Annoucements by the SEC this week regarding conflict minerals and the disclosure of payments by resource extraction issuers

This week the SEC announced two rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding conflict minerals (tin, tantalum, tungsten and gold) and the mandatory disclosure of payments by resource extraction issuers (companies that extract natural resources from the earth as their business). The first rule requires companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of Congo or an adjoining country. The second rule requires extraction issuers to disclose certain payments made to U.S. or foreign governments.

The Forum for Sustainable and Responsible Investment (US SIF) issued a statement in response to the announcements that congratulates the SEC for making decisions on these important issues. They pointed out that investment managers, advisory firms, mutual fund companies, financial planners and other asset owners will be better informed about the risks in investing in these companies as a result of these rulings.

“For the first time, investors will be able to evaluate these risks across industries and portfolios in ways that have not before been possible,” said sustainable funds firm Calvert. The SEC has estimated that some 6,000 public companies will be affected at an initial compliance cost of up to $4billion and annual costs of up to $609million.

US SIF is glad to see the first rule applies to all companies domestic and international, but wishes it would have been mandatory for the disclosure to be part of the annual report. Therefore, US SIF calls on companies to make this mandatory going forward so investors can better assess how the companies are managing their supply chains responsibly and avoiding human rights violations at all costs.

US SIF is also pleased to see the second ruling as it will hopefully provide for greater transparency and accountability in the extractives industry. However, like the first rule, this disclosure is not required in a company’s annual report. Overall US SIF is pleased with the rulings and believes this is a step in the right direction.

To read the final ruling on conflict minerals please click here.

To read the final ruling on disclosure of payments by resource extraction issuers please click here.

To read the US SIF letter to the SEC please click here.

Do you think the SEC should have required these disclosures in companies’ annual reports? Do you think these rulings will help provide more transparency and accountability in the affected industries? We want to hear your thoughts!

Could disclosure from extractive industries help taxpayers?

Last week, SocialFunds.com reported that the Office of Natural Resource Revenue (ONRR) wrote to the Securities and Exchange Commission (SEC) in favor of rules requiring disclosure of payments to governments, stating that this could help ensure energy companies are reimbursing US taxpayers.

This is one of the rules that was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act. When it was first proposed, Ian Gary, senior policy manager for extractive industries at Oxfam America, told SocialFunds.com: “We believe this provision has a dual purpose. One is to inform investors about the types of risks these companies are exposed to. But an important second purpose is to support good governance, transparency, and accountability for payments.”

After the letter was written, Gary observed that the ONRR was trying to turn a new page after replacing the Minerals Management Service, and has recently penalized Chevron, Anadarko and other companies for improper deductions and knowingly underpaying royalties to taxpayers and the government.

Regardless, the SEC has yet to implement the new rules despite an April 2011 deadline. Because of this, trade associations such as American Petroleum Institute (API) want to undermine the implementation. However, Gary pointed out that: “Interior has told the SEC that, if feasible, payment data should be reported at the lease level, mirroring our project-level definition recommendation.”

The ONRR’s letter to the SEC concluded that the disclosure of payments would be a valuable cross-check for data, and it would help ensure that the government and taxpayers are receiving the correct payment in exchange for extraction of natural resources.

To read the full article please click here.

What do you think about this? Do you think requiring companies in the extraction industry to disclose their payments to the government is a good idea? Do you think it will adhered to? Discuss!

Ernst & Young publish 2011 Proxy Season Report

Ernst & Young just published its 2011 Proxy Season Report that features highlights and implications for the coming year. E&Y found the top five proxy season results to be:

1. Advisory votes on pay receive high support from shareholders in the first year of mandatory say-on-pay
2. Director opposition votes decline
3. Issue-shareholder engagement moves to a new level
4. Trends continue for implementation of greater accountability measures at the board level and elimination of barriers for shareholders to push change
5. Voting support demonstrates the growing value shareholders place on social and environmental issues

Overall the 2011 proxy season brought about significant changes to the governance landscape. Investors gained more rights through the Dodd-Frank Wall Street Reform and Consumer Protection Act. The ability to directly vote on executive pay practices and issue more frequent say-on-pay proposals provides investors with new avenues to express their opinions and views on executive pay. These new rights have also opened the door to better dialogue between issuers and shareholders.

These changes also imply that boards will feel increased pressure to keep up with trends and respond to results. Investors are expected to closely follow management responses to votes on say-on-pay proposals that receive strong support. Investors are more focused on the make-up of the board as well, with regard to gender, race and age. Boards will be challenged to defend their decisions on strategic objectives going forward, and analyze how executive compensation impacts long-term strategy and risk.

Two other interesting results from the 2011 Proxy Season include;

1. Proposals to appoint an independent board chair received average support and has not increased much over the years and may indicate investors believe boards should have discretion over their formation.
2. Proposals for diversity on boards has one of the fastest growth rates over the years and may indicate shareholders’ desire for more input on board makeup.

Support for corporate responsibility proposals also continues to grow.

To read the full proxy report please click here.