SEC Investor Advisory Committee to Discuss Human Capital Labor Valuation, Security-Based Swaps, Beneficial Ownership, and ESG

U.S. Securities and Exchange Commission

Investor Advisory Committee

Wednesday, September 21, 2022


  • All three recommendations concerning cybersecurity, climate risk disclosure, and accounting modernization were unanimously approved by the Committee.
  • Panelists discussed human capital management, security-based swap reporting, beneficial ownership, and ESG disclosure.

Opening Remarks by SEC Chair and Commissioners

In his opening remarks, Chair Gary Gensler praised the Committee’s work, including disclosure and market integrity, topics of the Committee’s agenda, and outlined several relevant Commission rulemaking proposals.

In her opening remarks, Commissioner Hester M. Peirce raised a number of questions for each panel regarding their discussion topic and said many of the proposed solutions for problems in the market will be costly and disruptive. She also said the Commission sometimes uses its disclosure requirement framework to insert itself into how companies manage their affairs.

In his opening remarks, Commissioner Mark T. Uyeda said the Committee should consider materiality when discussing human capital management and labor. He then emphasized that the full Commission must consider ESG, climate risk disclosure, and accounting modernization under the Administrative Procedure Act (APA) process.

In his opening remarks, Commissioner Jaime Lizárraga discussed the importance of the Committee and its obligations under the Dodd-Frank Act. He also discussed disclosures and the importance of how they are drafted, saying they should be drafted in plain English from an investors point of view.

Panel Discussion Regarding Human Capital Management and Labor

The panel considered the demand for labor-related performance data from the investor perspective, including investors’ views on the quality and decision-usefulness of currently available data, and which information – if any – investors would use should it become available, and why.


  • Cambria Allen-Ratzlaff, Managing Director and Head of Investment Strategies, JUST Capital


  • Tye Graham, Executive Vice President and Chief Human Resources Officer, Amalgamated Bank
  • Ethan Rouen, Assistant Professor of Business Administration, Harvard Business School
  • Christine Shaw, Principal Investment Officer, Corporate Governance & Sustainable Investment, Connecticut State Treasurer (FASB)
  • Kavya Vaghul, Senior Director of Research, JUST Capital

Allen-Ratzlaff touched on workforce diversity, turnover, and how well companies can retain talent. She said that a large group of investors has been engaging firms to gain access to human capital information and that investors consider effective human capital management essential to long term shareholder value. She added that many investors feel that previous rulemakings on this issue have fallen short.

Vaghul discussed the tight labor market in the U.S., the poor disclosure standards for human capital data, including low across-the-board disclosure rates, and the high costs of human capital disclosure. She emphasized the need for standardization in human capital disclosure data, without which it would be difficult to compare companies.

Rouen discussed nontraditional labor data, what information investors care about, and related proposals. He emphasized the need for improved labor disclosures, including information on the difference between costs and investments in labor. He also said we need financially material human capital metrics disclosed in 10-K forms.

Shaw discussed the need for labor-related disclosure data and offered examples of management issues and how investors can benefit from labor information. She said that with this data, asset owners can better compare how managers perform and evaluate buy-sell decisions and risks across portfolios. She also commented on how shareholder engagement could benefit from improved human capital disclosure. She described workforce diversity as essential to long-term value. Graham discussed the benefits and necessities of diversity, equity, and inclusion (DEI) and how Amalgamated Bank approaches DEI. Panelists asked where the SEC should start in addressing the need for human capital disclosures.

Panelists asked about key metrics for investors to assess human capital and challenges to providing human capital data. Vaghul said the strength of wages and hours and the decline in hours of certain work are essential metrics to consider, and Rouen added that there is not much pushback on diversity data but that turnover data carries the risk of providing proprietary information. Vaghul said there is legal exposure to providing certain information, like wage data, and that there is a challenge in providing that data at the right time. Panelists also asked about the conceptual framework for disclosure requirements by FASB and the SEC.

Panel Discussion Regarding Proposed Rule 10B-1 Position Reporting of Large Security-Based Swap Positions / Asset-Based Swaps

The panel discussed the Commission’s proposals to modernize the reporting and regulation of the swaps markets via its newly proposed Rule 10B-1, requiring any person who owns a security-based swap position that exceeds certain thresholds to file information of their holdings and which will become publicly available over the SEC’s EDGAR filing system as well as new Rule 9j-1 that would prohibit fraudulent, deceptive, or manipulative conduct associated with security-based swaps.


  • Gina-Gail Fletcher, Professor of Law, Duke University School of Law


  • Elisabeth de Fontenay, Professor of Law, Duke Law School
  • Henry T. C. Hu, Allan Shivers Chair in the Law of Banking and Finance, University of Texas at Austin School of Law
  • Richard Zabel, Equity Partner, General Counsel, Chief Legal Officer, and Head of Research, Elliott Investment Management

Hu gave an overview of Rule 10B-1 on what the SEC is aiming to address with the rulemaking, which is the impact on financial stability as it relates to derivatives dealers and looking at the impact of derivatives on corporate governance. He said it is very encouraging that the SEC is dealing with decoupling and that in terms of equity derivatives, the rule requires disclosures of certain cash settled equity derivatives. He concluded by discussing the difference between the 10B regime and 13D regime. He also noted that 10B-1 disclosure requirements are very burdensome and does not compare with potential benefits.

Zabel discussed what a security-based swap is and protections that are afforded to dealers. He said what a total return stop or any other cash settled equity derivative does not do is provide investors with any ability to influence the underline company. Zabel also said swap contracts explicitly provide that investors have no ability to control how the dealer may hedge its exposure or vote any shares it holds and that the SEC proposing to require next day public disclosure of the holding of security-based swaps of very low thresholds would impose a threat to activists-based business model. He concluded by discussing Reg-SBSR and suggested that the SEC study the information submitted under this rule in an effort to evaluate the market before considering whether to implement the sizable changes under Rule 10B-1.

Fontenay discussed the complexity of Rule 10B-1 and said the SEC is trying to address several different concerns with just this one rule. She said markets are made efficient by the actions of active traders and they will not do those things if the Commission does not preserve some space for them to profit from investments. She concluded by posing the question of how public derivatives market should be and said the SEC must consider systemic risks.

Panel Discussion Regarding Schedules 13D and 13G Beneficial Ownership Reports

The panel discussed the SEC’s proposals to shorten the reporting timeline around Schedule 13D and 13G and how that would affect shareholder activism. The panel also discussed the current practices of certain shareholders disseminating not-yet-public large stakes with a select group of other shareholders, and how the SEC’s proposals around classifying them as a “group” would cut the existing information asymmetry between that group and other shareholders.


  • Gina-Gail Fletcher, Professor of Law, Duke University School of Law


  • Stephen Fraidin, Partner, Cadwalader
  • Ty Gellasch, President and CEO, Healthy Markets
  • David A. Katz, Partner, Wachtell, Lipton, Rosen & Katz
  • Jeffrey N. Gordon, Richard Paul Richman Professor of Law, Columbia Law School
  • Brandon Rees, Deputy Director of Corporations and Capital Markets, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO)

Fraidin called the SEC’s proposals, including shortening the ten-day window, far reaching and recommended changing the window to a period of five trading days. He also called the SEC’s proposed group definition an overreaction to a problem in a very small number of events and then discussed the Commission’s cash settled derivatives proposal.

Gordon questioned the SEC’s use of the William’s Act to target proxy contests and also criticized shortening of the ten-day window and the SEC’s concern over information asymmetry. He then discussed the idea of a prohibition on tipping involving activists and criticized the Commission for refusing to provide guidance beyond statute on group definition.

Gellasch offered suggestions to improve the SEC’s recent proposals and made recommendations concerning public disclosures that should be decoupled from the intent of the disclosing party, getting rid of the artificial delay, and acknowledging that this transparency creates a more orderly and efficient market.

Rees said the overarching purpose of the Williams Act was to address the risk of hostile takeovers and that today’s proxy fights are a different means to those hostile takeovers. He said the ten-day filing deadline that exists today acts a loophole and that he was not convinced that shortening the window will deter activist hedge funds.

Panel Discussion Regarding ESG Fund Disclosure

The panel discussed the importance of ESG and greenwashing and the heightened role of ESG for investors seeking to understand their impact through investing.

Moderated by:

  • Jamila Abston, Partner, FSO Consulting Financial Services Risk Management, Ernst & Young LLP


  • Anne Simpson, Global Head of Sustainability, Franklin Templeton
  • Jason Czarnezki, Associate Dean & Executive Director, Environmental Law Programs at PACE University
  • Madison Condon, Associate Professor of Law at Boston University
  • Jon Hale, PhD, Global Head of Sustainability Research, Morningstar

Jason Czarnezki explained how to measure ESG goals. He said lawyers are taking advantage of a market boom in sustainable finance and discussed how companies greenwash and the risks imposed on investors.

Condon began by discussing the Biden Administration Executive Order that gave all financial regulatory agencies a climate risk mandate and the 2022 climate risk score, noting 230 public actions federal financial regulators have taken to address climate-related financial risks. She also highlighted the three ESG related rules the SEC has proposed and discussed the importance of considering physical, transition, and liability risks. Condon lastly discussed the different greenwashing concerns at the corporate level versus the fund level and said physical risk has received less attention so far but needs to be a bigger concern. She also expressed her support for Scope 3 disclosures.

Simpson said ESG as an acronym does not work in the financial sector. She discussed fiduciary duty and how it correlates with sustainable investments. She said it is fundamental investors know what they are investing in and that if there is only focus on what is in a portfolio, systemic risks are not captured.

Hale discussed ESG as a process and how it is part of the investment making process. He said consideration of ESG has become a big part of asset managers’ investment making processes. Hale said the choice of whether to disclose ESG is a question of materiality, but sustainable funds use ESG disclosures to identify opportunities. He said one cannot just say one sustainable fund is doing the same as the other.

Discussion of a Recommendation on Cybersecurity Disclosure

Allen-Ratzlaff explained the recommendation to assess how companies are managing and monitoring cybersecurity risk. She said the recommendation is a comment letter supporting disclosure from issuers on four factors and updates about previously reported materials. She added that the recommendation supports the SEC’s proposed rule and calls out particular pieces of the proposal that the Committee strongly reports, including the four-day disclosure deadline and proposed items 106 and 16j. She then outlined three suggestions for enhancing the SEC’s proposal, including disclosure of key factors considered in determining materiality, extension of provisions concerning Item 106, and reconsideration of the requirement that issuers disclose boards of directors’ cybersecurity expertise to clarify that the entire board is responsible for cybersecurity.

The recommendation was unanimously approved by the Committee.

Discussion of a Recommendation on Climate Disclosure

Brian A. Hellmer discussed three enhancement recommendations to the climate disclosure rule proposal. He said the recommendation includes eliminating the disclosure requirement around board expertise and that the requirement also flirts with an oversight role of the board versus an operational one. He also said the two other enhancements require a management narrative regarding climate risks and opportunities. Hellmer said it is difficult for the typical investor to understand what their goals and fears are, so a management discussion section would be helpful supplemental information. Lastly, he recommended that the SEC add a required disclosure of material facilities locations, to help identify physical risks.

The recommendation was unanimously approved by the Committee.

Discussion of a Recommendation on Accounting Modernization

Colleen Honigsberg outlined the recommendation, giving the SEC ultimate authority over accounting standards, and provided a justification for the recommendations. She then explained three recommendations for the Committee, including FASB studying the cost that delayed rulemaking has on investors and that the SEC broaden access to FASB standards through a searchable database. Allen-Ratzlaff characterized the Committee’s recommendations as moderate.

The recommendation was unanimously approved by the Committee.

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