SEC Environmental, Social, and Corporate Governance (ESG) Disclosure Rule Could Help AgTech Attract Investors

On March 4, 2021, the US Securities and Exchange Commission announced the creation of a Climate and ESG Task Force to address increasing investor focus and reliance on climate and ESG-related disclosure and investment. Additionally, on March 15, 2021, Acting SEC Chairman Allison Herren Lee announced that she had asked SEC staff to evaluate the SEC’s disclosure rules “with an eye toward facilitating the disclosure of consistent, comparable, and reliable information on climate change,” and the SEC solicited public input to facilitate the staff’s assessment. The public comment period closed on June 13 with the agency having received over 400 submissions, according to recently-confirmed SEC Chairman Gary Gensler.

In 2010, in response to increased investor demand for and company disclosure about climate-related risks, impacts, and opportunities, the SEC issued guidance about the application of corporate disclosure requirements to climate change matters. Since the SEC’s guidance in 2010, questions have arisen about whether current climate-related disclosures are adequately and consistently informing investors. Although there are several frameworks companies currently can use for voluntary disclosures of climate-related information, the lack of consistency and coherence makes comprehension and comparison difficult for analysts and investors. As recently as December 2020, an SEC subcommittee established to review matters concerning ESG issues on investment products made preliminary recommendations for discussion and feedback around improving data and disclosure for ESG investing and adopting standards to guide corporate issuer disclosure concerning material ESG risks.

Impact on AgTech

Advocates for climate change-related disclosure requirements say uniform metrics and standards will enhance accountability and transparency, will enable investors to support enterprises that are aligned with their policy views, and will bring the US in line with other countries that are requiring these disclosures. However, many of the public comments raise concerns about the practicality and unintended consequences of requiring such disclosures. Specifically, some predict that the costs of providing climate risk disclosures will be a significant burden on smaller and emerging growth companies and could even deter companies from going public. By deterring initial public offerings (IPOs) and other avenues for going public, they fear disclosure requirements could restrict companies’ access to capital and growth and deprive investors of valuable opportunities.

On the other hand, as we noted in a previous Alert, AgTech companies are already promoting themselves as mission-driven entities that generate positive social impact and are often already voluntarily providing ESG information. For such companies, an SEC rule that provides a clear framework for ESG disclosures could eliminate uncertainty about how to communicate such information and could help drive impact investors to companies that satisfy their priorities.

What’s Next

Although no specific details have yet been released, the rule will likely include more than climate-related disclosures, according to recent comments by Chairman Gensler. “I've asked staff to propose recommendations for the commission’s consideration on human capital disclosure. This builds on past agency work and could include a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety,” Gensler said.

A draft rule is expected in the fall, with further opportunity for public input. If you are interested in more information or you are considering submitting comments on the draft rule, please contact Arent Fox’s Agricultural Technology group.