Two major developments from the SEC and Congress could significantly increase public company disclosure requirements on ESG, human capital metrics, diversity, and a host of other issues.
The SEC published its Spring 2021 Agenda containing significant changes from the Fall 2020 Agenda, reflecting recent SEC statements and actions prioritizing climate, human capital metrics and diversity and inclusion. Several notable items were added to the agenda and several additional items shifted from the long-term list to the priorities list:
New to the Agenda.
- Regulating Rule 10b5-1 Plans
- Chair Gensler recently highlighted his concerns, including the lack of cooling off periods, lack of disclosure requirements when a plan is enacted or modified, and limits on canceling plans or the number of active plans.
- Climate Change Disclosure
- Strengthening Existing Human Capital Management Disclosure Rule
- Potential disclosures could include a laundry list of items similar to the legislation described below.
- Shareholder Proposal Eligibility Requirements
- Proxy Advisory Regulation
Moved to the Current Agenda.
- Dodd-Frank Clawbacks
- Dodd-Frank Incentive-Based Compensation (for financial institutions)
- Dodd-Frank Pay Versus Performance
- Corporate Board Diversity
The House passed the ESG Disclosure Simplification Act of 2021 (H.R. 1187), which would create a host of new reporting requirements as implemented by the SEC, including:
- ESG metrics and how they affect long-term growth
- Pay raise ratio (comparing increases in executive compensation to increases in a median employee’s compensation, as well as to inflation)
- Board and executive diversity (race, ethnicity, gender, sexual orientation, and veteran status)
- Workforce disclosures, including information about health and safety, pay, diversity, turnover and promotion rates, training, use of contractors and outsourcing
The House bill will now go to the Senate for consideration where its prospects are dim. Senate Banking Committee ranking member, Sen. Patrick J. Toomey (R-PA) opposes the enhanced reporting requirements, and it is not clear that the bill could clear a filibuster hurdle in the full chamber.
However, between the SEC and Congress it is clear we should expect much activity in the executive compensation and governance space for 2021. The Center is in contact with SEC and Congressional experts and will continue to provide a voice for Subscribers on issues that matter to you.
