Calvert Applauds Securities and Exchange Commission’s Finalization of Resource Payment Reporting Requirements in the Wall Street Reform and Consumer Protection Act
On Wednesday, August 22, the U.S. Securities and Exchange Commission (SEC) issued the final rules for the implementation of the provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) requiring oil, gas and mining companies registered with the SEC to disclose payments that they make to governments to access and develop oil, natural gas or minerals (Section 1504). As the lead investor supporting the legislation, Calvert commends the SEC for its careful treatment of the complex and sensitive issues presented by the rulemaking. Calvert also appreciates the SEC's stated recognition that the disclosures required by Section 1504 are in the clear interest of investors. Now we urge companies with reporting requirements under the law to comply swiftly so investors may have the information necessary to account fully for the material social, political and regulatory risks faced by the oil, gas and mining sectors.
In particular, Calvert is encouraged by the SEC's statements recognizing the materiality of the disclosures required by Section 1504 indicated by the requirement that they be filed as part of an annual submission to the Commission. Calvert is also encouraged by the Commission's decision not to exempt any covered issuer from the disclosure requirements, as recommended by others, in order to provide investors with data that is as comprehensive as possible. Moreover, while the SEC's statements did not specify a definition for the term "project" in the final rules, Calvert looks forward to encouraging covered companies to apply the Commission's additional guidance in this area in ways that best meets the needs of investors. Calvert appreciates the inclusion and reference to many of its comments and suggestions to the SEC in the text of the final rules for Section 1504.
"Meeting the world's resource needs means taking material risks that until now have been unaccounted for in oil, gas and mining company disclosures," says Bennett Freeman, Senior Vice President of Sustainability Research and Policy of Calvert Investment Management, Inc. "The resource payment disclosures required by Section 1504 are essential to investors' consideration of the growing social, regulatory and taxation risks faced by oil, gas and mining companies as they venture further into countries with poor governance, weak rule of law, and high levels of corruption."
Calvert and a broad group of investors with total assets under management of more than $1 trillion sent letters to the SEC supporting the original language and legislative intent of Section 1504, which was signed into law by President Obama on July 21, 2010. From December 17, 2010 to August 22, 2012, a total of 360 statements regarding the SEC's rulemaking for Section 1504 were submitted by investors, representatives of industry and civil society, and policy makers. The result is an expansive and detailed public record of the issues most critical to the proper implementation of this important law in which Calvert's comments are accompanied by those submitted from the likes of the American Petroleum Institute, the Bill and Melinda Gates Foundation, Oxfam America, and the authors of Section 1504, Senator Benjamin Cardin (D-Md.) and Senator Richard Lugar (R-In.).
A highlight of Calvert's efforts over the past three years was the April 2010 publication of the report, "Materiality of the Disclosure Required by the Energy Security Through Transparency Act" (PDF). The report, written by Calvert Senior Sustainability Analyst Paul Bugala in consultation with outside experts, demonstrates that the disclosures required by Section 1504 give investors information necessary to fully assess project-specific, social, regulatory, and tax risk in ways that should not undermine the competitiveness or become burdensome to well-managed and responsible companies. The paper also outlines how these mandatory reporting requirements would strengthen existing financial reporting guidelines and complement voluntary resource revenue disclosure efforts such as the Extractive Industries Transparency Initiative (EITI). Calvert's report was used as the basis for discussions with key Congressional offices and White House officials regarding the resource payment transparency provisions of the Dodd-Frank Act and was quoted in several floor statements by senators on May 18, 2011.
Issuance of these rules should become the basis for complementary legislation or regulation in other jurisdictions where extractive companies are registered. According to the SEC, about 1,101 companies make annual filings that would require disclosures under Section 1504. While this number represents a very significant portion of the world's oil, gas and mining companies, companion regulations in jurisdictions such as the United Kingdom, the countries of the European Union, and Canada are needed to meet the needs of investors. Calvert therefore welcomes the passage of disclosure rules scheduled for a vote in the European Parliament in September. The European rules would involve a significant number of companies and provide an opportunity to strengthen transparency and good governance consistent with the risks all investors face.
Calvert's engagement in extractive industries policy and advocacy efforts have grown significantly since the December 2008 introduction of the Calvert SAGE™ (Sustainability Achieved through Greater Engagement) Strategies. Using the SAGE Strategies, Calvert applies its unique advocacy experience and access to offer new opportunities to investors who want to take an active approach in moving companies to make measurable progress on vital ESG issues. Through the SAGE Strategies, Calvert included a call for support for the U.S. extractive industries transparency legislation in its advocacy objectives with companies held in the Calvert Large Cap Value Fund—including ConocoPhillips, ExxonMobil, Marathon Oil, Newmont Mining, and Royal Dutch Shell.
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As of 6/30/12, the Calvert Large Cap Value Fund owned the following companies: ConocoPhillips (1.7%), ExxonMobil (2.1%), Marathon Oil (1.5%), Newmont Mining (1.3%), and Royal Dutch Shell (2.5%). Calvert may or may not still invest in, and is not recommending any action on, companies listed. Look here for the most recently available information on holdings in each Calvert sustainable and responsible equity fund. Current and future portfolio holdings are subject to market risk.