2022 was a busy year for the Securities and Exchange Commission, and it doesn’t look like it will slow down anytime soon if its fall agenda is any indication.
In 2022, the commission put forward 35 proposals, a massive jump from the six it put forward in 2017, mostly under former chair Jay Clayton. The rate of adoption of the SEC’s proposals was roughly the same, with 17 proposals adopted in 2022 and 12 in 2017.
The speed of proposal releases hasn’t delighted every SEC reporting manager, as they face short reporting cycles with increasingly complex demands. But chair Gary Gensler readily defended the SEC’s faster approach.
On January 4, the SEC released its fall 2022 status update, which included 29 rules in the final rule-making stage, meaning that a few proposals may become official in Q1 and Q2 of this year. Gensler said that the agenda reflects the agency’s need to “modernize our ruleset, moving deliberately to update our rules in light of ever-changing technologies and business models in the securities markets.”
So, if the SEC keeps up the pace, what do finance professionals want and expect for 2023? We dug in.
Committing to green. The Climate Change Disclosure, released in March 2022, is set to have a final decision by April.The proposal would require publicly listed companies to disclose climate-related risks and opportunities to investors, similar to how organizations file 10-Ks to the SEC. The hotly contested proposal garnered thousands of comments and was even reopened in October after a technical glitch reportedly prevented people from leaving comments.
“The first hope is that there is a definitive outcome and direction from the final ESG disclosure ruling,” John Willard, US transformation lead at ESG consulting company Quantis, told CFO Brew over email. “Companies are caught in a bit of limbo as to what will be included, what won’t be included, when they will be required to release these disclosures, and what the expectations around auditing and providing third-party assurance will be.”
In addition to the SEC’s disclosures, the International Sustainability Standards Board is set to release its global baseline for sustainability standards in early 2023, which has taken the SEC’s steps into account. If countries decide to adopt the ISSB standards, then companies become bound to the rules.
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But despite the April release date, the proposal could be held up by legal or legislative challenges. Willard told CFO Brew that while the hope is that there is more clarity, “the dream would be that the final ruling wouldn’t linger in a continuous state of challenge in the courts or in Congress.”
Steve Soter, senior industry principal at financial-reporting platform Workiva, also told CFO Brew via LinkedIn that his wish from the SEC is for “clarity on the climate proposal.”
Wrangling in cyber. The SEC is set to release proposals that would require further disclosures and governance relating to cybersecurity risks, both for fund managers and investors.
Clarity around cyber may give investors relief as it’s top of mind for internal audit leaders. In a study by AuditBoard that surveyed internal audit leaders for 2023, 83% ranked cyber and data security as a primary concern.
Associations looking out for boards’ interests hope that the SEC gives clarity around who is responsible for what. “The National Association of Corporate Directors (NACD) hopes that the SEC’s groundbreaking 2023 disclosure rules on cybersecurity and climate risk clearly distinguish between the governing role of the board and operational role of management in safeguarding their companies,” said Peter Gleason, NACD president and CEO, told CFO Brew over email, “NACD is optimistic that the final rules will not require having a climate or cyber ‘expert’ on all boards.”
While climate and cyber might be garnering the attention of finance professionals, other final rule making proposals on the docket pertain to SPACs (remember the 2020 craze) and money-market fund reforms. The proposed rule stage, albeit shorter, is still full of eye catching proposals from human capital management disclosure, corporate board diversity, and yet another cybersecurity proposal.
Gleason said that the NACD is now in the process of helping members “cope with rules that became final last year, re: executive pay clawbacks, ‘pay versus performance,’ and the universal proxy form.”
With Gensler leading the SEC, it doesn’t look like things will slow down, but ESG advocates and cybersecurity fanatics can rest assured that their areas of interest remain hefty in the agency proposal list.—KT