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Feb 12, 2021

The week in GRC: Compliance teams seek AML clarity and CFOs use sustainability to attract investors

This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that CFOs are taking on sustainability measures as a means to attract new investors, lower their company’s borrowing costs and cut operating expenses. More than 1,500 companies globally have pledged to reduce their carbon emissions to net-zero in the coming years, according to research by the NewClimate Institute. Many have also made commitments to support diversity and inclusion. Such ESG promises put pressure on CFOs to square company finances with sustainability metrics.

More CFOs have been talking about sustainability in recent months. Twenty companies in the S&P 500 mentioned the acronym ESG or the word sustainability on earnings conference calls between October 1 and December 31, compared with only six companies three years before, according to FactSet. Worldwide, the term ESG was mentioned 205 times on investor calls during the fourth quarter of 2020, research platform Sentieo found.

Reuters said that, according to the authors of a paper published on Monday, misuse of climate models could pose a growing risk to financial markets by giving investors a false sense of certainty over how the physical impacts of climate change will unfold. Companies are under growing pressure to disclose how the disruption may affect their businesses. But the authors of an article in Nature Climate Change warned that efforts to integrate global warming into financial decision-making had leap-frogged the models used to simulate the climate by ‘at least a decade.’

‘In the same way that a Formula One grand prix car is not what you would use to pop to the supermarket, climate models were never developed to provide finessed information for financial risk,’ said Andy Pitman, a climate scientist at the University of New South Wales and a co-author of the paper.

– The SEC called on companies to provide specific disclosures if they plan to sell equity during periods of extreme market volatility, the WSJ reported. The move came as US regulators consider potential action to take in response to the recent surge in the share prices of GameStop and certain other companies. The SEC last month vowed to stamp out any wrongdoing and the US Department of the Treasury (DoT) has held a meeting with regulators to discuss the recent trading volatility.

The SEC’s division of corporation finance released guidance advising companies to provide tailored disclosures about their current finances, market events and the potential effect of share sales on investors. It provided a sample letter it may send to companies in which the agency asks for information such as on risks associated with the recent volatility in their share prices.

– According to Reuters, the US Department of Justice (DoJ) withdrew its legal challenge to California’s state net-neutrality law aimed at protecting the open internet. Under former president Donald Trump, the DoJ in 2018 argued that federal law pre-empted the state statute barring internet service providers from blocking or slowing traffic or offering paid fast lanes.

California’s legislature voted to adopt its own statute after the Federal Communications Commission (FCC) in 2017 repealed net-neutrality rules put in place by the Obama administration.

Acting FCC chair Jessica Rosenworcel praised the DoJ’s decision. ‘When the FCC, over my objection, rolled back its net-neutrality policies, states like California sought to fill the void with their own laws,’ she said in a statement. ‘By taking this step, Washington is listening to the American people, who overwhelmingly support an open internet, and is charting a course to once again make net-neutrality the law of the land.’

– The US Chamber of Commerce said Suzanne Clark will become the organization’s next CEO, effective March 11. Clark is president of the US Chamber, a director on two corporate boards and a former business owner. She will add the CEO title and succeed Thomas Donohue, who has led the group for 24 years.

‘On behalf of all the board leaders who have been working on this multi-year succession process, we are profoundly grateful to Tom Donohue for his leadership, passion for this organization and commitment to free enterprise over the past 24 years,’ said US Chamber board chair Christopher Lofgren in a statement.

Reuters reported that, according to people familiar with the matter, Sachem Head Capital Management has gained a roughly $1 billion stake in International Flavors & Fragrances (IFF) and nominated four directors to the chemical company’s board. The activist hedge fund firm’s board challenge comes as IFF earlier this month completed its $26.2 billion merger with DuPont’s nutrition unit. Sachem Head, led by Scott Ferguson, wants IFF to take action to improve its financial performance and integrate the new unit smoothly, the people said.

IFF did not immediately respond to a request for comment.

– According to the WSJ, compliance professionals in the financial services industry want more guidance from the government on how to make their anti-money-laundering (AML) programs effective. Regulators last year proposed amending US AML rules to give financial institutions greater flexibility in the way they allocate resources within their compliance programs. Although the industry generally supports the new standards, more detail is needed on what constitutes an effective compliance program, according to a survey of compliance officers.

The poll was conducted late last year following a September proposal by the DoT’s Financial Crimes Enforcement Network to rework AML rules and before the enactment of new legislation in January.

– The SEC said companies that violate US securities laws will not be able to seek a waiver to keep doing certain types of business as part of their settlement negotiations with the agency, Reuters reported. The move to separate the practice of granting waivers from settlement talks around enforcement probes suggests the SEC will take a tougher stance on the activity from here on. Companies that are found guilty of criminal conduct or fraud can be barred from certain activities, such as private capital deals, without such an SEC waiver.

Under the new policy, companies must agree to settle charges with the SEC’s enforcement division and separately seek relevant waivers from its divisions of corporation finance and investment management, which will evaluate the requests on their own terms.

Bloomberg reported that Carl Icahn has taken a new stake in Bausch Health Cos and said he plans to push for changes at the company, including potentially seeking board seats. Icahn said he believed the company’s shares are undervalued and planned to discuss with its board and management ways to enhance shareholder value, including through Bausch’s continuing strategic review.


Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...