Tag: SEC

SEC Chair Indicates Possible Scale-Back of “Scope 3” Emissions Reporting

Posted on by Trey Jackson

SEC Chair Gary GenslerU.S. Securities and Exchange Commission (SEC) Chair Gary Gensler commented on March 6 that the agency’s forthcoming rule on climate reporting may be scaled-back, including its proposal for sweeping disclosures on Scope 3 GHG emissions, according to CNBC.

Scope 3 Proposal 

  • Scope 3 refers to indirect emissions that are part of an organization’s value chain but not owned or controlled by the reporting company. The 2022 SEC proposal would require corporate issuers of securities to estimate and report Scope 3 emissions “if material” in 10-Ks and other filings. (SEC News Release, March 22, 2022)

  • Roundtable comments submitted last June called the SEC’s proposed treatment of Scope 3 disclosures a “back-door mandate” and urged the agency to drop it. (Roundtable Weekly, June 10, 2022)

  • The SEC’s final rulemaking process is ongoing. Gensler acknowledged that the agency received a record 15,000 public comments and “adjustments” to the proposed rule were likely. (Bloomberg Law, March 6; CNBC, Feb 10)

  • Some stakeholders have signaled potential litigation by questioning whether the SEC has “clear” legal authority to regulate climate matters in light of recent Supreme Court precedent. (SCOTUSblog, June 30, 2022 | Pensions & Investments, March 7, 2023)

  • Gensler told POLITICO this week that any final climate rule must be “durable” and “sustainable.” “It doesn’t protect investors … if we have a rule overturned in court,” he said.

Congress Weighs In 

U.S. Capitol
  • The SEC’s climate rule is the focus of dueling letters by members of Congress. Democrats wrote in a March 5 letter that the agency should not “soften” or “scale back” proposed climate discloures. Reports that the SEC might “curtail” Scope 3 reporting, among other matters, are “deeply concerning,” the Democrats wrote.

  • Republicans wrote to Gensler on Feb 22, stating the proposed rule exceeds the Commission’s authority. The GOP letter states, “Congress created the SEC to carry out the mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation—not to advance progressive climate policies.”

A final rule is anticipated from the SEC this spring. The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will continue to track any developments on the agency’s proposed rule and other climate-related regulatory proposals affecting CRE.

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SEC Plans Increased Scrutiny of Private Funds With CRE Investments

Posted on by Trey Jackson

SEC logo - image

The Securities and Exchange Commission’s (SEC) this week announced its 2023 Examination Priorities, which includes a focus on registered investment advisers (RIAs) who manage “private funds that hold certain hard-to-value investments…with an emphasis on commercial real estate.” (PoliticoPro, Feb. 7)  

Private Fund Adviser Disclosures

  • The SEC reports that more than 5,500 RIAs manage approximately 50,000 private funds with gross assets exceeding $21 trillion. In the past five years, the gross assets of private funds have increased, with retirement funds playing a significant role. The funds are invested through a variety of strategies used by hedge funds, private equity funds, and real estate-related funds, among others. (SEC 2023 Examination Priorities, Feb. 7)
  • The agency recently proposed an expanded set of disclosures by SEC-registered, private fund advisers, which could affect those that manage real estate investments. (SEC Feb. 9, 2022 News Release | Proposed Rule | Fact Sheet)
  • The Real Estate Roundtable submitted comments last April on how the proposed SEC rules would increase compliance costs, decrease returns for all private fund investors and drive smaller fund sponsors away from the market. (Roundtable comments to the SEC, April 25, 2022)
  • The Roundtable letter raises concerns that the SEC proposal, if finalized, could hinder real estate capital formation; harm development and improvement of real properties; and curtail essential economic activity that encourages job creation. (Roundtable Weekly, April 29, 2022)

Credit Rating Risk

SEC screens

  • Last week, the SEC issued a separate report that identified commercial real estate credit ratings as a potential risk for consideration in assessments by nationally recognized statistical rating organizations (NRSROs). (SEC Staff Report, Feb. 2023)
  • According to the agency’s NSRO report, “After being adversely affected by COVID-19, the single borrower CMBS sector experienced an uneven recovery during the first half of 2021 as compared to the first half of 2020, with properties such as lodging and retail lagging. The (SEC) Staff identified potential risks relating to commercial real estate ratings with significant exposure to sectors negatively impacted by COVID-19, and potential non-adherence to methodologies and rating processes.”

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to respond to the SEC’s various proposed regulatory initiatives and proposals affecting CRE with its industry and coalition partners. 

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Advisory Panel Endorses SEC Proposed Disclosure Rule

Posted on by Trey Jackson

SEC logo - image

A Securities and Exchange Commission (SEC) advisory panel on investor issues this week endorsed the agency’s proposed climate disclosure rule, including a requirement for registered companies to support Scope 3 indirect emissions “if material” to investors. (Bloomberg Law and advisory panel recommendation, Sept. 21)

Scope 3 & CRE

  • The Investor Advisory Committee’s recommendations are not binding, although the SEC could adopt final rules on corporate climate reporting requirements this fall. (BGov, Sept. 21)
  • The Real Estate Roundtable submitted comments on June 10 objecting to the Commission’s Scope 3 approach. The comments noted that real estate companies neither control nor have access to data regarding emissions from third parties in their “value chains.” (Roundtable Weekly, June 10 and June 24)
  • A joint industry letter filed on June 13 from 11 national real estate trade groups also opposed the SEC’s proposed approach, emphasizing that corporate disclosures on indirect Scope 3 emissions should be voluntary.

SEC Authority & EPA Funding

EPA entrance building

  • Litigation is expected to challenge any final Commission regulation—especially in light of a recent Supreme Court decision in West Virginia v. EPA that questioned whether the SEC has “clear” authority from Congress to regulate climate matters.
  • House Financial Services Committee Ranking Member Patrick McHenry (R-NC) and other Republican committee members wrote to SEC Chair Gary Gensler this week to request the SEC provide a list of all pending and upcoming rulemakings with the specific Congressional authority supporting each action. (Policymakers’ letter, Sept. 20)
  • Apart from the SEC, the Environmental Protection Agency (EPA) received a modest sum from Congress ($5 million) under the recently enacted Inflation Reduction Act (IRA) to help standardize voluntary corporate commitments to reduce greenhouse gas (GHG) emissions.
  • The new EPA funds are not “meant to create a parallel program … in case the SEC rule is scrubbed,” but will rather be used for climate models and software to hold companies “accountable” for the climate commitments they are already making. (BGov, Sept 21)
  • EPA backed the SEC’s climate disclosure proposal in a recent letter— stating the Commission has “broad authority to promulgate disclosure requirements that are ‘necessary or appropriate … for the protection of investors.’”

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will remain engaged with policy makers on climate risk disclosure rules that affect commercial real estate.

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Senators Challenge SEC Chair on Proposed Climate Rule

Posted on by Trey Jackson

SEC Chair Gary Gensler

Senate Banking Committee members challenged Securities and Exchange Commission (SEC) Chair Gary Gensler, above, during an oversight hearing yesterday about the agency’s proposed climate disclosure rule. (CQ, Sept. 15 and Yahoo Finance, Sept. 16)

SEC Authority Questioned

  • Committee Ranking Member Pat Toomey (R-PA) opened the hearing by stating, “The SEC is wading into controversial public policy debates that are far outside its mission and its expertise.”
  • Toomey pressed Gensler about a June Supreme Court ruling that executive branch agencies “cannot use novel interpretations of existing law to pretend they have legal authority to support sweeping policy changes, including on climate change, that Congress never intended.” (Toomey Opening Statement)
  • Toomey asked, “In light of the EPA v. West Virginia case, have you given any consideration to rescinding that rulemaking?” Gensler replied that the Commission is “seriously” considering the high Court ruling and 14,000-plus public comments to assess its legal authorities to ensure that registered companies provide material, decision-useful information about climate risks to investors. (SEC docket with list of organizations and individual comments)
  • Senator Jon Tester (D-MT) explained that the SEC’s proposal would require farms and other small businesses to estimate and disclose carbon emissions because they sell products and services to public companies. Senators Mike Rounds (R-SD) and Steve Daines (R-MT) shared Tester’s concerns (CQ, Sept. 15)

A CRE Priority

SEC logo - image

  • The SEC’s climate proposal, if finalized, would require all SEC registrants to quantify direct GHG emissions (“Scope 1”) and emissions attributable to electricity purchases (“Scope 2”) through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
  • The SEC also proposed that a company would need to report on “Scope 3” indirect emissions if they are “material” to investors. In June 10 comments, The Roundtable objected to the Commission’s proposed Scope 3 approach because real estate companies neither control nor have access to data regarding emissions from third parties in their “value chains.” (Roundtable Weekly, June 10 and June 24)
  • A joint letter filed on June 13 from 11 national real estate industry trade groups echoed the issues raised by The Roundtable in its earlier comments.

The SEC is expected to issue a final climate reporting disclosure rule sometime this fall. If the Commission votes to regulate Scope 3 emissions, the recent SCOTUS decision in West Virginia v. EPA is likely to spark litigation, raising questions as to whether the SEC has authority from Congress to regulate climate disclosures and emissions.

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More than 10,000 Stakeholders—Including Members of Congress—Weigh in on SEC Proposed Climate Rule

Posted on by Trey Jackson

SEC Climate Disclosure Comments Reference page

Congressional lawmakers recently submitted comments to the U.S. Securities and Exchange Commission (SEC) regarding its proposed rule that would require all registered companies to disclose material financial risks related to climate change. Overall, the SEC has received about 10,000 responses on the climate reporting proposal. (AP, June 17, Wall Street Journal, June 21 and SEC docket with list of organizations and individual comments) 

The Real Estate Roundtable submitted its comments to the SEC on June 10. (Roundtable Weekly, June 10) 

Views from Congress, State AGs 

  • More than 130 House Republicans wrote to SEC Chair Gary Gensler on June 15, asking him to rescind the climate disclosure proposal. “It is Congress’ job to set our environmental policy, not the job of unelected regulators,” according to the House letter. They have also called for a hearing on the SEC’s proposal. (E&E News, May 10)
  • A nearly equal number of House Democrats countered in their own letter, urging the SEC “to finalize the rule as quickly as possible.”
  • Over in the Senate, Republicans expressed their opposition in an April 5 letter.
  • Meanwhile, various Democratic Senators submitted several separate comments on June 17. One of their letters maintains that the proposal does not go far enough and should include a specific quantitative threshold for mandatory disclosures of Scope 3 emissions.
  • State Attorneys General have similarly expressed dueling opinions. (Democratic State AGs and Republican State AGs)  

CRE Response 

SEC screens

The Biden administration is expected to push forward with a final rule that could be issued later this year.

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Roundtable and Nareit Raise Concerns to SEC About Proposed Cybersecurity Rules; SEC Climate Proposal Stokes GOP Criticism

Posted on by Trey Jackson

Cybersecurity computer operator at console with world map

The Real Estate Roundtable and Nareit raised concerns to the Securities and Exchange Commission (SEC) about their proposed rules related to cybersecurity risk management, strategy, governance, and incident disclosure. (Comment Letter, May 9)

Industry Concerns

  • The letter states that The Roundtable and Nareit generally support the SEC’s efforts to ensure that investors receive accurate and comparable material information regarding company cyber risk management and incidents. (SEC  News Release |  Proposed Rule |  Fact Sheet)
  • However, the two industry groups expressed a number of concerns arising from the detailed, granular reporting that would be required by the SEC proposal and its rigid incident reporting deadlines, which may unintentionally exacerbate cybersecurity risks for issuers and impose unjustified burdens. Those concerns include:
  • It is vital to harmonize SEC reporting requirements with other federal and state cyber incident reporting requirements.
  • The Commission’s proposed 72-hour reporting window should incorporate flexibility for a reporting delay to accommodate other law enforcement and other contingencies.
  • Registrants should not be required to report detailed descriptions of their internal cybersecurity gameplans, which could compromise them in any number of ways.
  • The prescriptive requirements for disclosing risk management, strategy, and governance regarding cybersecurity risk are burdensome and unjustified.
  • The letter also raises concerns about the highly prescriptive nature of the requirements set forth in the Proposal and the “one size fits all” presumption that the prescriptive requirements will be appropriate for all industry sectors.

SEC Climate Disclosure Proposal

logo - U.S. Securities and Exchange Commission

  • A separate SEC proposal on climate disclosure rules has drawn the ire of House Republicans, who have criticized the proposal and called for a hearing with the full commission. (E&E News, May 10)
  • In a May 4 letter to SEC Chair Gary Gensler, a group of House Republicans led by Oversight and Reform ranking member James Comer (R-KY) stated, “The Climate Disclosure Rule would represent the largest expansion of SEC authority without a clear legislative mandate from Congress.”
  • A regulatory push on multiple fronts by the Securities and Exchange Commission (SEC) prompted The Real Estate Roundtable and 24 other national business organizations to submit comments to Gensler about the need for more time to assemble meaningful stakeholder analysis as part of the rulemaking process. (Coalition letter, April 5 and Roundtable Weekly, April 8)

The proposed SEC climate disclosure rule has no immediate effect. If it is finalized, the action could have a significant impact on the real estate industry, requiring all SEC registered companies to report on climate-related risks through annual 10-Ks and additional filings. (SEC  News Release |  Proposed Rule |  Fact Sheet, March 22)

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Roundtable Warns SEC Proposed Rules Affecting Private Fund Advisers Pose Unnecessary Burden on Capital Formation and Investment

Posted on by Trey Jackson

SEC logo on wall with American flag

The Roundtable submitted comments this week to address the potential negative consequences of recently proposed Securities and Exchange Commission (SEC) regulations affecting real estate private equity investment fund advisers. (SEC comment letter, April 25) 

Negative Consequences 

  • The Roundtable’s April 25 comments detail how the proposal could have a negative impact on real estate private fund disclosures, reporting, fees and expenses, and operations—with significant results for the $18-trillion private fund adviser marketplace.
  • The letter also explains how the Commission’s extensive reporting requirements proposed under the new rules would increase compliance costs, decrease returns for all private fund investors and drive smaller fund sponsors away from the market. (SEC Feb. 9 News Release | Proposed Rule | Fact Sheet)
  • The Roundtable letter raises concerns that the SEC proposal, if finalized, could hinder real estate capital formation; harm development and improvement of real properties; and curtail essential economic activity that encourages job creation. 

Interrelated, Multiple Rulemakings 

SEC building

  • The SEC, above, has proposed a number of other complex rules with potentially wide-ranging, significant consequences—all at the same time—and given the public abnormally short, 30-day comment windows to participate in these interrelated rulemakings. (Roundtable Weekly, April 8)
  • The Commission’s private fund adviser proposal is one of many of these rulemakings. This rulemaking alone seeks open-ended and extensive information from stakeholders and the public, including more than 800 individual questions and more than 60 specific questions on the cost-benefit analysis portion.
  • The Real Estate Roundtable and 24 other national business organizations recently submitted comments to SEC Chairman Gary Gensler regarding the need for more time to assemble meaningful stakeholder analysis as part of the rulemaking process. (Coalition letter, April 5) 

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to engage the SEC on its various rulemakings and address individual proposals in more detail at its next meeting on June 16 during The Roundtable’s all-member June 16-17 Annual Meeting.  

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Roundtable and Broad Business Coalition Request SEC to Provide Appropriate Comment Time Periods for Multiple Rulemakings

Posted on by Trey Jackson

SEC Chairman Gary Gensler

A regulatory push on multiple fronts by the Securities and Exchange Commission (SEC) prompted The Real Estate Roundtable and 24 other national business organizations this week to submit comments to SEC Chairman Gary Gensler, above, about the need for more time to assemble meaningful stakeholder analysis as part of the rulemaking process. (Coalition letter, April 5)

SEC Proposals & CRE 

  • A long list of recent, overlapping SEC proposals affecting business are cited in the coalition letter, including four rulemakings that could significantly impact the real estate industry: 

1.)  Jan. 26 – the SEC issued a proposal that would impose new reporting requirements on real estate investment and private equity advisers, including a mandate to file reports (Form PF) within one business day of certain events. (SEC News Release | Fact Sheet | Proposed Rule)

  • The Roundtable’s March 21 response stated the SEC 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.” (Roundtable Weekly, March 25)

2.)   Feb. 9 – the SEC also proposed new rules and amendments affecting private fund advisers. (SEC News Release | Proposed Rule | Fact Sheet)

  • The Roundtable plans to submit comments by April 25 to the SEC, which stated it is aiming to increase transparency and efficiency in the $18-trillion private fund adviser marketplace. (Roundtable Weekly, Feb. 11)

3.)   March 9 – the SEC issued another proposal that would require publicly traded companies to disclose a cybersecurity incident within four days of determining a breach is “material,” or important to the average investor. (SEC News Release | Proposed Rule | Fact Sheet)

  • The Roundtable is working on comments due by May 9 regarding the reporting requirement proposal addressing material cybersecurity incidents. (Roundtable Weekly, March 18)

4.)   March 21 – the SEC issued a proposed rule regarding the reporting and disclosure of material corporate financial risks related to climate change. (SEC News Release | Proposed Rule | Fact Sheet, March 22 and Roundtable Weekly with Roundtable Climate Proposal Fact Sheet, March 25)  

  • Stakeholder input on the proposed climate disclosure rule is due to the SEC around May 20. The Roundtable is working on a comprehensive response that will include information from a Roundtable member survey due this Monday, April 11. (see related Roundtable Weekly story on the survey, above)

 Coalition Request 

SEC logo - image

  • This week’s coalition letter to the SEC noted, “The hundreds-upon-hundreds of questions, and numerous catch-all requests for comment, posed in these rulemakings reflect the Commission’s recognition that it needs input from the public to properly craft the proposed rules, yet the Commission is refusing to allow the public the time it needs to answer the Commission’s questions satisfactorily.”
  • The business coalition requested that the SEC should not reflexively assign a 30-day or 60-day comment period to multiple rule proposals. The coalition commented, “Exceedingly short comment periods associated with numerous concurrent potentially inter-connected rule proposals … could result in rules that hurt investors, damage the financial system, and implicate the Commission’s obligations.” (Coalition letter, April 5)

The SEC’s various rulemaking proposals affecting CRE will be discussed during The Roundtable’s April 25-26 Spring Meeting (Roundtable-level members only) in Washington, DC. 

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Roundtable Survey Seeks Members’ Input on SEC Climate Risk Disclosure Proposal

Posted on by Trey Jackson

SEC building exterior

Real Estate Roundtable members received a survey earlier today that will help formulate comments in response to a proposed rule issued on March 21 by the U.S. Securities and Exchange Commission (SEC) regarding corporate disclosures of climate-related financial risks. (Roundtable Weekly, March 25) 

Roundtable Member Participation 

  • The Roundtable requests that members respond to the SEC climate issues survey by COB April 11.

  • Before submitting responses to the survey, members are encouraged to review The Roundtable’s fact sheet summarizing the SEC’s proposed rule.
  • The survey sent today aims to obtain a high-level understanding of the existing practices and standards used by Roundtable members in assessing and quantifying the following:
    • greenhouse gas (GHG) emissions across their portfolios,
    • their buildings’ electricity use,
    • impacts to their real estate assets from floods and rising sea levels,
    • how they interact with their tenants on these matters, and
    • similar questions that will likely require registered companies to report on their climate-related financial risks.
  • If any Roundtable member has questions about the survey, please contact Roundtable Senior Vice President and Counsel, Duane Desiderio.

SEC Climate Risk Proposal

Flooding of mixed used building

  • The proposed rule has no immediate effect. If the proposal is finalized, all companies registered with the SEC would be required to report, measure, and quantify “material” risks related to climate change in their annual Form 10-Ks and certain other filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
  • Compliance would phase-in over the next several years. For example, registrants with a global market value of $700 million or more would need to comply first for filings in FY 2024 (covering FY 2023 emissions).
  • “Limited assurance” from independent third party verifiers, regarding so-called Scope 1 and Scope 2 emissions, would be required for the first two compliance years. Thereafter, “limited assurance” would ramp-up to “reasonable assurance” at a level provided in a financial statement audit filed with a 10-K.
  • Indirect “supply chain” emissions – known as “Scope 3” – are considered the most difficult emissions to measure and quantify. Under the SEC’s proposal, reasonable efforts to report on Scope 3 emissions would receive a “safe harbor” from certain liability under federal securities laws. Also, third-party verification of Scope 3 reporting would be optional. 

The SEC proposal, formally 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)  

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Roundtable Opposes SEC Proposals Impacting Real Estate and Private Fund Advisors

Posted on by Trey Jackson

SEC logo on wall with American flag

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 

SEC building exterior

  • 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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