Tag: SEC

SEC Issues Proposal for Registered Companies to Disclose Climate Risks; EPA Releases Emissions Calculator Tool

Posted on by Trey Jackson

Houston skyline storm clouds

The U.S. Securities and Exchange Commission (SEC) issued an anticipated proposed rule on March 21 regarding the reporting and disclosure of material corporate financial risks related to climate change. (GlobeSt, March 22 and Roundtable Fact Sheet, March 25) 

Expanded Climate Disclosures 

  • 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) 

Scope 3 “Safe Harbor” 

Chicago downtown with river view

  • 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)

EPA’s GHG Emissions Calculator for Buildings 

EPA's Emissions Calculator logo

The Building Emissions Calculator has important potential to assist owners as they strive to comply with state and local building performance standards. EPA’s new calculator can also help real estate companies registered with the SEC to quantify and report on their GHG emissions should the commission’s investor disclosure proposed rule take final shape. 

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SEC Proposes 4-day Cybersecurity Reporting Requirements for Public Companies; Roundtable’s HSTF Plans Security Threat Briefings

Posted on by Trey Jackson

Gary Gensler of the SEC

The Securities and Exchange Commission (SEC) on March 9 issued a proposed rule 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. (BGov, March 11 and SEC News Release | Proposed Rule | Fact Sheet)

Proposed SEC Requirements

  • SEC Chair Gary Gensler, above, said, “Today, cybersecurity is an emerging risk with which public issuers increasingly must contend. I am pleased to support this proposal because, if adopted, it would strengthen investors’ ability to evaluate public companies’ cybersecurity practices and incident reporting.” (Bloomberg, March 9)
  • An SEC spokesperson noted that the crisis in Ukraine gave these proposals “special relevance.” (CNBC, March 9 and see story below on The Roundtable’s upcoming March 25 discussion on the Ukraine conflict)
  • The proposed SEC amendments would include requirements around reporting material cybersecurity incidents – and providing periodic updates for previously reported cybersecurity incidents. (Wall Street Journal, March 9)
  • The proposal also would require periodic reporting related to:
    • a registrant’s policies and procedures to identify and manage cybersecurity risks;
    • the registrant’s board of directors’ oversight of cybersecurity risk; and
    • management’s role and expertise in assessing and managing cybersecurity risk and implementing cybersecurity policies and procedures.
  • The Real Estate Roundtable is planning to provide comments on the SEC proposal in advance of the May 9, 2022 submission deadline and looks forward to Roundtable members’ input. The proposed four-day reporting timeframe for companies to provide cyber disclosures may not provide enough time for companies to discover the full extent of an incident. (BGov, March 11)

Cybersecurity Threats

Cybersecurity computer operator at console with world map

  • An Audit Analytics report  released last year showed the number of cybersecurity intrusions reported by public companies increased from 28 breaches in 2011 to 117 in 2020.
  • The average cost of a corporate data breach was $4.24 million in 2021, according to an annual IBM Security report.
  • Separately, the $1.5 trillion omnibus bill spending bill enacted on March 11 included the Cyber Incident Reporting for Critical Infrastructure Act. The legislation establishes a narrower 72-hour window for critical infrastructure owners and operators to disclose a cyberattack to the Cybersecurity and Infrastructure Security Agency (CISA). Certain businesses are also required to report any ransom payments to the federal government within 24 hours, among other changes. (Brownstein Hyatt Farber Schreck, March 14)

REISAC logo

  • The Real Estate Roundtable’s Homeland Security Task Force (HSTF) is coordinating briefings on the following security threats through the Real Estate Information Sharing and Analysis Center (RE-ISAC):
    • April: DHS Sector Outreach and Programs (Active Shooter, and other soft target resources for the Commercial Facilities Sector)
    • May: DHS Fusion Center overview
    • June: US Secret Service cybercrime
    • August: The Protective Security Advisor Program
    • September: FBI cybersecurity/cybercrimeNovember: The InfraGard program 

Roundtable members interested in participating can contact Andy Jabbour of the RE-ISAC. 

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SEC Proposes Increased Oversight for Private Investment Funds; Delay Reported for Proposed Climate Risk Rule

Posted on by Trey Jackson

SEC logo - image

The U.S. Securities and Exchange Commission (SEC) on Feb. 9 proposed expansive, new disclosure requirements for private investment funds, while an anticipated proposed rule that could require issuers to report on GHG emissions has been delayed. (Wall Street Journal Feb. 9 and Bloomberg, Feb. 8) 

Proposed Rules & Private Funds

  • This week’s proposed rule, if approved, would require private-equity and hedge-fund managers to provide statements on fund performance, compensation, fees and expenses. The proposal passed the Commission on a 3-1 party-line vote, with one dissenting Republican. (PoliticoPro, Feb. 9)
     
  • Managed Funds Association President and CEO Bryan Corbett responded, “The SEC’s proposed additional regulations on private funds will harm the most sophisticated investors, including pensions, endowments and foundations, who rely on these funds to serve their beneficiaries. The agency’s treatment of private funds as if they were serving retail investors is misguided.” (Pensions and Investments, Feb. 8)

Climate Risk Disclosures & CRE 

SEC Chair Gary Gensler

  • Reps. Andy Barr (R-KY), French Hill (R-AR) and Bill Huizenga (R-MI) on Oct 6, 2021 wrote to SEC Chair Gary Gensler, above, claiming the SEC lacks jurisdiction to create and implement policies affecting private, non-market companies. “Lest there be any doubt, we wish to emphasize that the SEC has no authority to impose public disclosure obligations—regarding climate or otherwise— on private businesses that have not accessed the public capital markets,” the Members wrote. 
  • Bloomberg reported this week that the SEC has delayed the release of a separate proposed rule that could require REITs and other issuers to disclose GHG emissions and climate-related financial risks in their Commission filings.  (Bloomberg, Feb. 8) 
  • The climate risk proposal may extend into March or later, according to Bloomberg. Gensler previously announced it would be released last year. (Roundtable Weekly, June 11, 2021 and Reuters, May 6, 2021). 
  • The SEC’s climate proposal is widely expected to evolve into the first-ever federal rule that will require companies to measure and report on GHG emissions they directly cause (“Scope 1”), and emissions attributable to their electricity purchases (“Scope 2”). 
     
  • A brewing controversy is whether the SEC might also direct issuers to estimate and report on indirect “Scope 3” emissions up and down corporate supply chains. (Reuters, Jan. 19)
     
  • If the Commission potentially mandates “Scope 3” disclosures, the requirement could possibly impose new obligations on some commercial property owners to report on the emissions of their tenants – and some banks to report on the emissions of their borrowers.
     
  • Pre-rulemaking comments filed by The Roundtable last year, developed in close coordination with Nareit, point out that building owners should not be required to disclose tenant emissions simply because property owners do not even have access to leased-space energy data in many instances.
     
  • Any proposed rule from the SEC will trigger a public feedback process, followed by internal agency review, before it would take effect. 

The SEC’s climate rule is considered a major environmental initiative of the Biden Administration, particularly as GHG reduction provisions in the Build Back Better Act face a steep climb to pass the Senate. (Bloomberg, Feb. 8) 

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SEC Issues Guidance on Climate Risk Disclosures

Posted on by Trey Jackson

SEC logo - image

The Securities and Exchange Commission (SEC) issued non-binding guidance on Sept. 22  on how companies within its jurisdiction should disclose risks related to climate change under current standards. The guidance comes as the SEC is preparing proposed regulations – expected by early next year – on anticipated climate reporting mandates that will likely impact all issuers of securities, including real estate companies. 

Why It Matters 

  • The Sept. 22 guidance amplifies the Commission’s 2010 Climate Change Guidance. It explains that companies should include in their formal SEC filings the same kinds of climate and ESG-related disclosures that they provide in their annual corporate social responsibility reports.
     
  • The latest guidance advises companies to disclose information (deemed to be “material”) on topics such as:

    • Whether climate-related local, state, or federal laws or regulations – or international accords – impact the company’s finances or operations;
    • Past or future capital expenditures for “climate-related projects”;
    • Increased demands for renewable energy generation and transmission;
    • Reputational risks from corporate operations that produce greenhouse gas emissions;
    • Whether floods, fires, hurricanes, and other “extreme weather events” affect thye company; and
    • Purchases or sales of carbon offsets or credits. 

Guidance Portends New Rule

SEC Chairman Gary Gensler

  • The Sept. 22 guidance portends a proposed rule from the Commission that will likely lead to mandated climate change disclosures.
  • SEC Chair Gary Gensler, above, remarked on Sept. 22 that its proposed rule on climate disclosures will be released by early 2022. A proposed rule would then kick-off a process for public comments from industry stakeholders.
     
  • Earlier this year, the Commission inquired about what kinds of updated climate and ESG-related information may be “material” to investors – and whether such information should be included in annual reports, proxy statements, and other SEC filings. (SEC’s March 15, 2021 “Public Statement” welcoming input on climate change disclosures.) 
  • The Real Estate Roundtable responded in June to the SEC’s “pre-rulemaking” statement.  The Roundtable developed its comments  in close coordination with Nareit, and recommends a “principles-based” approach to corporate climate risk disclosures as opposed to a prescriptive “one size fits all” reporting mandate. (Roundtable Weekly, June 11, 2021) 

A final rule from the SEC on climate risk reporting could be issued by the end of 2022, after conclusion of the public comment process on any forthcoming proposal. 

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Roundtable Comments to SEC on Corporate Climate Risk Disclosures

Posted on by Trey Jackson

SEC website image on ESG

The Real Estate Roundtable on June 9 commented on the unique challenges facing commercial real estate businesses if the Securities and Exchange Commission (SEC) eventually requires corporate issuers to report on climate-related financial risks. (See SEC’s 15 Questions for Consideration and The Roundtable’s responses) 

  • The SEC’s March 15 request for public comments is not unique to real estate, but seeks information from all corporate stakeholders on climate change reporting and metrics.  “It’s time to move from the question of ‘if’ to the more difficult question of ‘how’ we obtain disclosure on climate,” said former Acting Chair Allison Herren Lee. (SEC speech, March 15) 
  • On May 6, the new SEC chair, Gary Gensler, testified before the House Financial Services Committee that he intends to propose new rules on corporate climate risk disclosures in the second half of 2021. (Reuters, May 6) 

Roundtable Comments

logo - U.S. Securities and Exchange Commission

  • The Roundtable’s comments recommend a “principles-based” approach to corporate climate risk disclosures as opposed to a prescriptive “one size fits all” reporting standard. It coordinated closely with Nareit in developing its submission to the SEC.
  • More specifically, The Roundtable’s comments provide:
    • Energy consumption and associated emissions from any particular building or portfolio depend on a range of variables – such as a building’s age, location, asset-type, and tenant mix.  The SEC should be flexible in developing reporting standards for companies that develop, own and operate income-producing real estate.
    • The GHG metrics that building owners can most accurately measure and quantify arise from their direct and immediate operations of assets they manage and control on a day-to-day basis. Building owners should not be compelled to measure, quantify or report on indirect emissions that derive from off-site facilities, or the actions of tenants or other third-parties beyond the owner’s immediate control.

    • The SEC should allow a marketplace of reporting frameworks to thrive, flourish, and evolve. No single reporting framework should be mandated.

House Legislation

U.S. Capitol

  • The House Financial Services Committee on May 12 advanced the Climate Risk Disclosure Act of 2021. The bill would direct the SEC to issue rules within two years that require public companies to disclose: 
    • Direct and indirect greenhouse gas emissions;
    • Total amount of fossil-fuel related assets that it owns or manages;
    • How its valuation would be affected if climate change continues at its current pace, and;
    • Risk management strategies related to the physical risks and transition risks posed by the climate crisis.
  • The House bill would also direct the SEC to tailor disclosure requirements to different industries. (JD Supra, May 17). The bill likely faces a more difficult path forward in the Senate.

Investment Industry Comments

  • The Investment Company Institute (“ICI”), which represents firms including BlackRock, Vanguard and JPMorgan Chase, submitted comments to the SEC on June 4. ICI believes “using a combination of principles-based and prescriptive elements is particularly apt in the context of climate-related information.” (Reuters, June 8).
  • While ICI recommends that companies within the SEC’s jurisdiction should report on “direct” emissions (“Scope 1”) and emissions due to electricity purchases (“Scope 2”), it does not believe that companies should be mandated to report on so-called indirect “Scope 3 emissions” at this time.
  • PoliticoPro (June 7) reported that “ICI made the recommendations as investors increasingly demand that companies follow certain environmental, social and governance reporting standards so they can channel capital to green projects and workplaces that promote equity and inclusion.”

The Real Estate Roundtable’s Sustainability Policy Advisory Committee (SPAC) – which meets remotely on June 16 in conjunction with The Roundtable’s June 15 Annual Meeting – will continue to work with policymakers in Congress and the Administration on energy and climate issues of importance to commercial real estate. 

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Environmental, Social and Governance (ESG) Risk Disclosure Gaining Interest Among Policymakers

Posted on by Trey Jackson

A recent hearing by a House Financial Services subcommittee reflects a growing interest among policymakers regarding environmental, social, and governance (ESG) reporting by public companies.  (” Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social and Governance (ESG) Disclosures ,” July 10 hearing) 

Rep. Carolyn Maloney (D-N.Y.) – chairwoman of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets – stated during the July 10 hearing, “Investors overwhelmingly want companies to disclose ESG information, especially because there’s now considerable evidence that companies that perform better on ESG metrics, also perform better financially.”  
  • ESG disclosures generally address issues in the areas of environmental sustainability (e.g., climate change); social (e.g., human rights and labor practices); and governance (e.g., executive- and board-level diversity) matters.  ( Financial Services Committee memorandum , July 5)  Nareit’s ESG Dashboard  identifies and tracks key performance indicators to better measure and quantify best ESG practices for the U.S. REIT industry.  
  • Rep. Carolyn Maloney (D-N.Y.) – chairwoman of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets – stated during the hearing, “Investors overwhelmingly want companies to disclose ESG information, especially because there’s now considerable evidence that companies that perform better on ESG metrics, also perform better financially.” 
  • She added, “I believe the best way to improve the quality and consistencies of these disclosures is for the Securities and Exchange Commission (SEC) to establish standards for ESG Disclosure that would apply to all public companies in the United States.” (Video of entire hearing, July 10) 
  • During the hearing, policymakers considered the merits of five draft bills that would require public companies to disclose information on several ESG topics – including climate change risk, political expenditures and human rights risk.  ( DavisPolk , July 11)   
  • Issues raised included whether the draft bills would mandate this type of disclosure for all public companies. Other issues included:

• Whether mandated disclosure is necessary given current voluntary disclosure practices; 

•  The potential increased regulatory burden of these disclosures, which could negatively impact U.S. IPO markets; and 

•  Whether ESG issues qualify as material information for investors.  

  • In the Senate, the Committee on Banking, Housing and Urban Affairs held a hearing in April 2019 on the application of ESG principles in investing. 
  • Regulators also are considering ESG topics. The Commodity Futures Trading Commission last month voted to establish a Climate-Related Market Risk Subcommittee to address climate-related financial risks. (CFTC, July 10)
  • SEC Chairman Jay Clayton in a recent interview said that not all ESG matters are created equally. “Matters considered to be in the G category tend to be a lot closer to the core governance issues that investors have come to expect in terms of disclosure from our public companies. In contrast, matters considered to be in the E category, such as regulatory risk, and risk to property and equipment vary widely from industry to industry and country to country,” Clayton said.  (Directors & Boards, July 22) 

According to a recent report by  US|SIF , ESG factors in the United States continue to play an increased role in investment decisions. Total US-domiciled assets under management using ESG strategies grew from $8.7 trillion at the start of 2016 to $12 trillion at the start of 2018, a 38 percent increase.  This represents 26 percent-or 1 in 4 dollars-of the total US assets under professional management.  (US|SIF,  2018 Report on US Sustainable, Responsible, and Impact Investing Trends ).