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TheCorporateCounsel

TheCorporateCounsel.net

A basis for research and practical guidance focusing on federal securities laws, compliance & corporate governance.

DealLawyers

DealLawyers.com

An educational service that provides practical guidance on legal issues involving public and private mergers & acquisitions, joint ventures, private equity – and much more.

CompensationStandards

CompensationStandards.com

The “one stop” resource for information about responsible executive compensation practices & disclosure.

Section16.net

Section16.net

Widely recognized as the premier online research platform providing practical guidance on issues involving Section 16 of the Securities Exchange Act of 1934 and all of its related rules.

PracticalESG

PracticalESG.com

Keeping you in-the-know on environmental, social and governance developments

Recently, Liz and John covered some great ESG information over on TheCorporateCounsel.net I wanted to share here. These news items focus on issues related to ESG disclosures in 10-Ks and proxies.

From John on board oversight of risk management:

“This Orrick memo says that the [SEC] Staff issued three dozen comment letters last year asking companies to beef up their Item 407(h) disclosure. Based upon a review of those comments, the memo says the Staff expects to see the following common elements addressed in the risk oversight discussion:

1. Whether and why a company’s board would choose to retain direct oversight responsibility for certain material risks (particularly cybersecurity, ESG and sustainability related risks) rather than assign oversight to a board committee;
2. The timeframe over which a company evaluates risks (e.g., short-term, intermediate-term, or long-term) and how a company applies different oversight standards based upon the immediacy of the risk assessed;
3. Whether a company consults with outside advisors and experts to anticipate future threats and trends, and how often it reassesses its risk environment;
4. How a company’s board interacts with management to address existing risks and identify significant emerging risks;
5. Whether a company has a Chief Compliance Officer, or person serving in a similar role, and to whom this position reports; and
6. How a company’s risk oversight process aligns with its disclosure controls and procedures.”

John also wrote that water rights – especially in the Western U.S. may be a material financial risk worthy of your 10-K risk disclosure:

“As you continue to work on your Form 10-K and proxy filings, you may want to check out this recent Bryan Cave blog.  The blog covers some ‘old reliables’ – like developments in China & the implications of a fight over the U.S. debt limit or a government shutdown – but here’s an excerpt that raises a couple of risks that might not have been on your radar screen…

Possible future water allocation quotas in Western states. As a result of the inability of seven Western States to reach a negotiated resolution on allocation of sharply lower water flows from the Colorado River, companies and residents in those states may face harsh cuts forced to be made by the Interior Department. The timing and outcome of any future DOI actions remain uncertain, although administrative procedures and potential litigation may take some time. Unless drought conditions improve, companies may need to consider the impact of any quotas on their operations, suppliers, customers and other aspects of their businesses, and recognize that individual states may experience disparate water reductions.”

Liz covered a guest post from Orrick’s JT HoCarolyn FrantzBobby Bee and Hayden Goudy:

“Based on our review of companies in the S&P 500, having ESG-related disclosures in the risk factors is now a common practice. For companies which have already filed their annual report for fiscal year 2022, 89% had ESG-related risk factors. These risk factors spanned a range of ESG-related topics, primarily related to climate change, but also including diversity-, other environmental-, or general ESG-related risks.”

and this:

“In addition to the growing number of ESG-related risk factors, we’ve seen an increase in the number of ESG-related risks specific to the reporting company’s business, rather than ‘general’ or ‘other’ risks. The increase in specific ESG-related risk factors is consistent with guidance from 2019 in which the Securities and Exchange Commission (‘SEC’) ‘eschewed ‘boiler plate’ risk factors that are not tailored to the unique circumstances of each registrant.‘”

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The Editor

Lawrence Heim has been practicing in the field of ESG management for more than 35 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of regulatory development, working across a range of disciplines. He was one… View Profile