[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Notices]
[Pages 89788-89796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28611]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99225; File No. SR-NYSE-2023-09]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend the NYSE Listed Company Manual To Adopt
Listing Standards for Natural Asset Companies
December 21, 2023.
I. Introduction
On September 27, 2023, New York Stock Exchange LLC (the
``Exchange'' or ``NYSE'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the NYSE Listed Company
Manual (``Manual'') to adopt a new listing standard for the listing of
Natural Asset Companies (``NAC''). The proposed rule change was
published for comment in the Federal Register on October 4, 2023.\3\ On
November 7, 2023, pursuant to section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 98665 (Sept. 29,
2023), 88 FR 68811 (Oct. 4, 2023) (SR-NYSE-2023-09) (``NAC
Proposal''). Comments received on the NAC Proposal are available at
https://www.sec.gov/comments/sr-nyse-2023-09/srnyse202309.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 98879 (Nov. 7,
2023), 88 FR 78075 (Nov. 14, 2023). The Commission designated
January 2, 2024, as the date by which the Commission shall approve
or disapprove, or institute proceedings to determine whether to
disapprove, the proposed rule change.
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This order institutes proceedings pursuant to section 19(b)(2)(B)
of the Act \6\ to determine whether to approve or disapprove the
proposed rule change.
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\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change \7\
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\7\ See, NAC Proposal, supra note 3, for a complete description
of the proposal as originally filed.
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All statements in this Section II regarding the proposed rule
change are taken from the description provided by the Exchange in the
NAC Proposal.\8\
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\8\ See, NAC Proposal, supra note 3 at 68811-18.
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A. The NAC Proposal
The Exchange proposes to adopt a new subsection of Section 102 of
the Manual (to be designated Section 102.09) to permit the listing of
common equity securities of NACs. The Exchange proposes that, for
purposes of proposed Section 102.09 of the Manual, a NAC is a
corporation whose primary purpose is to actively manage, maintain,
restore (as applicable), and grow the value of natural assets and their
production of ecosystem services.\9\ As proposed, where doing so is
consistent with the company's primary purpose, the NAC would seek to
conduct sustainable revenue-generating operations. As proposed,
sustainable operations are those activities that do not cause any
material adverse impact on the condition of the natural assets under a
NAC's control and that seek to replenish the natural resources being
used. As proposed, NACs could also engage in other activities that
support community well-being, provided such activities are sustainable.
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\9\ The Exchange states that for purposes of its proposal, the
term ``ecosystem'' refers to specific entities (structures,
functions, and components of the natural world) that produce
ecosystem services. The Exchange also states that these and other
benefits derived from ecosystems are called ecosystem services, and
in aggregate, economists estimate their value at more than US$100
trillion dollars per year, and that examples of ecosystem services
include clean air, water supply, flood protection, productive soils
for agriculture, climate stability, and habitat for wildlife, among
others. See id.
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The Exchange states that its proposal is intended to end the
overconsumption of and underinvestment in nature, which requires
bringing natural assets into the mainstream, and that NACs are a new
concept pioneered by Intrinsic Exchange Group Inc. (``IEG''). According
to the Exchange, IEG is a private company structured as a corporation
organized under the laws of the State of Delaware that advises public
sector and private landowners on the creation of NAC structures and
strategies.
The Exchange proposes that NACs would be corporations that hold the
rights to the ecological performance produced by natural or working
areas, such as national reserves or large-scale farmlands, and have the
authority to manage the areas for conservation, restoration, or
sustainable management. The Exchange states that these rights could be
licensed like other rights, including ``run with the land'' rights such
as mineral rights, water rights, or air rights, and that NACs would be
expected to license these rights from sovereign nations or private
landowners.
Under the proposed amendments to the Manual, capital raised through
an NYSE-listed NAC's initial public offering or follow-on offerings
must be used to implement the conservation, restoration, or sustainable
management plans articulated in its prospectus, fund its ongoing
operations, or otherwise fulfill its purpose to maximize ecological
performance (i.e., the value of natural assets and the production of
ecosystem services). As proposed, while the core purpose of a NAC would
be to maximize ecological performance, a NAC would also be required to
seek to conduct sustainable revenue-generating operations (e.g., eco-
tourism in a natural landscape or production of regenerative food crops
in a working landscape) provided that such operations are consistent
with the NAC's charter, do not cause any material adverse impact on the
condition of the natural assets under the NAC's control, and seek to
replenish the natural resources being used. Under the proposal, all
NACs would be prohibited from directly or indirectly conducting
unsustainable activities, such as mining, that lead to the degradation
of the ecosystems it is trying to protect. In conducting its revenue-
generating operations, a NAC could monetize ecosystem services that
have markets (e.g., through the sale of carbon credits). All revenues
and expenses would be reported in the financial statements of the NAC
prepared under generally accepted accounting principles (``GAAP'') and
filed with the SEC as part of the NAC's required annual report on Form
10-K, 20-F or 40-F, as applicable. As
[[Page 89789]]
proposed, a NAC would be permitted to use its funds for activities that
support local community well-being, provided that such activities are
sustainable. The Exchange states this is in order to align the
interests of local communities with the objectives of maximizing the
value of natural assets and the production of ecosystem services.
The Exchange proposes to require NACs to publish on a periodic
basis information on the ecological performance of the natural assets
licensed to a NAC because of the distinct purpose of an NAC to protect
and grow the natural assets under its management. This information
would be presented in an Ecological Performance Report (an ``EPR''). As
proposed, the EPR would provide statistical information on the
biophysical measures such as tons of carbon or acre feet of water
produced, condition, and economic value of each of the ecosystem
services produced by the natural assets managed by the NAC. This, the
Exchange states, will allow investors to gauge the effectiveness of
management. The Exchange further states that this information would be
consistently produced and periodically reported, following best
practices from accepted valuation methodologies, as outlined in the
Reporting Framework. The Exchange proposes that the EPR produced by a
NAC must follow IEG's Ecological Performance Reporting Framework (the
``Reporting Framework''). The Exchange states that the Reporting
Framework is based on the natural capital accounting standards
established in the United Nations System of Environmental-Economic
Accounting--Ecosystem Accounting Framework (``SEEA EA''),\10\ and that
the proposed EPR would measure, value, and report on the ecosystem
services and natural assets managed by a NAC.
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\10\ United Nations et al (2021). System of Environmental-
Economic Accounting--Ecosystem Accounting. White cover publication,
pre-edited text subject to official editing. Available at: https://seea.un.org/ecosystem-accounting. See, NAC Proposal, supra note 3.
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Under the proposed amendments to the Manual, NACs will conduct a
Technical Ecological Performance Study (``Technical EP Study'')
annually, following the Reporting Framework. This Technical EP Study
would generate the information used to prepare and publish the EPR. As
proposed, the EPR and Technical EP Study must be examined and attested
to by a public accounting firm that is registered with the Public
Company Accounting Oversight Board (``PCAOB'') and is independent from
the NAC and NAC licensor, if applicable, under the independence
standard set forth in Rule 2-01 of Regulation S-X (``Independent
Reviewer'').
The Exchange states that, in addition to the GAAP financial
statements required under Commission disclosure rules and the proposed
EPR that would be derived from a Technical EP Study, it proposes to
require NACs to provide website disclosures that it states are designed
to provide transparency regarding the NAC's social and environmental
objectives. These would include requiring NACs to adopt and publish an
Environmental and Social Policy, a Biodiversity Policy, a Human Rights
Policy, consistent with the United Nations Guiding Principles on
Business and Human Rights,\11\ and an Equitable Benefit Sharing Policy.
The Exchange states that, as proposed, a NAC would be required under
applicable Commission rules to disclose all material information about
its license with a natural asset owner (including any material
amendments to the license over time) in the registration statement
filed in connection with its IPO and in its subsequent periodic SEC
filings.
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\11\ United Nations (2011). Guiding principles on business and
human rights: Implementing the United Nations ``Protect, Respect and
Remedy'' framework. Available at: https://www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf. See, NAC Proposal, supra note 3.
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Relationship Between the NYSE and IEG
The Exchange states that the Exchange and IEG have entered into an
agreement pursuant to which IEG has granted the Exchange an exclusive
license in the United States to use the Reporting Framework in
connection with the listing of NACs on the Exchange, although the
Reporting Framework will remain proprietary to IEG. The Exchange
further states that, under the terms of the agreement, the Exchange has
acquired a small minority interest in IEG and one seat on IEG's board
of directors. The Exchange also states that IEG has agreed to seek to
identify and develop NACs for listing on the Exchange, in addition to
marketing the listing and trading of NACs on the Exchange. In addition,
the Exchange states that IEG would provide training with respect to the
NAC structure and the Reporting Framework to NYSE personnel and
currently listed and potential listed NACs. IEG would also be entitled
to a share of the revenues generated by the Exchange from the listing
and trading of NACs on the NYSE.
The Exchange states that, while IEG would seek to promote the
listing of NACs on the NYSE, the determination of the suitability for
listing of any applicant NACs would solely be made by the staff of NYSE
Regulation, and that IEG would have no role in the listing
qualification process. The Exchange also states that, in evaluating a
NAC for listing, the staff of NYSE Regulation intends to follow the
same procedure it utilizes in qualifying operating companies. The
Exchange states that NYSE Regulation staff would review disclosures
contained in a NAC's registration statement and its audited financial
statements to ensure that the NAC satisfies applicable quantitative,
qualitative and corporate governance listing standards. In addition,
the Exchange states that, on a continued listing basis, NYSE Regulation
staff would review a NAC's periodic reports filed with the Commission
as well as public disclosure to ensure that a NAC continues to meet
applicable listing standards.
Definitions of Key Terms Used in the Proposal
The Exchange states that, unless otherwise stated, the proposed
rules use definitions in the SEEA EA.\12\ In addition, the Exchange
states that the proposal includes terms unique to NACs, as defined
below:
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\12\ United Nations et al (2021). System of Environmental-
Economic Accounting--Ecosystem Accounting (SEEA EA). White cover
publication, pre-edited text subject to official editing. Available
at: https://seea.un.org/ecosystem-accounting. See, NAC Proposal,
supra note 3.
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Community Well-being--Refers to the combination of social,
economic, environmental, cultural, and political conditions of
individuals and their communities as essential for them to flourish and
fulfil their potential.\13\
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\13\ Wiseman, J., Brasher, K (2008) Community wellbeing in an
unwell world: trends, challenges, and possibilities. Journal of
Public Health Policy, 29: 353-366. See, NAC Proposal, supra note 3.
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Ecological Performance--The value of natural assets and the
production of ecosystem services.
Ecological Performance Report--A report with statistical
information on the ecological performance of a NAC, including sections
with data on (i) Natural Production, (ii) Natural Assets, and (iii)
Underlying Asset Condition. The Exchange states that the EPR is unique
to NACs and will be provided in addition to traditional financial
statements.
Natural Production Section--A section of the EPR that
provides information on the annual flows of ecosystem services managed
by a NAC.
Natural Assets Section--A section of the EPR that provides
information on the net present value of natural assets
[[Page 89790]]
producing ecosystem services managed by a NAC.
Underlying Asset Condition Section--A section of the EPR
that provides biophysical information on the extent and condition of
the ecosystems being managed by the NAC.
Ecological Performance Rights--The rights to the value of natural
assets and the production or ecosystem services in a designated area,
including the authority to manage the area. These rights are granted to
a NAC, from a natural asset owner, as provided through a license
agreement.
Ecosystem Service Valuation--The assignation of an economic value
to an ecosystem service using one of many valuation methodologies
accepted today.
IEG Ecological Performance Reporting Framework--IEG has developed a
specific framework for NACs to derive and report on ecosystem service
values and on the quality of the natural assets being managed. In
addition, the Reporting Framework defines the components and structure
of the EPR to ensure the values are reported transparently and
consistently.
Independent Reviewer--A public accounting firm registered with the
PCAOB independent of a NAC and, where applicable, a NAC's licensor.
Local Communities--refers to groups of people--including indigenous
peoples and other local groups--who have direct ties to and derive
livelihood or cultural values from the area to which the NAC holds the
license.
Natural Assets--A statistical representation of ecosystems for
accounting purposes that defines them as productive units of ecosystem
services. The term ``Natural Assets'' is equivalent to SEEA EA's term
``ecosystem assets.'' Natural assets can be monetized directly or
indirectly. Like traditional assets, they have economic value and are
expected to provide future streams of benefits. In the singular form,
the term refers to an ecosystem type (e.g., a delineated forest).
Natural Asset Companies (NACs)--Corporations that hold the rights
to the ecological performance of a defined area and have the authority
to manage the areas for conservation, restoration, or sustainable
management.
Sustainable Activities--From an ecological perspective, activities
that do not cause any material adverse impact on the condition of
ecosystems, and that seek to replenish the natural resources being
used.
Unsustainable Activities--From an ecological perspective,
activities that cause material adverse impact on the condition of
ecosystems, and extract resources without replenishing them.
The IEG Reporting Framework
The Exchange states that IEG has developed a Reporting Framework
for NACs to measure and value natural assets and define how the EPR
should be structured to ensure transparency, robustness, and
consistency in the reporting of values and other statistical
information disclosed. The Exchange further states that the Reporting
Framework to be used by NACs is based on the standards developed in
SEEA EA. The Exchange states that the SEEA EA provides the most
comprehensive guidance on natural capital accounting and that it is of
particular relevance to the valuation of NACs due to its spatial
approach and its focus on measuring and reporting on the ecosystem
services produced by ecosystems. The Exchange states that IEG adopted
SEEA EA as the accounting standard for the measurement and valuation of
natural assets and ecosystem services, with some minor adaptations to
ensure that the natural asset valuations of NACs provide comprehensive,
understandable, consistent, robust, and transparent information to
investors and other users of the companies' EPR. As proposed, the
Reporting Framework would include specifications on how to apply SEEA
EA to report on the annual performance of NACs. The Reporting Framework
would set up NACs to report the Total Economic Value (``TEV'') of
natural assets, which the Exchange states is in line with the
recommendations of the British Standard for natural capital accounting
(BS 8632) for financial organizations and the ISO Standard 14008.
The Exchange states that, given that NACs are designed to manage
and grow the value of natural assets and the production of ecosystem
services, a NAC's activities are not well captured solely by
traditional financial reporting standards like GAAP/IFRS, as most
ecosystem services are not monetized today. The Exchange further states
that, to account for and capture the value of these non-monetized
ecosystem services, NACs will be required to conduct an annual
Technical EP Study, adhering to IEG's Reporting Framework in order to
prepare their EPR. As proposed, the Reporting Framework would define:
the steps to characterize, measure and value the ecosystem service and
natural asset values in a Technical EP Study, and the components and
structure of the EPR, including guidance to compile its sections to
ensure transparency, robustness, and consistency in the reporting of
information about the natural assets.
As proposed, the Reporting Framework would be publicly accessible
on nyse.com. The Exchange states that, in consultation with IEG, the
Exchange would have sole authority to determine whether and how to
propose amendments to the Reporting Framework. Any proposed change to
the Reporting Framework would have the effect of a change to an
Exchange rule and would therefore be filed by the Exchange with the
Commission pursuant to section 19(b) of the Act. Additionally, the
Exchange states that it would maintain on nyse.com a publicly
accessible copy of the Reporting Framework.
Proposed Listing Rules: Required Corporate Documents
Charter
The Exchange proposes that each NAC would be required to file its
charter as an exhibit to its registration statement. As a condition to
initial listing, the NYSE proposes to require a NAC's charter to state
the following:
The purpose of the company is to actively manage,
maintain, restore (as applicable), and grow the value of natural assets
and their production of ecosystem services. In addition, where doing so
is consistent with the company's primary purpose, the company will seek
to conduct sustainable revenue-generating operations. Sustainable
operations are those activities that do not cause any material adverse
impact on the condition of the natural assets under its control, and
that seek to replenish the natural resources being used. The
sustainability of the revenue-generating operations will be determined
based on the impacts of their activities on the condition metrics, and
where applicable, on any capacity-to-produce indicators reported by a
NAC in its EPR. Condition metrics should not show degradation as a
result of these activities and capacity-to-produce indicators should be
moving to a rate where resource extraction is less than resource
replenishment. The NAC may also engage in other activities that support
community well-being, provided such activities are sustainable.
NAC funds (including any proceeds from the sale of the
company's securities at any time) must be used primarily to meet the
NAC's operational needs to fulfill its purpose. In addition, funds may
be used to support community well-being, provided such activities are
sustainable.
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The NAC will be prohibited from engaging directly or
indirectly in unsustainable activities. These are defined as activities
that cause any material adverse impact on the condition of the natural
assets under its control, and that extract resources without
replenishing them (including, but not limited to, traditional fossil
fuel development, mining, unsustainable logging, or perpetuating
industrial agriculture). The NAC will be prohibited from using its
funds to finance such unsustainable activities.
As proposed, if any of the foregoing provisions of the NAC's
charter are eliminated or materially amended in a manner that is
inconsistent with their required form at any time, the NAC would be
subject to delisting from the NYSE.
License Agreements
The Exchange states that NACs would acquire the ecological
performance rights of a designated area by entering into an agreement
with the natural asset owner (e.g., a governmental entity or private
landowner) to obtain a license with respect to such rights.\14\ The
Exchange proposes that all material terms of the applicable license
agreement must be publicly disclosed in the NAC's periodic filings
consistent with SEC rules. As proposed, at minimum, the NAC would be
required to disclose the following information about any license
agreement:
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\14\ The Exchange states that it will be important for NACs in
their offering materials and subsequent public disclosure documents
to be clear in distinguishing the rights to the land ownership and
geographic area from the rights to the ecological performance and to
clearly specify, where appropriate, the limits of the NAC's rights
as an owner or licensee. See, NAC Proposal, supra note 3.
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Term: At the time of initial listing, the term of any
license agreement must be a minimum of ten years from the date of
closing of the NAC's initial public offering (the Exchange expects that
most license agreements will have terms significantly longer than ten
years and, in some cases, may be perpetual);
Scope: The specific natural assets and ecosystem services
covered by the license agreement;
License Payments: The amount and terms of any ongoing
payments due from the licensee to the licensor;
Modification Provisions: The circumstances under which a
license agreement may be modified and the procedures for effecting any
such modification;
Termination Provisions: The circumstances under which a
license agreement may be terminated, including the rights and
obligations of all parties to the license agreement, and the procedures
for effecting any such termination.
The proposal would specify that any NAC whose license is terminated
or materially breached by either party would be subject to delisting.
NAC Policies
Proposed Section 102.09 of the Manual would provide that a NAC
seeking to list on the NYSE must adopt the following written policies
(collectively, the ``NAC Policies'') and post them on its website by
the earlier of the date that the NAC's initial public offering closes
or five business days following the NAC's initial listing date:
An Environmental and Social Policy that articulates the
objectives and principles that will guide the NAC to achieve sound
environmental and social performance. As proposed, such policy must
include requirements to conduct a process of environmental and social
assessment, and establish, as soon as practicable after listing, an
Environmental and Social Management System (``ESMS'').\15\ The ESMS
should be designed to:
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\15\ The Exchange states that the ESMS should be consistent with
generally accepted international standards, such as the ``IFC
Performance Standard 1: Assessment and Management of Environmental
and Social Risks and Impacts.'' See, NAC Proposal, supra note 3.
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Identify and assess environmental and social risks and
impacts,
Identify measures to avoid, minimize and mitigate the
negative risks and impacts, and
Promote improved environmental and social performance.
A Biodiversity Policy that articulates a commitment to
achieving no net loss, and where possible a net positive impact on
biodiversity. The Biodiversity Policy should be based on the mitigation
hierarchy, a planning and management approach for addressing impacts to
biodiversity and ecosystem services through avoidance, minimization,
restoration, and offsetting.
A Human Rights Policy that articulates a commitment to
human rights, consistent with the United Nations Guiding Principles on
Business and Human Rights,\16\ including a commitment to recognize and
respect people's rights in accordance with customary, national, and
international human rights laws, in particular those of indigenous
peoples.
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\16\ United Nations (2011). Guiding Principles on Business and
Human Rights: Implementing the United Nations ``Protect, Respect and
Remedy'' Framework. Available at: https://www.ohchr.org/documents/publications/guidingprinciplesbusinesshr_en.pdf. See, NAC Proposal,
supra note 3.
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An Equitable Benefit Sharing Policy that articulates the
NAC's commitment for sharing benefits with local communities. A NAC
must include in its license agreement with the licensor a provision
requiring the licensor to comply with the applicable terms of the
Equitable Benefit Sharing Policy.
The Exchange proposes that Equitable Benefit Sharing Policy must
require an equitable benefit sharing arrangement for the distribution
of shares of the NAC's common stock to local communities, which the
Exchange states would be those who have direct ties to and derive
livelihood or cultural values from the applicable area. As proposed,
the NAC's common stock distribution would be required to be completed
no later than the time of closing of the NAC's IPO and meet the
following requirements at a minimum:
If the NAC has entered into a license agreement with
respect to public lands, shares representing at least 50% of the shares
of the NAC's outstanding shares as of the closing of the IPO must be
distributed to local communities.
If the NAC has entered into a license agreement with
respect to private lands, shares representing at least 5% of the shares
of the NAC outstanding as of the closing of the IPO must be distributed
to local communities.
Under the proposed changes to the Manual, the foregoing
distributions of shares of common stock may be placed in a trust or
equivalent structure, for the benefit of the intended beneficiaries.
Any trust (or equivalent) holding shares of the NAC for this purpose
must be under the majority control of trustees that are fully
independent of both the NAC and, where applicable, the licensor, and/or
be representative of the intended beneficiaries.
As proposed, the Equitable Benefit Sharing Policy must provide that
the NAC will (a) deposit its cash and other financial assets in
accounts with a bank custodian regulated by the U.S. Office of the
Comptroller of the Currency (an ``Authorized Bank''); and (b) include
in its license agreement a provision requiring the licensor to place
any shares of the NAC it owns in the custody of an Authorized Bank and
deposit the proceeds from any NAC share sales by the licensor and any
distributions received from the NAC in accounts with an Authorized
Bank, pending the distribution of such assets in a manner consistent
with the NAC's Equitable Benefit Sharing Policy.
Under the proposed rule change, the NAC would be required to review
the
[[Page 89792]]
adequacy of the Equitable Benefit Sharing Policy at least annually and
publish on its website a detailed description of its activities in
accordance with such policy (the ``Annual EBS Report'') no later than
90 days after the end of each fiscal year.
As proposed, the Annual EBS Report would be required to be examined
by an Independent Reviewer (the ``EBS Independent Reviewer'') and be
accompanied by an examination level report (i.e., reasonable assurance)
regarding the NAC and, if applicable, the licensor, in accordance with
the Equitable Benefits Sharing Policy during the applicable fiscal
period, including a review of the accounts maintained by the NAC and
the licensor at Authorized Banks, in accordance with the PCAOB or
AICPA's attestation standards.
As proposed, the NAC's accordance with the requirements of its
Equitable Benefits Sharing Policy would be required to be reviewed
periodically either by (i) a committee consisting solely of directors
who meet the independence requirements of Section 303A of the Manual or
(ii) the NAC's independent directors acting as a group. Such committee
or the independent directors, as the case may be, must meet for this
purpose at least annually and such meeting must include an executive
session in which management does not participate and a discussion with
the EBS Independent Reviewer at which management must not be present.
Ecological Performance Report
Proposed Section 102.09 would provide that, prior to its initial
listing, the NAC must make publicly available an EPR that has been
prepared consistent with the Reporting Framework. The Reporting
Framework (including instructions for the preparation of the EPR and
templates for the EPR) would be posted on nyse.com. As proposed, NACs
would conduct a Technical EP Study annually in accordance with
Reporting Framework. The Technical EP Study would generate the
information used to prepare and publish the EPR. Both the Technical EP
Study and EPR would be required to be examined by an Independent
Reviewer annually. The EPR would also be required to be accompanied by
an examination level report (i.e., reasonable assurance) prepared by
such Independent Reviewer in accordance with the PCAOB or AICPA's
attestation standards.
Quantitative and Corporate Governance Listing Rules
To qualify for listing as a NAC, an applicant issuer would be
required to meet the quantitative listing requirements applicable to
the listing of common equities of operating companies as set forth in
Sections 102.01(A), (B), and (C) of the Manual. Proposed Section
102.09(G) would provide that listed NACs would be subject to all of the
continued listing requirements that are applicable to operating
companies listed under Sections 102 and 103 of the Manual.
Audit Committee
The Exchange proposes that a listed NAC would be subject to all of
the corporate governance requirements set forth in Section 303A.00,
including the requirement of Section 303A.06 (providing that a company
must have an independent audit committee) and the provisions of Section
303A.07 (setting forth additional requirements for the audit
committee). The Exchange proposes to amend Section 303A.07 to establish
additional responsibilities specific to the audit committee of a NAC.
As proposed, Section 303A.07 would require that (in addition to the
requirements of Section 303A.07(b)), the NAC's audit committee charter
must address the following:
That the audit committee's purpose includes assisting
board oversight of (1) the integrity of the NAC's EPR, (2) the
qualifications and independence of the Independent Reviewer and (3) the
performance of the Independent Reviewer.
The audit committee of the NAC must:
at least annually, obtain and review a report by the
Independent Reviewer describing: the Independent Reviewer's internal
quality-control procedures; any material issues raised by the most
recent internal quality-control review, or peer review, of the
Independent Reviewer, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the
Independent Reviewer, and any steps taken to deal with any such issues;
and (to assess the Independent Reviewer's independence) all
relationships between the Independent Reviewer and the NAC. After
reviewing the foregoing report and the Independent Reviewer's work
throughout the year, the audit committee would be in a position to
evaluate the Independent Reviewer's qualifications, performance, and
independence. This evaluation should include the review and evaluation
of the lead partner of the Independent Reviewer. In making its
evaluation, the audit committee should take into account the opinions
of management and the NAC's internal auditors (or other personnel
responsible for the internal audit function). In addition to assuring
the regular rotation of the lead partner responsible for the EPR
Review, the audit committee should further consider whether, in order
to assure continuing independence of the Independent Reviewer, there
should be regular rotation of the firm undertaking the EPR Review
itself. The audit committee should present its conclusions with respect
to the Independent Reviewer to the full board and meet to review and
discuss the NAC's annual EPR. Meetings may be telephonic if permitted
under applicable corporate law; polling of audit committee members,
however, is not permitted in lieu of meetings.
meet separately, periodically, with management and the
Independent Reviewer to discuss the EPR and the conduct of the EPR
Review. To perform its oversight functions most effectively, the audit
committee must have the benefit of separate sessions with management
and the Independent Reviewer. These separate sessions may be more
productive than joint sessions in surfacing issues warranting committee
attention.
review with the Independent Reviewer any problems in the
conduct of their review or difficulties and management's response. The
audit committee must regularly review with the Independent Reviewer any
difficulties the Independent Reviewer encountered in the course of its
review, including any restrictions on the scope of the Independent
Reviewer's activities or on access to requested information, and any
significant disagreements with management.
set clear hiring policies for employees or former
employees of the Independent Reviewer. Employees or former employees of
the Independent Reviewer may be valuable additions to the NAC's
management. Such individuals' familiarity with the business, and
personal rapport with the employees, may be attractive qualities when
filling a key opening. However, the audit committee should set hiring
policies taking into account the pressures that may exist for personnel
of the Independent Reviewer consciously or subconsciously seeking a job
with the NAC they review.
report regularly to the board of directors with respect to
the preparation of the EPR and the performance of the Independent
Reviewer. The audit committee should review with the full board any
issues that arise with respect to the quality or integrity of the EPR
or
[[Page 89793]]
the performance and independence of the Independent Reviewer.
Material News
The Exchange proposes that a NAC would be required to immediately
disclose, pursuant to the Exchange's immediate release policy set forth
in Sections 202.05 and 202.06 of the Manual, any event (e.g., a forest
fire) that is anticipated to have a material adverse effect with
respect to any of the criteria included in the EPR. As soon thereafter
as possible, the NAC would be required to disclose in a Form 8-K or
Form 6-K, as applicable, its estimates of the changes to the previously
presented EPR of such event.
Periodic Publication of EPR and Occurrence of a Late EPR Delinquency
The Exchange proposes that, each year after initial listing, a NAC
must publish on its public website an EPR that has been prepared
consistent with the Reporting Framework. As proposed, the Technical EP
Study and EPR must be examined by the Independent Reviewer. The EPR
would be required to be accompanied by an examination level report
prepared by such Independent Reviewer in accordance with the PCAOB or
AICPA's attestation standards. The EPR would be required to cover the
same fiscal periods as the audited financial statements included in the
NAC's annual report on Form 10-K, Form 20-F, or Form 40-F, as
applicable. As proposed, the NAC would be required to use its best
efforts to publish its annual EPR no later than the filing of its
annual report on Form 10-K, Form 20-F, or Form 40-F, as applicable. In
the event that the annual EPR is not completed by the filing due date
of the NAC's annual report on Form 10-K, Form 20-F, or Form 40-F, as
applicable, such annual EPR is required to be published no later than
180 days after the end of the fiscal year to which such annual EPR
relates (the ``NAC EPR Due Date'' and the failure of a listed NAC to
timely publish its annual EPR, a ``NAC Late EPR Delinquency''). As
proposed, in the event that the company is unable to file its Form 10-
K, Form 20-F, or Form 40-F, as applicable, by the NAC EPR Due Date, the
company should not delay the publication of its EPR, but rather should
publish its EPR on or before that date.
The Exchange proposes that upon the occurrence of a NAC Late EPR
Delinquency, the Exchange will promptly send written notification (the
``NAC Late EPR Delinquency Notification'') to an affected NAC of the
procedures set forth below. As proposed, within five days of the date
of the NAC Late EPR Delinquency Notification, the company will be
required to (a) contact the Exchange to discuss the status of the
delinquent annual EPR (the ``Delinquent NAC EPR'') and (b) issue a
press release disclosing the occurrence of the NAC Late EPR
Delinquency, the reason for the NAC Late EPR Delinquency, and, if
known, the anticipated date such NAC Late EPR Delinquency will be cured
via the publication of the Delinquent NAC EPR. If the company has not
issued the required press release within five days of the date of the
NAC Late EPR Delinquency Notification, the Exchange would issue a press
release stating that the company has incurred a NAC Late EPR
Delinquency and providing a description thereof.
NAC Non-Reliance Event
The Exchange proposes that, in the event that a NAC concludes that
its previously issued EPR should no longer be relied upon because of an
error in such EPR (a ``NAC Non-Reliance Event,'' and the disclosure of
such NAC Non-Reliance Event, a ``NAC Non-Reliance Disclosure''), the
NAC would be required to comply with the NAC Late EPR Delinquency
Notification procedures set forth above. As proposed, if the NAC does
not publish an amended EPR within 60 days of the issuance of the NAC
Non-Reliance Disclosure (an ``Extended NAC Non-Reliance Disclosure
Event'' and, together with a NAC Late EPR Delinquency, a ``NAC
Reporting Delinquency'') for purposes of the cure periods described
below a NAC Reporting Delinquency would be deemed to have occurred on
the date of original issuance of the NAC Non-Reliance Disclosure. If
the Exchange believes that a NAC is unlikely to publish the amended EPR
within 60 days after a NAC Non-Reliance Disclosure or that the errors
giving rise to such NAC Non-Reliance Disclosure are particularly severe
in nature, the Exchange may, in its sole discretion, determine earlier
than 60 days that the applicable NAC has incurred a NAC Publication
Delinquency as a result of such NAC Non-Reliance Disclosure.
Cure Periods for NAC Publication Delinquencies
The Exchange proposes that, during the six-month period from the
date of the NAC Publication Delinquency (the ``Initial NAC EPR Cure
Period''), the Exchange will monitor the company and the status of the
Delinquent NAC EPR, including through contact with the company, until
the NAC Publication Delinquency is cured. If the company fails to cure
the NAC Publication Delinquency within the Initial NAC EPR Cure Period,
the Exchange may, in the Exchange's sole discretion, allow the
company's securities to be traded for up to an additional six-month
period (the ``Additional NAC EPR Cure Period'') depending on the
company's specific circumstances. If the Exchange determines that an
Additional NAC EPR Cure Period is not appropriate, suspension and
delisting procedures will commence in accordance with the procedures
set out in Section 804.00 of the Listed Company Manual. As proposed, a
NAC will not be eligible to follow the procedures outlined in Sections
802.02 and 802.03 with respect to these criteria.
The Exchange proposes that, in determining whether an Additional
NAC EPR Cure Period after the expiration of the Initial NAC EPR Cure
Period is appropriate, the Exchange will consider the likelihood that
the Delinquent NAC EPR can be published during the Additional NAC EPR
Cure Period. The Exchange states that it strongly encourages companies
to provide ongoing disclosure on the status of the Delinquent NAC EPR
to the market through press releases and will also take the frequency
and detail of such information into account in determining whether an
Additional NAC EPR Cure Period is appropriate. As proposed, if the
Exchange determines that an Additional NAC EPR Cure Period is
appropriate, and the company fails to publish the Delinquent NAC EPR by
the end of such Additional NAC EPR Cure Period, suspension and
delisting procedures will commence immediately in accordance with the
procedures set out in Section 804.00. In no event would the Exchange
continue to trade a NAC's securities if that company has failed to cure
its NAC EPR Delinquency on the date that is twelve months after the
applicable NAC EPR Due Date.
Filing Delinquencies and NAC EPR Delinquencies Are Treated Separately
The Exchange proposes that, for purposes of Section 802.01E, NACs
would also be subject to the provisions with respect to delinquencies
in filing periodic reports as set forth in that rule (a ``Filing
Delinquency''). The Exchange states that a Filing Delinquency is a
separate event of noncompliance from a NAC Publication Delinquency.
Consequently, and as proposed, a NAC could be deemed to have cured a
Filing Delinquency while remaining noncompliant due to an ongoing NAC
Publication Delinquency or vice versa.
[[Page 89794]]
Components and Form of the Statements
The Exchange proposes that the EPR published by NYSE-listed NACs
will consists of three components: (1) Natural Production Section, (2)
Natural Assets Section and (3) Underlying Asset Condition Section.
As proposed, the process for conducting a Technical EP Study and
the requirements for preparing an EPR would be contained in the
Reporting Framework. NACs would be required to conduct a Technical EP
Study and prepare and publish an EPR that complies with the Reporting
Framework, in each case on an annual basis.
B. Exchange Arguments
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(5) of the Act,\17\ in that it is designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest, and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. The Exchange states that the proposed listing standard for
NACs is consistent with the protection of investors and the public
interest because, among other things, it includes rigorous quantitative
financial requirements and corporate governance requirements.
Specifically, the Exchange states that the proposed listing standard
requires NACs to meet the same quantitative initial and continued
listing standards as are applied to operating companies listed on the
NYSE and would be subject, without exception, to all of the other rules
applicable to NYSE listed operating companies. The Exchange notes that
there is significant and growing interest in investing in asset classes
that are consistent with the objective of protecting and improving the
environment and believes that the listing of NACs will provide
investors with an investment vehicle that meets this demand. The
Exchange also states that the development of NACs will provide a source
of funding to maintain and restore natural assets.
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\17\ 15 U.S.C. 78f(b)(5).
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The Exchange states that the charter provisions each NAC would be
required to adopt under the proposed rule are also consistent with the
protection of investors and the public interest because they are
designed to ensure that the NAC conducts its operations in a manner
consistent with the ecological and socially equitable goals that would
motivate investors when investing in the NAC. Similarly, the Exchange
states, the various policies that the NAC would be required to adopt
and publicize (including an Environmental and Social Policy, a
Biodiversity Policy, a Human Rights Policy, and an Equitable Benefits
Sharing Policy) would protect investors by establishing clear standards
that the NAC must abide by in seeking to address its stated ecological
and social goals.
In addition, the Exchange believes that the examination conducted
by the Independent Reviewer with respect to the initial and periodic
EPR published by each NAC are consistent with investor protection and
the public interest because they are designed to ensure that such EPR
is prepared in a manner that is consistent with the requirements of the
Reporting Framework. The Exchange further states that, this examination
of each NAC's EPR will protect investors by providing significant
assurance as to the reliability of that EPR. The proposal would also
amend Section 802.01E of the Manual to create non-compliance and
delisting procedures for NACs that fail to timely publish their EPR.
The Exchange further argues that the proposed requirements for the
audit committee of the NAC to oversee the preparation of the EPR and
the performance of the Independent Reviewer are consistent with the
protection of investors as they will help assure the accuracy and
completeness of the EPR and the quality of the Independent Reviewer's
review. The Exchange also notes that, as is the case with all listed
companies, NACs would be required to immediately disclose pursuant to
the Exchange's immediate release policy set forth in Sections 202.05
and 202.06 of the Manual any material event, including any event that
is anticipated to have a material adverse effect with respect to any of
the criteria included in the EPR (e.g., a forest fire). The Exchange
believes that it is therefore in the interests of investors to have a
rigorous rule to address delinquencies with respect to disclosures and
to require immediate disclosure of material events.
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act because a listing under the
proposed rule would be available in a non-discriminatory way to any
company satisfying its requirements, as well as all other applicable
NYSE listing requirements. In addition, the Exchange believes it faces
competition for listings and any competing exchange could similarly
adopt rules to allow the listing of NACs.
C. Comment Letters Received on the Proposal
The Commission has received comment letters that support the
proposal, comment letters that suggest changes to the proposal, and
comment letters that oppose the proposal.
III. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2023-09 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to section
19(b)(2)(B) of the Act \18\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the issues raised by
the proposed rule change. Institution of proceedings does not indicate
that the Commission has reached any conclusions with respect to any of
the issues involved. Rather, as described below, the Commission seeks
and encourages interested persons to provide additional comment on the
proposed rule change to inform the Commission's analysis of whether to
approve or disapprove the proposed rule change.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to section 19(b)(2)(B) of the Act,\19\ the Commission is
providing notice of the grounds for disapproval under consideration. As
described above, The Exchange proposes to adopt a new subsection of
Section 102 of the Manual (to be designated Section 102.09) to permit
the listing of common equity securities of NACs. As stated above, the
Commission has received comment letters that support the proposal,
comment letters that suggest changes to the proposal, and comment
letters that oppose the proposal.
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\19\ Id.
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The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposal with section 6(b)(5) of the Act,\20\ which requires
that the rules of a national securities exchange be designed, among
other things, to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
[[Page 89795]]
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest, and not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers, or to regulate by
virtue of any authority conferred by the Act matters not related to the
purposes of the Act or the administration of the exchange; and section
6(b)(8) of the Act,\21\ which requires that the rules of a national
securities exchange not impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
Under the Commission's Rules of Practice, the ``burden to demonstrate
that a proposed rule change is consistent with the Exchange Act and the
rules and regulations issued thereunder . . . is on the self-regulatory
organization [`SRO'] that proposed the rule change.'' \22\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding, and any failure of an SRO to provide
this information may result in the Commission not having a sufficient
basis to make an affirmative finding that a proposed rule change is
consistent with the Exchange Act and the applicable rules and
regulations.\23\
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\20\ 15 U.S.C. 78f(b)(5).
\21\ 15 U.S.C. 78f(b)(8).
\22\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\23\ See id.
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The Commission requests comment on all aspects of the proposal, and
its consistency with applicable statutory requirements, including those
discussed above. Based broadly on concerns raised by commenters the
Commission also requests comment regarding, but not limited to, the
following:
the use of the Reporting Framework and its relationship to
the UN SEEA EA model, British Standard recommendations, and other
sources referenced for the underlying EPR data;
the relationship between NYSE and IEG in general,
including but not limited to the responsibilities of each under the
proposal; how modifications of the Reporting Framework would be
addressed; issues regarding independence, oversight, and potential
conflicts of interest as between the entities and as among the audit
committee or any auditors, experts, or advisory entities under the
proposal; and the availability of books and records;
the licensing arrangement for NACs as proposed and the
sufficiency of the proposal regarding such licensing or other legal
arrangements that a NAC would be permitted to enter into;
the impact of the proposal on intermarket competition,
including the exclusive agreement between IEG and NYSE;
whether the proposed additional listing requirements for
NACs and their implementation and application, including use of
terminology, applicable thresholds, use of funds, and substantive
obligations, are described with sufficient detail and clarity so as to
provide investors with the information necessary to understand the
relationship between such additional NAC requirements and the NAC's
GAAP financials;
the proposed use of the financial statements and metrics
in the EPR as compared to a NAC's GAAP financial statements;
as related to the Commission's non-GAAP rules, the
proposed use of GAAP terms and concepts in connection with the
Reporting Framework, EPR, the Technical EP Study, and other related NAC
materials, and the extent, if any, to which the relationship between a
NAC's GAAP financial statements and reporting requirements and the EPR
and related materials could potentially result in overlap or double
counting, confusion, or lack of clarity, as well as the application of
the materiality standard; and,
the suitability, clarity, and level of guidance of
criteria for the Reporting Framework and other NAC materials, and
implementation of the same, as well as the other requirements
applicable to NACs, for audit purposes and attestation, including the
scope of any attestation engagement and the roles of the relevant
parties; and,
the ability of a NAC to list on the Exchange pursuant to
either an initial public offering or a direct listing.
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with sections 6(b)(5) \24\ and 6(b)(8) \25\ of the Act or
any other provision of the Act, or the rules and regulations
thereunder. Although there do not appear to be any issues relevant to
approval or disapproval that would be facilitated by an oral
presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4 under the Act,\26\ any request for an
opportunity to make an oral presentation.\27\
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\24\ 15 U.S.C. 78f(b)(5).
\25\ 15 U.S.C. 78f(b)(8).
\26\ 17 CFR 240.19b-4.
\27\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by January 18, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
February 1, 2024.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSE-2023-09 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSE-2023-09. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public
[[Page 89796]]
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection.
All submissions should refer to file number SR-NYSE-2023-09 and
should be submitted on or before January 18, 2024. Rebuttal comments
should be submitted by February 1, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(57).
Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28611 Filed 12-27-23; 8:45 am]
BILLING CODE 8011-01-P