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Oct 15, 2021

The week in GRC: TCFD says climate disclosures lagging and White House eyes climate-related rules

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

The Wall Street Journal reported that Henry Kravis and George Roberts were stepping down as co-CEOs of private-equity firm KKR & Co. Joe Bae and Scott Nuttall, who have served as the firm’s co-presidents since July 2017, became co-CEOs.

KKR also announced a series of structural and governance changes aimed at helping it transition to a ‘one-share, one-vote’ structure from the current dual-class setup that gives the two surviving founders Kravis and Roberts extra voting power.

– Chevron Corp set a target to cut operational emissions to net zero by 2050, joining a list of energy companies taking steps to reduce their carbon footprint, according to Reuters. The move to cut upstream emissions from its own operations and indirect emissions such as those from power generation comes amid growing pressure from investors and governments for energy companies to help stop climate change.

Chevron’s net zero goals do not include greenhouse gases from all fuel products the company sells, unlike European oil peers such as Royal Dutch Shell and Italy’s Eni. Companies including Norway’s Equinor and Spain’s Repsol aim to reduce or eliminate all their emissions by 2050.

– According to the WSJ, the SEC’s review of companies’ earnings per share (EPS) could come into greater focus under the agency’s new leadership. The initiative, launched a few years ago, reviews EPS for the majority of US public companies at least once a year, looking for questionable reported figures. The team of enforcers working on the effort uses analytics and has built a database to try to pinpoint potential manipulators of EPS.

The SEC’s efforts to scrutinize these companies falls in line with chair Gary Gensler’s far-reaching policy agenda looking to require stronger corporate disclosures and overhauling some Wall Street firms’ business models to better protect investors.

– US District Judge David Hurd in Albany, New York ruled that New York state cannot impose a Covid-19 vaccine mandate on healthcare workers without allowing their employers to consider religious exemption requests, according to Reuters. The judge ruled that the state’s workplace vaccination requirement conflicted with healthcare workers’ federally protected right to seek religious accommodations from their employers. The ruling provides a test case as vaccine mandate opponents prepare to fight plans by President Joe Biden’s administration to extend Covid-19 inoculation requirements to tens of millions of unvaccinated Americans.

New York Governor Kathy Hochul vowed in a statement to fight the decision, saying her ‘responsibility as governor is to protect the people of this state, and requiring healthcare workers to get vaccinated accomplishes that.’

– The WSJ reported that the move by Texas to bar Covid-19 vaccine mandates by companies has set up a clash between the state and the Biden administration, with employers caught in the middle. An executive order from Texas Governor Greg Abbott forbids any private entity to require its employees or customers to be vaccinated. On the other hand, the Biden administration is working on requirements that private-sector workers be vaccinated or tested weekly at businesses with 100 or more employees.

– According to Reuters, litigation funder Burford Capital has pledged to double a previous financial commitment to legal industry diversity by investing $100 mn in matters where women and minorities have key roles. Burford launched the Equity Project in 2018 with a commitment to allocate $50 mn for women-led commercial litigation cases. The new round will expand funding to litigation and arbitration matters where racially diverse lawyers have prominent positions.

Expanding the program will ‘address a deficit in representation that is even more acute than the gender gap,’ Burford said. A recent report by the National Association for Law Placement found that women made up 25.05 percent of partners at major US law firms in 2020, and people of color accounted for 10.23 percent.

– The SEC said it plans to require companies in some cases to admit wrongdoing when they settle civil enforcement actions, the WSJ reported. The announcement marks a return to a policy started during the Obama administration that the SEC largely abandoned during the Trump administration. The commission has historically allowed companies and individuals to settle enforcement probes without admitting or denying wrongdoing, a practice that has made some liberal critics question the value of its policing efforts.

Requiring admissions in certain cases will improve the deterrent value of enforcement actions and boost public trust in financial and government institutions, SEC enforcement director Gurbir Grewal noted. ‘When it comes to accountability, few things rival the magnitude of wrongdoers admitting that they broke the law,’ he said.

Reuters reported that, according to the TCFD, only about half of companies it assessed disclosed climate-related risks and opportunities in some form, on average covering around a third of its 11 recommended disclosures. Significant progress is still needed, the TCFD report said after a recent review of more than 1,600 companies around the world.

‘There is clear and growing consensus among investors and regulators on the importance of climate-related disclosure and the need for standardized, transparent data to support capital allocation decisions,’ said Mary Schapiro, head of the TCFD. The task force said more than 2,600 organizations have expressed support for its recommendations, an increase of more than a third since 2020. They include 1,069 financial institutions responsible for assets of $194 tn.

CNBC reported that Senator Sherrod Brown, D-Ohio, wants Federal Reserve chair Jerome Powell to pause any financial deregulation until President Biden nominates new members to the central bank. Brown, chair of the Senate Banking Committee, urged Powell to stop rolling back industry regulations until the president has a chance to select a replacement for Randal Quarles, the outgoing Fed vice chair for supervision.

‘In light of the expiration of the vice chair’s term, he will no longer chair the committee on supervision and regulation,’ a Fed spokesperson said. ‘That committee will meet as necessary on an unchaired basis. Matters within the committee’s responsibility will proceed to the full board only where there is broad consensus among the committee members.’ Quarles’ separate term as a governor on the Fed’s board runs for another 10 years.

Reuters reported that GameStop Corp, the video game retailer at the center of this year’s ‘meme stock’ trading frenzy, named CEO Matt Furlong to its board. Furlong was named GameStop’s CEO earlier this month, succeeding George Sherman who, the company said, also retired from the board. Top shareholder Ryan Cohen was made GameStop’s chair earlier this month.

– According to Reuters, more US law firm leaders are pushing back earlier plans to more fully reopen their offices in October. Even when they return, firms have said lawyers and staff won’t be expected to be in full time until at least next year.

– The WSJ reported that the White House, calling climate change a systemic risk to the financial system, was due to release a report on Friday outlining its strategy for new rules that could affect investment disclosures, insurance policies and home loans. The report outlines administration goals such as forcing financial firms to more directly address the risks of climate change, create new protections for savings and pension plans and make climate change more a factor in federal budgeting and procurement.

Among the measures highlighted by the report is a proposal by the US Department of Labor to reverse a Trump administration rule that would have made it harder for workplace 401(k) plans to offer investments based on ESG metrics.

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...