Lieutenant Colonel (Ret.) Alexander Vindman, Senior Advisor of VetVoice Foundation, today discussed the conflict in Ukraine during a Real Estate Roundtable virtual town hall. In recent years, Vindman served on the White House’s National Security Council as the Director for Eastern Europe, the Caucasus, and Russia. (Watch video discussion)

Focus on Ukraine

• Vindman and Roundtable President and CEO Jeffrey DeBoer addressed Ukraine in the context of Democracy vs. Authoritarianism, the spillover effects of the war, and the need for a future international reconstruction effort.
• “It’s a geopolitical earthquake that has unfolded over the past year, culminating in a war between the largest country in the world and the largest country in Europe,” Vindman stated.
• In addition to the devastating human and physical destruction, the war’s spillover effects include interruptions to the supply of crucial commodities such as neon and titanium, and food supplies for the Middle East and Africa.
• “The longer this war continues, the greater the chance of spillover,” Vindman said, citing the Russian attack on a Ukrainian nuclear power plant, and the potential use of cyberwarfare and chemical weapons.
• He added the war’s eventual outcome will be a significant setback to Authoritarianism – and that the West should keep a door open for a reconciliation with Russia after Putin is gone.
• Vindman and DeBoer also discussed the need for an enormous reconstruction effort, which Vindman said could amount to $100 billion international fund that could take the form of a public-private partnership. (Watch video discussion)
• Roundtable members can support Ukraine against the Russian invasion via the VetVoice Foundation.

U.S. Support

• Since the invasion of Ukraine began, over 450 U.S. companies have announced their withdrawal from Russia, shutting down 25% of Russia’s gross domestic product (GDP), according to Professor Jeffrey Sonnenfeld at the Yale Chief Executive Leadership Institute. Sonnenfeld’s research team maintains a list of companies that have either withdrawn from Russia completely, suspended or scaled back operations, or delayed investments. (Fortune, March 16)
• Many American Hotel & Lodging Association members, including Hilton and Marriott International, recently announced donations for humanitarian aid; the closure of their corporate offices in Moscow; and a suspension all future hotel development and investment in Russia. (TravelPulse, March 21 and Roundtable Weekly, March 18) 

White House CyberSecurity Warning 

• President Joe Biden alerted U.S. business leaders on March 21 that “based on evolving intelligence, Russia may be planning a cyberattack against us." Biden added, "[I]t's a patriotic obligation for you to invest as much as you can in making sure ... you have built up your technological capacity to deal ... with cyberattacks." (Remarks by President Biden | White House Statement | Fact Sheet: Act Now to Protect Against Potential Cyberattacks, March 21)
• The growing concern about a possible Russian cyberattack response over U.S. sanctions also led White House Deputy National Security Adviser for Cyber and Emerging Technology Anne Neuberger, above, to clarify that although “there is no certainty” of an attack, Biden’s warning was intended to focus attention on “critical infrastructure.” (White House Press Briefing video | BGov and Axios, March 21)

The Real Estate Roundtable’s Homeland Security Task Force and the Real Estate Information Sharing and Analysis Center (RE-ISAC) continue to work with its members, key law enforcement and intelligence agencies to help manage and mitigate cyber and physical threats to the commercial facilities sector. (Information on joining the RE-ISAC and Roundtable Weekly, March 4) 

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• The proposed rule has no immediate effect. If it is finalized, the action would require all SEC registered companies to quantify their greenhouse gas (GHG) emissions, assess the economic impact of rising sea levels relating to their assets, and report to investors on these and other climate-related risks through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
• Release of the proposal triggers a public comment period, with stakeholder input due to the SEC around May 20, 2022. Themes raised by The Real Estate Roundtable in pre-rulemaking comments submitted last year will likely be raised again in this latest round of public input. (Roundtable Weekly, June 11, 2022)
• The SEC’s proposal, titled “Enhancement and Standardization of Climate-Related Disclosures for Investors,” is considered a key component of the Biden Administration’s efforts to cut U.S. greenhouse gas emissions by as much as 52% (below 2005 levels) by 2030. (CBS-AP | Bloomberg | Axios, March 21) 

• A Real Estate Roundtable Fact Sheet provides a summary of the 510-page SEC proposal, including the following elements:
  • All companies registered with the SEC would be required to report and quantify Scope 1 and Scope 2 GHG emissions each year. Scope 1 and 2 reporting would require registrants to define and disclose how they determine their “organizational” and “operational” boundaries.
  • SEC registrants would report on Scope 3 “indirect” emissions in their supply chain if the company has announced a Scope 3 reduction goal – or if investors would deem the registrant’s Scope 3 emissions to be “material.” 
  • The SEC proposes a “safe harbor” for Scope 3 disclosures related to certain liabilities covered by federal securities law.
  • Independent 3rd party assurances would be required for Scope 1 and 2 disclosures, but not for Scope 3.
  • Registrants should report on climate targets or goals they set for themselves, their energy efficiency investments, and whether they purchase Renewable Energy Certificates (RECs) or carbon offsets to meet their GHG goals.
  • Registrants would also need to report on material “physical risks” to buildings and other assets from climate change – such as those caused by extreme weather, droughts, and coastal flooding.
  • Compliance would start with SEC filings in 2024 for the biggest registrants and phase-in for other companies. (Roundtable Fact Sheet)

• In related news, the Environmental Protection Agency (EPA) formally released this week its new ENERGY STAR Building Emissions Calculator.
• Key EPA staff recently demonstrated the new calculator for The Roundtable’s Sustainability Policy Advisory Committee (SPAC). [EPA’s step-by-step User's Guide and other reference materials]
• The Building Emissions Calculator expands upon the industry-standard Portfolio Manager tool widely used to benchmark energy usage in buildings. The new offering  goes to the next level by allowing owners and managers to estimate historical, current, and future annual GHG emissions resulting from buildings’ energy use. 

The Real Estate Roundtable on March 21 submitted comments to the Securities and Exchange Commission (SEC) opposing a proposal that would impose new reporting requirements on real estate investment and private equity advisers, including a mandate to file reports within one business day of certain events. The proposal “presents significant compliance and operational challenges for private real estate fund sponsors, with no added benefit to investors and no relation to the intent of Form PF in monitoring systemic risk,” according to The Roundtable’s letter.

Cost and Timing Burdens 

• The SEC’s proposal would impose new requirements on Form PF, the confidential reporting form for certain SEC-registered private fund advisers. The proposal reflects the SEC’s experiences with recent market turmoil, including the COVID-19 crisis and the January 2021 market volatility impacting certain stocks. (SEC, Jan. 26 News Release | Fact Sheet | Proposed Rule)
   
• New disclosure obligations in the Commission’s proposal include:
   
  • Additional reporting requirements for large hedge fund advisers and advisers to private equity funds, obligating such advisers to report a number of specified events to the SEC within one business day of their occurrence;
    
    
  • A lowered threshold for large private equity adviser reporting;
    
    
  • Certain revised reporting questions for private equity funds; and
    
    
  • Enhanced reporting requirements for large liquidity fund adviser. 

The Roundtable’s Response 

• The Roundtable’s March 21 comment letter details why the proposed reporting requirements for Form PF should not be adopted. While the letter acknowledges the SEC’s intention to enhance the monitoring of systemic risk, it also outlines how the proposed reporting requirements present significant compliance and operational challenges for private real estate fund sponsors. Some of the key points made against the proposed new requirements include:
  
  
  • A one-day reporting requirement imposed on private equity advisers for any reason is unprecedented, and a requirement to report the specific transactions and events deemed by the SEC to be systemically important is wholly unsupported.
    
    
  • The proposed amendments to Section 4 of Form PF impose onerous new reporting requirements that force “large private fund advisers” to report sensitive information unrelated to monitoring for systemic risk.
    
    
  • The significant added cost and timing burdens of the proposed amendments are unreasonable and do not provide investors with commensurate benefits or protections or enhance systemic risk monitoring.
    
    
  • The reduced threshold for reporting private equity advisers is arbitrary. The SEC’s rationale for choosing 75% of committed capital as a meaningful threshold for purposes of FSOC’s systemic risk-monitoring function is unclear. 

A March 16 analysis of the proposed SEC amendments on Form PF is available from Dechert LLP. The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to respond to the SEC’s various proposed regulatory initiatives with its industry and coalition partners. 

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