On October 7, 2023, California Governor Gavin Newsom signed into law two statutes that will require certain companies doing business in California to disclose their GHG emissions (SB 253) and climate-related financial risk (SB 261). These statutes apply regardless of whether a company is incorporated or headquartered in California.
Companies that expect to be impacted are taking steps to review existing voluntary GHG and climate risk disclosures for alignment or gaps with California’s requirements, are developing reporting procedures and controls to enable compliance in future disclosures, and are engaging with assurance providers to secure required reviews of emissions reporting.
The SEC recently announced a series of enforcement actions and settlement agreements focused on insiders timely reporting their transactions in company stock. Multiple directors, officers, certain beneficial owners, and companies were charged with, and paid penalties for, failures to report transactions on Form 4 within the required two-business-day timeframe, and for failures to disclose delinquent filings. Many companies assist their officers with Form 4 filings and are taking steps to improve internal reporting and disclosure protocols. In October 2023, the SEC adopted amendments that, beginning in early 2024, will shorten the initial and amendment filing deadlines applicable to Schedule 13D and Schedule 13G filers’ beneficial ownership reports (e.g., reporting must take place within five business days, instead of 10 calendar days, once specified stock acquisition thresholds are met).
Two public companies recently settled SEC enforcement actions for failures to disclose related party transactions. In one enforcement action, siblings of an executive officer were employed by the company and in the other, the company was a participant, though not a contractual party, in a transaction with an investment advisor that was affiliated with one of the company’s directors. Identifying disclosable related party transactions requires thorough data gathering procedures and analysis; companies are reviewing their current procedures, particularly around directors’ and executive officers’ immediate family members.
Annual reports next year will include discussion of management-level cybersecurity expertise as well as disclosures on cybersecurity risk management, board oversight, and strategy. Companies are considering the frequency of cyber reporting to the board, director participation in cyber event simulations, alignment with technical standards set by recognized third-party frameworks, and cyber risk ratings, such as Glass Lewis BitSight, and ISS Cyber Risk Score.
Activism activity is again on the increase and boards are watching for share accumulations and changes in the stockholder base. Management teams are being directed to make sure the company has strong advisors (legal, banking, PR/IR, and solicitation) and to update the company’s activism preparedness playbooks. Companies are also preparing for increased engagement with institutional investors and the pros and cons that will come from the recent expansion of institutional vote options (e.g., expansion of BlackRock’s and State Street’s voting choice programs).