The Commission published its Rule on climate related disclosures earlier this week. This is the most comprehensive set of rules dealing with environmental issues promulgated by the agency. The proposals were first published about two years ago. The Commission received about 24,000 comments on the proposals. Following modifications based on the comments, the agency passed the proposals by at 3-2 vote at a meeting held on March 6, 2024.

The new rules apply to issuers and foreign private issues. Portions of the new rules will be phased in. While the Commission likes to note that rules have been on the books for decades that impacted environmental issues, the new rules are its the most comprehensive dealing with the topic

The new rules focus on disclosure in a number of key areas which include:

Business: Risks that have, or may have, a material impact on the business or operations of the issuer:

Mitigation: A description of actions taken to mitigate or adopt the issuer to material climate related risk;

Oversite: A description of the oversight of the board of directors and any role by management with regard to environmental issues;

Processes: Any processes the registrant has for identifying, assessing and managing material climate-related risks;

 Goals: Information regarding the registrant’s climate-related targets;

Scope 1 &2: For large, accelerated filers, and those not otherwise exempted, information about these material emissions;

 Costs

: Capitalized costs, expenditures and charges incurred as a result of severe weather; and

Estimates & Assumptions: If the estimates and assumptions used to produce the financial statements were materially impacted by risks and uncertainties associated with sever weather.

Comment

The rules adopted on March 6 are the most comprehensive on environmental issues adopted to date by the Commission. While the rules do require extensive disclosures, in many ways they center on issuers telling shareholders and investors what, if anything, the company has been doing in the environmental area. Viewed in this context, the rules should not be the generator of huge controversy. The number of comment letters alone brings that claim to a quick halt.

Despite the considerable effort made by the Commission in writing the rules, challenges to their implementation are no doubt being prepared. Those will range from if the SEC can write rules about the environment (e.g. Doesn’t the EPA do that?) to the inadequacy of them (e.g. Why drop Scope 3?) and on every topic in-between. Those challenges, however, should not obscure the accomplishment of crafting rules for all issuer that should provide not just investors but all a flow of important information about the impact of climate on us and the planet. Well Done!

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Section 13(d) of the Exchange Act is one of the key disclosure provisions of the federal securities laws. Generally, it requires those who acquire substantial shareholdings in an issuer to file a schedule which informs the markets of the holdings. There are various types of schedules, however. Under Rule 13(d)-1(b), for example, persons required to file a Schedule 13D may elect to file a short-form Schedule 13G if the securities were acquired and held in the ordinary course of business and not for the purpose of influencing control of the issuer. If the filer later changes its intent or purpose to try and influence control, a Schedule 13D must be filed within the designated time period.

Recently, the Commission filed a settled proceeding involving a registered investment adviser who failed to timely file the appropriate schedule. In the Matter of HG Vora Capital Management, LLC, Adm. Proc. File No. 3-21881 (March 1, 2024). The proceedings center on the acquisition of shares in a large, publicly traded Truck Rental firm. At the end of December 2021 Vora Capital held about 5.6% of Truck Rental. The adviser filed a Schedule 13G in February 2022, disclosing its holdings.

From January through mid-April 2022 the adviser purchased another 2,050,000 shares of Truck Rental. This brought the adviser’s holdings to 5,050,000 or about 9.9%. By late April the adviser altered its purpose for holding the shares from passive investor to one with the intent to change or influence control of the issuer. The change of intent was not reported, however, until May 13, 2022, about one week after the Schedule was required to be amended under the then applicable 10 day period. The filing was made the same date HG Vora provided to Truck Rental a notice to acquire all of its shares at a 20% premium to market. By delaying the filing, the advisor violated Exchange Act Section 13(f)(1) and Rule 13d-1 thereunder.

To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Section and Rule cited. The firm also agreed to pay a penalty in the amount of $950,000.

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