Modern board room round table

Recent Developments for Directors — December Edition

December 1, 2023
A quarterly update for US public companies from the Public Company Representation Practice.

Emissions Registry and Climate Disclosures Ahead for California Companies

On October 7, 2023, California Governor Gavin Newsom signed into law two statutes that will require certain companies doing business in California to disclose their GHG emissions (SB 253) and climate-related financial risk (SB 261). These statutes apply regardless of whether a company is incorporated or headquartered in California.

  • Starting in 2026 and annually thereafter, SB 253 requires companies with annual revenue of over US$1 billion to publicly report their Scope 1 and Scope 2 GHG emissions to an emissions registry in accordance with the GHG Protocol. Scope 3 emissions disclosure will be required starting in 2027 for the prior fiscal year.
  • Starting in 2026 and biennially thereafter, SB 261 requires companies with annual revenue of over US$500 million to publish a climate-related financial risk report in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Companies that expect to be impacted are taking steps to review existing voluntary GHG and climate risk disclosures for alignment or gaps with California’s requirements, are developing reporting procedures and controls to enable compliance in future disclosures, and are engaging with assurance providers to secure required reviews of emissions reporting.

SEC Enforcement and Shorter Filing Deadlines for Stock Ownership Reporting

The SEC recently announced a series of enforcement actions and settlement agreements focused on insiders timely reporting their transactions in company stock. Multiple directors, officers, certain beneficial owners, and companies were charged with, and paid penalties for, failures to report transactions on Form 4 within the required two-business-day timeframe, and for failures to disclose delinquent filings. Many companies assist their officers with Form 4 filings and are taking steps to improve internal reporting and disclosure protocols. In October 2023, the SEC adopted amendments that, beginning in early 2024, will shorten the initial and amendment filing deadlines applicable to Schedule 13D and Schedule 13G filers’ beneficial ownership reports (e.g., reporting must take place within five business days, instead of 10 calendar days, once specified stock acquisition thresholds are met).

SEC Enforcement Focused on Related Party Transactions

Two public companies recently settled SEC enforcement actions for failures to disclose related party transactions. In one enforcement action, siblings of an executive officer were employed by the company and in the other, the company was a participant, though not a contractual party, in a transaction with an investment advisor that was affiliated with one of the company’s directors. Identifying disclosable related party transactions requires thorough data gathering procedures and analysis; companies are reviewing their current procedures, particularly around directors’ and executive officers’ immediate family members.

SEC Cybersecurity Disclosures Come Into Effect With Proxy Advisor Cyber Ratings

Annual reports next year will include discussion of management-level cybersecurity expertise as well as disclosures on cybersecurity risk management, board oversight, and strategy. Companies are considering the frequency of cyber reporting to the board, director participation in cyber event simulations, alignment with technical standards set by recognized third-party frameworks, and cyber risk ratings, such as Glass Lewis BitSight, and ISS Cyber Risk Score.

Preparing for Activism in 2024 as Advance Windows Open

Activism activity is again on the increase and boards are watching for share accumulations and changes in the stockholder base. Management teams are being directed to make sure the company has strong advisors (legal, banking, PR/IR, and solicitation) and to update the company’s activism preparedness playbooks. Companies are also preparing for increased engagement with institutional investors and the pros and cons that will come from the recent expansion of institutional vote options (e.g., expansion of BlackRock’s and State Street’s voting choice programs).


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