Thursday, July 7, 2016
The IEHN letter notes that while SASB has undertaken a worthwhile effort to identify sustainability metrics that correlate directly to potential value impacts for reporting registrants, the Conceptual Framework and correspondence with the SECs or blurs the definition of materiality.
Under Supreme Court decisions,materiality refers to information which a reasonable investor would seek in the total mix of information, which may affect decisions to buy or sell stock, or to affect voting decisions. Contrary to the SASB approach, material information is not limited to information with a direct correlation to financial value– for instance, disclosures on political spending or climate change impacts are relevant to investor interest and concerns regardless of whether they represent a significant financial impact on the registrant company. Similarly, disclosures regarding significant externalities or systemic risks imposed on society by a firm are of interest to the reasonable investor, regardless of the likely prospect for costly internalization to the firm.
The letter notes that as a result of this distorted interpretation of materiality, the SASB took some positions in its comments to the SEC that were surprisingly off the mark. For instance, they took the position that line item disclosures of sustainability issues would not be appropriate to be required by the SEC, because they would require disclosure of immaterial information by some companies. This mistaken assumption seems to flow directly from the SASB’s erroneous interpretation of materiality.
As as an attorney who has long focused on issues of disclosure and sustainability, I believe there would be significant long-term implications to the distortion of the materiality standard by the SASB, especially given the intention of SASB to become a third-party rule maker equivalent to the FASB. I am hopeful that by calling this issue to their attention at this point in the process, they will develop a more accurately articulated description of their own process as well as the definition of materiality.
- Sanford Lewis
Monday, April 4, 2016
What If Exxon's Climate Bet Fails? SEC to Allow ExxonMobil Shareholders to Press for Disclosure of Costs
A recent SEC ruling on a shareholder proposal at Exxon Mobil seems a historic moment in investors' efforts to get a handle on the costs and risks of climate change. It's not every day that a lawyer gets the feeling he just participated in history being made. This was one of those moments for me, as outside counsel to the New York State Common Retirement Fund (New York State employees pension).
Short version: ExxonMobil has essentially been betting that economic pressures would preclude restrictions on oil and gas demand in public policy. In essence, the recent SEC ruling allows shareholders to vote on a proposal that would ask the company to disclose the costs and risks it will face if that bet fails.
“RESOLVED: Shareholders request that by 2017 ExxonMobil publish an annual assessment of long term portfolio impacts of public climate change policies, at reasonable cost and omitting proprietary information. The assessment can be incorporated into existing reporting and should analyze the impacts on ExxonMobil's oil and gas reserves and resources under a scenario in which reduction in demand results from carbon restrictions and related rules or commitments adopted by governments consistent with the globally agreed upon 2 degree target. The reporting should assess the resilience of the company's full portfolio of reserves and resources through 2040 and beyond and address the financial risks associated with such a scenario.
* Thanks to Bill Baue for helpful feedback and critical thinking on this blog and issue.