SEC Proposes Important Amendments to “Reg FD” – Many Changes Are in the Wind — But Corporate ESG Disclosure Is Not Addressed by the Agency…

October 11, 2017 – Important news for your company out of Washington DC from the Securities & Exchange
Commission – On Corporate Disclosure and Reporting — “Reforms” Proposed

We’ve been watching and waiting since Spring 2016 to see what the Securities & Exchange Commission may be thinking about or doing regarding the possible revamping of Regulation Fair Disclosure (“Reg FD“) and other disclosure regimes that govern corporate disclosure and reporting on financial and other business information.

In December 2013, Congress passed the JOBS Act (Jumpstart Our Business Startups) and SEC was charged as part of that legislation with issuing a report [to Congress] on the state of corporate disclosure rules. The goal of the long-term SEC initiative is to improve corporate disclosure — and shareholders’ access to that information.

In Spring 2016 SEC acted, making public a Concept Release and inviting public comment on the various issues and topics that were in the 200+ page document. There were many hundreds of comments submitted, making this one of the most important public dialogues (on proposed changes) in SEC history.

(This is “Business and Financial Disclosure Required by Regulation S-K”
– Release 34-77599, File #S7-06-16, April 16, 2016.)

The SEC wants to “comprehensively review” and “facilitate” timely, material disclosure by public companies and improve distribution of that information to investors. The current focus is on Reg S-K requirements; this is the umbrella regulatory framework that has been the dominant approach for corporate reporting the dominant approach for corporate reporting since 1977 –and has been “the principal repository” (SEC lingo) for the filing of corporate financial and business information (i.e., the familiar 10-K, 10-Q, 8-K, 10-D, 40-F, SF-1, etc.).

With many institutional and other investors now embracing sustainable investing, and adopting the ESG lens for evaluating investment in public companies, the G&A Institute team has been especially focused on developments in the Concept Release and follow-on activities that could affect both public company managements and the investment community.

What’s New
Today the SEC Commission took action; a number of amendments to existing regulations were suggested as part of the “Modernization and Simplification of Regulation S-K,” citing a different package of legislation. (The FAST Act Modernization, which in part will attempt to “prune the regulatory orchard” — this is part of the Fixing America’s Surface Transportation Act or “FAST”.)

SEC Focus On “Reg FD” — Fair Disclosure
The Commission referred to the proposals today as an important step forward “…to modernize and simplify disclosure requirements for public companies, investment advisors and mutual fund (investment) companies under the FAST Act…” This, said SEC Chair Jay Clayton, “is the most effective way to update SEC rules, simplify forms and utilize technology to make disclosure more accessible.”

The proposed amendments were characterized as part of the overall review of the SEC’s disclosure system. Thus, the SEC said the proposed amendments reflects “perspectives developed during the staff’s broader review…including public input on the Concept Release.”

The details are available for you in a new 253-page document, at:
https://www.sec.gov/rules/proposed/2017/33-10425.pdf

The numerous proposed amendments to existing rules if adopted would:

• Change such items as Description of Property**; the MD&A; Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act; Outside Cover Page of the Prospectus.
• Revise rules and forms to update, streamline and improve the SEC disclosure framework by eliminating risk factor examples listed in the disclosure requirement and revising the description of “the property requirement” to emphasize the materiality threshold**”. Note that while “property” is usually a facility, this does not always apply to the service sectors.
• Update rules as needed to reflect changes since the rules were first adopted or last amended. (Including, “corporate governance” items, such as Auditing, Compensation Committee operations.)
• Simplify the overall disclosure process, including treatment of confidential information; also, changes would be made to the MD&A to allow for “flexibility in discussing historical periods.” (The discussion on confidential info runs for pages – important to read for corporate managers involved in disclosure.)
• Treatment of subsidiaries.
• Incorporate technology to improve access to information requiring data tagging (XBRL) for items on the cover page and use of hyperlinks (HTML) by reference and in the EDGAR system.

There are numerous sections within the proposed amendment document where the Commission is inviting public comment. To submit your comments, see:
http://www.sec.gov/rules/proposed.shtml — file#S7-08-17

Note, the amendments would amend various laws:

• Securities Act of 1933; Securities Exchange Act of 1934;
• Investment Company Act of 1940;
• and, various Regulations under these laws.

DISAPPOINTING NEWS – NO ESG MENTION
There is no mention that we could find in the proposal document that addressed the many comments that were directed to the SEC staff in response to the Concept Release by sustainable & responsible investor interests. And, brought up in many conversations with SEC staff that acknowledged the growing importance of disclosure regarding corporate
sustainability and ESG performance.

The corporate community has no additional guidance coming from SEC in the current version of the proposal — for communicating to investors about their ESG strategies & performance. Many executives want to have “official” guidance for their ESG disclosures and structured reporting.

This is disappointing — no doubt members of the investment community will be providing their perspectives to SEC and the media, and elected officials, on the Agency’s proposals.

* * *

The above news and background can be shared with investor relations staff, the CFO, the CEO, corporate secretary, legal, and other functions involved in corporate reporting.

SEE ADDITIONAL BACKGROUND

• About the SEC’s 2016 Concept Release: http://www.ga-institute.com/fileadmin/ga_institute/ToThePoint/October_2017/Oct2017-Issue3.3Background1of2.pdf
• How Did We Get Here? About Evolvement of Corporate Disclosure:
  http://www.ga-institute.com/fileadmin/ga_institute/ToThePoint/October_2017/Oct2017-Issue3.3Background2of2.pdf