LLP, for information on how the company is valuing its assets in respect to climate change. An Exxon spokesperson said, “We are fully complying with the SEC request for information and are confident our financial reporting meets all legal and accounting requirements.”

Based on the press reports, Representative Lamar Smith (R-TX), Chairman of the U.S. House of Representatives Committee on Science, Space and Technology, wrote on September 29 to SEC Chair Mary Jo White requesting information about the purpose, scope and origin of the SEC’s investigation into Exxon. “The Committee is concerned that the SEC, by wielding its enforcement authority against companies like Exxon for its collection of and reliance on what is perhaps in the SEC’s view inadequate climate data used to value its assets, advances a prescriptive climate change orthodoxy that may chill further climate change research throughout the public and private scientific R&D sector,” Chairman Smith wrote. The Committee asked that the documents be submitted by October 13, 2016.

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