Saturday, September 21, 2024

Climate Change and Wahed Invest, a Reprise

The Business Law Prof Blog has a new home!  Old posts will remain where they are; new posts will appear at Business Law Prof Blog (1).  More information at our goodbye post, here.

 

A while ago, I posted about an SEC enforcement action against Wahed Invest.  Wahed Invest is a religious investment advisor that purported to select and monitor investments to ensure compliance with Shari’ah law.  In fact, according to the SEC, it did not in fact have policies in place to assess ongoing Shari’ah law compliance,  

At the time, I noted that I had not before seen an enforcement action based on false nonfinancial representations – that were nonetheless material to investors’ nonfinancial goals - and I compared it to the then-proposed climate change rule’s consideration for the nonfinancial goals of investors.  Specifically, the proposed rule justified, in part, its requirement that companies disclose GHG emissions on the ground that some investors have made net-zero commitments, regardless of whether the emissions data would be financially material to the operating company.

Well, this morning, I learned about a new SEC enforcement action against Inspire Investing.  Like Wahed, Inspire is a religious investment advisor, and like Wahed, it purported to engage in a “biblically responsible” investment strategy that required it to use sophisticated data analysis to ensure no companies in its ETFs engaged in certain prohibited activities.  In fact, its methods were far more slipshod than it represented, resulting in a number of verboten companies being included in its funds.

So, once again, the SEC took action to protect investors’ nonfinancial goals, i.e., it adopted a concept of materiality that originated from investors’ values, but was not tied to financial values.

Which is useful to consider in light of the final climate change rules.  Not only is the GHG emissions disclosure requirement softened to focus solely on materiality to the company (previously, that was only for disclosure of Scope 3 emissions, which requirement is eliminated entirely), but the references to investor net zero commitments – investor financial goals – is (as far as I can tell, it’s a very long document) gone. 

(To be fair, a lot of institutions have left the alliances that previously were committed to net zero goals, and one alliance has disbanded entirely, but a lot of that movement happened after the rules were finalized and some investors maintain their commitments).

Point being, we are in a world where apparently materiality for the purposes of assessing fraud can include nonfinancial information, but for the purpose of affirmative disclosure requirements, its status remains uncertain.

And another thing...

The latest episode of my Shareholder Primacy podcast with Mike Levin is up; this one deals with Moelis/SB313 and advance notice bylaws.  Links on Spotify, Apple, and YouTube.

 

https://lawprofessors.typepad.com/business_law/2024/09/climate-change-and-wahed-invest-a-reprise.html

Ann Lipton | Permalink

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