What now?
The fact that the SEC did not appeal the court’s decision comes across as something of a blow to the coalition supporting transparency, although interpretations vary depending on the source. In all scenarios, the SEC has to rewrite the rule, and the API has expressed its eagerness to work with regulators on said rewrite. That the API is a powerful force is undeniable, but the coalition on the other side of the fence packs some muscle as well.
I had a conversation yesterday with Bennett Freeman, a senior vice president at Calvert, and Paul Bugala, Calvert’s senior sustainability analyst for extractive industries. I wanted to know what they saw coming next. Freeman explained:
The fight continues. Calvert will continue not only to be engaged itself, but to help facilitate and mobilize support from other investors for a robust outcome, which, like the original rule, will explicitly take into account investors’ interest in disclosure of data that may be material to our valuation of companies in this sector.
He went on to say that some members of the coalition are involved because of their aim to diminish corruption, human-rights violations, and more. While Calvert is a supporter of these goals, its primary interest is in gaining greater disclosure around increasingly material issues for investors. He added that Calvert admires the SEC’s ongoing diligence in tending to investor interests.
Bugala added:
The first count in the legal challenge … argues that publicly disclosing the information required by Section 1504 would “compel U.S. oil, gas, and mining companies to engage in speech — in violation of their First Amendment rights — that would have disastrous effects on the companies, their employees, and their shareholders.” Calvert and other investors believe firmly that if this argument were to prevail, the result could threaten the fundamental capacity of the SEC to regulate markets, as the First Amendment rights of companies could supersede the need of investors for disclosure of material information essential to promote efficiency, competition, and capital formation.
This thing is going to get hot before the final rules stick. Remember, though, that this is the rule-making process for a law that’s already in effect. That leaves only so much leeway for wrangling. In the end, companies that pursue transparency as a matter of good business are going to be ready, while others will have to expend considerable time and money to catch up, and may end up with some seriously dirty laundry on display.
The article Extractives Will Soon Be Forced to Air Dirty Laundry originally appeared on Fool.com and is written by Sara Murphy.
Sara Murphy has no position in any stocks mentioned. Follow her on Twitter: @SMurphSmiles. The Motley Fool recommends Statoil.
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