Here is big news that isn’t getting the attention it deserves. Monday over on TheCorporateCounsel.net, Liz wrote about a proposed listing standard from the NYSE that would create a new asset class for “Natural Asset Companies.” An “NAC” is:
“… a corporation whose primary purpose is to actively manage, maintain, restore (as applicable), and grow the value of natural assets and their production of ecosystem services. In addition, where doing so is consistent with the company’s primary purpose, the company will seek to conduct sustainable revenue-generating operations. Sustainable operations are those activities that do not cause any material adverse impact on the condition of the natural assets under a NAC’s control and that seek to replenish the natural resources being used. The NAC may also engage in other activities that support community well-being, provided such activities are sustainable.”
“… the proposal predicts that demand for this separate type of investment opportunity exists and will continue to grow because ‘investors still express an unmet need for efficient, pure-play exposure to nature and climate.’
Under the proposed standard, in addition to GAAP financial reporting provided in SEC filings, NACs would be required to periodically publish an ‘Ecological Performance Report’… [that] must follow IEG’s Ecological Performance Reporting Framework (‘EPR’). The Framework, in turn, is based on the natural capital accounting standards established in the United Nations System of Environmental- Economic Accounting – Ecosystem Accounting Framework (‘SEEA EA’)”.
NACs must publish that report prior to the company’s listing and then annually thereafter. The EPR consists of three components: 1) Natural Production Section, 2) Natural Assets Section and 3) Underlying Asset Condition Section. The Technical EP Study and EPR must be examined by the Independent Reviewer. The EPR must be accompanied by an examination level report prepared by such Independent Reviewer in accordance with the PCAOB or AICPA’s attestation standards. Note that this is in addition to the standard SEC reporting regime.
Other meaningful requirements include:
- The NAC will be prohibited from engaging directly or indirectly in unsustainable activities.
- Capital raised through the initial public offering or follow-on offerings must be used to implement the conservation, restoration, or sustainable management plans articulated in its prospectus, fund its ongoing operations, or otherwise fulfill its purpose to maximize ecological performance (i.e., the value of natural assets and the production of ecosystem services).
- Specific activities for the company’s audit committee to carry out.
- An equitable benefit sharing arrangement for the distribution of shares of the NAC’s common stock to local communities.
These requirements have to be approved by the SEC and would only apply to companies specifically seeking to qualify as a NAC. But for those that do, the compliance burden will be tough (to put it mildly).
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