Climate Change And The SEC

Two developments yesterday (a speech, and a Sunshine Act Notice), highlight the subject of Climate Change and the SEC.

Changing Climate At The SEC
In remarks yesterday at the 37th annual Securities Regulation Institute, SEC Chairman Mary L. Schapiro highlighted some of the key initiatives in the SEC's agenda. Schapiro's remarks, entitled Embracing the Change, reflected the change in climate at the SEC and in financial regulatory reform more generally, in the post-credit crisis, post-Madoff environment. She stated:

With new leaders throughout the agency, new skills and capabilities, we have been changing the way we think about our core responsibilities to the American people. And, change is manifesting itself in many of the things we do — from how we conduct our exams and initiate investigations to how we prosecute our cases.

In the process, we also have been changing and updating the rules we enforce, re-thinking some of the basic tenets of securities regulation and actively participating in the reforms now wending their way through Congress.

I believe that all of this change is necessary and urge all of us to embrace it — not just that which is coming but that which has already arrived.

Schapiro then spoke of some of the recent and forthcoming major initiatives at the SEC, including:

• Filling gaps and strengthening standards (including as relate to hedge funds, OTC derivatives, asset-backed securities, custody controls, money markets)
• Reducing reliance on credit rating agencies
• Improving compensation policies (NOTE: although the SEC does not directly regulate compensation, Schapiro observed there had been some 'perverse incentives' rewarding executives with compensation for significant risk-taking, and that new disclosure rules adopted by the SEC in December "require companies to disclose their compensation policies and practices if they create risks that are reasonably likely to have a material adverse effect on the company. " She continued, "In considering whether a company's compensation programs create these risks, we expect that companies will carefully examine their own practices. This in turn should enable companies and their boards to more appropriately calibrate risks and rewards." Additionally, on this subject, Schapiro noted, "The new rules also expand the disclosure provided to shareholders about the governance structure, about the background and qualifications of directors and nominees, and about the board's structure and its role in managing risk. The adopted rules require disclosure about the fees paid to compensation consultants and their affiliates for certain additional services. This is intended to provide investors with information to help them better assess the potential conflicts of interest a compensation consultant may have in recommending executive compensation. For those of you here today, advising corporate clients, I encourage you to counsel your clients to live within the spirit of these rules — to encourage greater disclosure, not less."
• Removing barriers to proxy access
• Keeping integrity in the markets
• Reforming internal procedures

Accounting, Disclosure Issues
Of interest: Schapiro made no reference to International Financial Reporting Standards (IFRS) in her speech yesterday; I wonder if we'll hear more about SEC's next steps on its IFRS Roadmap from another speaker at the Securities Reg. Institute this week (see below), or at PLI's SEC Speaks in early February. As we previously reported, Commissioner Elisse Walter had told an AICPA conference in December: "I expect we will likely consider further action [on the IFRS Roadmap] sometime in early 2010."

According to the Securities Regulation Institute agenda, there will be a sesion this Friday on "Practical Accounting and Disclosure Issues for Securities Lawyers," including such topics as fair value accounting and disclosure, contingencies and FAS 5 (Accounting Standards Codification 450.20), impairment, transferred assets and consolidation, revenue recognition, IFRS and convergence - what's next?, liquidity and other MD&A disclosure issues, navigating Corp Fin's review process, providing guidance and 'missing the quarter.' Panelists at that session, moderated by John Huber of Latham & Watkins LLP, will include SEC Chief Accountant Jim Kroeker, SEC Division of Corp Fin Deputy Diretor Shelley Parratt, and KPMG LLP Partner Terry Iannaconi.

Climate Change Interpretive Release Coming
According to SEC's News Digest (Jan. 20) and a Sunshine Act Notice released yesterday, climate change disclosures will be among two matters the SEC will act on at an open commission meeting next week. Specifically, according to the Sunshine Act Notice, the SEC will discuss on Jan. 27:

• Item 1: The Commission will consider a recommendation to adopt new rules, rule amendments, and a new form under the Investment Company Act of 1940 governing money market funds, to increase the protection of investors, improve fund operations, and enhance fund disclosures.
  
• Item 2: The Commission will consider a recommendation to publish an interpretive release to provide guidance to public companies regarding the Commission's current disclosure requirements concerning matters relating to climate change.

Status of Interpretive Guidance
I was initially wondering if the interpretive guidance on climate change disclosures would be 'proposed' or 'final.' According to John Nester, Director of SEC's Office of Public Affairs, the interpretive release on climate change disclosures being discussed by the SEC next week would be a final release. He explained to me yesterday:

An “interpretive release” is a Commission statement regarding how existing regulations are to be interpreted or applied to particular circumstances. An interpretive release does not create a new rule or legal obligation, but rather addresses situations where an existing rule may be unclear or inconsistently
applied.

Broc Romanek, in a post today in TheCorporateCounsel.net blog, wrote: "I wonder if this guidance [re: climate change] will apply to this proxy season?"

I assume any interpretive guidance, if approved next week, could theoretically carry an immediate effective date (i.e., immediate upon publication in the Federal Register); however, as always, we will have to see what the SEC decides at their Jan. 27 open meeting.

SEC Updates Compliance & Disclosure Interpretations (C&DI)
In other action yesterday, the SEC's Division of Corporation Finance published yesterday some new Q&A's as part of its Compliance & Disclosure Interpretations.

The new Q&As relate to Reg. S-K (re: Directors, Executive Officers, Promoters and Control Persons; Executive Compensation; Summary Compensation Table; Narrative disclosure of the registrant's compensation policies and practices as they relate to the registrant's risk management; Corporate Goverance). Additionally, there are new Q&As relating to Proxy Disclosure Enhancements Transition.

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