Tag Archives: Carmen X. W. Lu

California Pushes Ahead With Climate Disclosure Law

by Ronald C. Chen, Raaj S. Narayan, and Carmen X. W. Lu

Photos of the authors

Left to Right: Ronald C. Chen, Raaj S. Narayan and Carmen X. W. Lu (photos courtesy of Wachtell, Lipton, Rosen & Katz)

Recently, California Governor Gavin Newsom signed into law Senate Bill 219, which applies broadly to public and private companies “doing business” in California.  The law will require companies that have total annual revenues of over $1 billion dollars to disclose and independently assure their scopes 1 and 2 emissions (direct and purchased emissions) beginning in 2026 and to disclose scope 3 emissions (value chain emissions) beginning in 2027.  In addition, companies that have annual revenues of over $500 million dollars will be required to prepare a climate-related financial risk report in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures beginning on or before January 1, 2026.  Emissions disclosures will need to be submitted to the California Air Resources Board (“CARB”), or a non-profit emissions reporting organization designated by CARB, while climate-related financial risk disclosures will need to be publicly posted on the company’s website.

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SEC Disbands ESG Enforcement Task Force

by John F. Savarese, Wayne M. Carlin, David B. Anders, and Carmen X. W. Lu

Photos of authors

Left to right: John F. Savarese, Wayne M. Carlin, David B. Anders and Carmen X. W. Lu. (Photos courtesy of Wachtell, Lipton, Rosen & Katz)

The U.S. Securities and Exchange Commission (“SEC”) has disbanded its Climate and ESG Task Force in the Division of Enforcement. The Task Force was established in March 2021 with the purpose of identifying ESG-related misconduct, including material gaps or misstatements in issuers’ disclosure of climate risks, and assessing disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies. According to the SEC, the “expertise developed by the task force now resides across the Division” signaling that the SEC will continue to pursue ESG-related matters as part of its broader enforcement strategy.

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BlackRock’s Voting Choice Program Expands to Accommodate Diverging Client Priorities with More Tailored Voting Guidelines

by Adam O. Emmerich, David A. Katz, Karessa L. Cain, Elina Tetelbaum, and Carmen X. W. Lu

Photos of the authors

Left to right: Adam O. Emmerich, David A. Katz, Karessa L. Cain, Elina Tetelbaum and Carmen X. W. Lu. (Photos courtesy of Wachtell, Lipton, Rosen & Katz)

In recent years, one of the most significant developments in corporate governance has been the adoption and expansion of voting choice programs by the largest institutional investors.  Such changes have come in response to growing scrutiny and pressure from asset owners and regulators with diametrically opposed and fervently held views on the role of environmental and social issues such as climate change and diversity, equity and inclusion (DEI) in investment decisions.  In furtherance of this trend, BlackRock has now adopted separate voting guidelines tailored towards specific funds and investors.

Early this month, BlackRock released climate and decarbonization stewardship guidelines for its funds with explicit decarbonization or climate-related investment objectives or other funds where clients have instructed BlackRock to apply these guidelines to their holdings.  These new guidelines will supplement BlackRock’s benchmark policies applicable to all assets under management and will focus attention on how companies have aligned their business model and strategies to meet the goals of the Paris Agreement.  A total of 83 funds with $150 billion of combined assets are expected to be covered by the new guidelines.  BlackRock has indicated that it will apply the guidelines to those companies held by covered funds and clients who have opted into the guidelines and that produce goods and services that “contribute to real world decarbonization,” have a “carbon intensive business model” or face “outsized impacts from the low carbon transition,” based on their Scopes 1, 2, and 3 greenhouse gas emissions. 

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AI in the 2024 Proxy Season: Managing Investor and Regulatory Scrutiny

by William Savitt, Mark F. Veblen, Kevin S. Schwartz, Noah B. Yavitz, Carmen X. W. Lu, and Courtney D. Hauck

Photos of the authors

Top from left to right: William Savitt, Mark F. Veblen, and Kevin S. Schwartz.
Bottom left to right: Noah B. Yavitz, Carmen X. W. Lu, and Courtney D. Hauck. (Photos courtesy of Wachtell, Lipton, Rosen & Katz)

Corporate disclosures concerning artificial intelligence have increased dramatically in the past year, with Bloomberg reporting that nearly half of S&P 500 companies referenced AI in their most recent annual reports. And some investors are clamoring for even more, using shareholder proposals to press public companies for detailed disclosures concerning AI initiatives, policies, and practices — including, most recently, an Apple shareholder proposal that attracted significant support at a meeting last week. Regulators, meanwhile, have signaled increasing scrutiny of AI-related corporate disclosures, including in a February speech by SEC Chair Gensler cautioning against “AI washing” — the practice of overstating or misstating corporate AI activity. For the 2024 proxy season and beyond, public companies will need to balance the competing demands of regulators and investors, in order to craft effective, responsive strategies for engaging with their stockholders on AI topics. 

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The Future of ESG: Thoughts for Boards and Management in 2024

by Martin Lipton, Steven A. Rosenblum, Adam. O. Emmerich, Karessa L. Cain, Kevin S. Schwartz, and Carmen X. W. Lu

Top left to right: Martin Lipton, Steven A. Rosenblum, and Adam. O. Emmerich.
Bottom left to right: Karessa L. Cain, Kevin S. Schwartz, and Carmen X. W. Lu. (Photos courtesy of Wachtell, Lipton, Rosen & Katz).

The term “ESG” has steadily faded from the investor and corporate lexicon over the past year in the wake of cultural and political clashes over its meaning and purpose. “Anti-ESG” legislation adopted by several states has created legal and financial hurdles around the term. Institutional investors have gone quiet on ESG amid public criticism and congressional subpoenas. BlackRock has publicly disavowed the term for having become too politicized. The use of “ESG” in earnings calls has dropped precipitously. 

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Thoughts for Boards: Key Issues in Corporate Governance for 2024

by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, and Carmen X. W. Lu

From left to right: Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, and Carmen X. W. Lu (Photos courtesy of Wachtell, Lipton, Rosen & Katz)

Over the past year, expectations for directors have continued to evolve, bringing new challenges and responsibilities to the boardroom.  The remarkable speed, volume and proliferation of channels through which information travels today continue to place more scrutiny on boards and heighten expectations regarding transparency and accountability.  Director reputations that have been carefully built over decades are not immune from such pressures, particularly as activist investors hunt for underperformers and revisit former targets.  The business environment has also become more complex:  macroeconomic uncertainty, geopolitical tensions, regulatory unpredictability, political polarization, culture wars, cybersecurity threats, the growth of generative AI, and energy transition are among the issues that boards are now expected to navigate.  

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The SEC’s Enforcement Action Against SolarWinds Underscores Growing Scrutiny Over Cybersecurity Internal Controls, Reporting and Disclosures

by John F. Savarese, Wayne M. Carlin, and Carmen X. W. Lu 

From left to right: John F. Savarese, Wayne M. Carlin, and Carmen X. W. Lu. (Photos courtesy of Wachtell, Lipton, Rosen & Katz).

Recently, the SEC filed a complaint against SolarWinds and its chief information security officer for fraud and internal control failures relating to the company’s cybersecurity risk and incident disclosures. The complaint alleges, among other things, that SolarWinds repeatedly overstated the strength of its cybersecurity risk management practices in its public documents and knowingly concealed critical vulnerabilities affecting its key product and business. We see four important takeaways from the allegations set forth in the SEC complaint, which are being contested by the defendants:

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DEI Initiatives Post-SFFA: Considerations for Boards and Management

by Martin Lipton, John F. Savarese, Adam J. Shapiro, Erica E. Bonnett, Noah B. Yavitz, and Carmen X. W. Lu

Photos of the authors

Top left to right: Martin Lipton, John F. Savarese, and Adam J. Shapiro.
Bottom left to right: Erica E. Bonnett, Noah B. Yavitz, and Carmen X. W. Lu
(Photos courtesy of Wachtell, Lipton, Rosen & Katz)

It is no secret that American corporations face vigorous — and often conflicting — demands concerning diversity, equity and inclusion (DEI) initiatives.  Over the past year, DEI initiatives and commitments have come under pressure in the face of macroeconomic headwinds, political scrutiny and legal challenges.  That pressure has only grown following the Supreme Court’s recent decision against affirmative action in SFFA v. Harvard (as discussed in our prior memo), after which Attorneys General from both red and blue states sent conflicting letters to Fortune 100 companies on what the SFFA decision meant for corporate DEI initiatives. 

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Revisiting The New Paradigm

by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Elina Tetelbaum, and Carmen X. W. Lu

Photos of the authors

Left to right: Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Elina Tetelbaum, and Carmen X. W. Lu (photos courtesy of Wachtell, Lipton, Rosen & Katz)

In view of the attacks on “woke” corporations, ongoing legislative opposition to the consideration by investors and corporations of environmental, social and governance (ESG) issues, legal challenges to elements of ESG itself (notably, initiatives designed to further diversity, equity and inclusion), and the attendant political polarization, we undertook to revisit The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth that we prepared for the International Business Council of the World Economic Forum in September 2016.  

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SEC Division of Enforcement Forms New Climate and ESG Task Force to Target ESG-Related Misconduct and Potential Violations

by David M. Silk, Wayne M. Carlin, David B. Anders, Sabastian V. Niles, and Carmen X. W. Lu

Last week, the SEC Division of Corporation Finance announced (PDF: 131 KB) it would enhance its focus on climate-related disclosures and risks at the direction of the Acting Chair of the SEC. Yesterday, the SEC announced a new Climate and ESG Task Force within the SEC’s Division of Enforcement. This Enforcement Task Force will be heavily resourced, have access to ESG-related whistleblower complaints and referrals and focus on proactively identifying ESG-related misconduct (such as material disclosure “gaps” and misstatements), including by using data analysis to identify potential violations.

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