Comments to SEC Encourage Environmental Risk Disclosure
By Madison Condon
Earlier this summer, the Securities and Exchange Commission (SEC) proposed changes to their disclosure requirements for publicly listed mining companies. Many interested parties submitted comments to the SEC outlining support for, or opposition, to these changes.
The Columbia Water Center submitted a letter in support of the proposed changes to the rules and encouraged disclosure on many factors related to water risk, including a mine’s capacity to maintain its social license to operate, its risk of tailings dam failure in the light of increasing extreme weather events, and its ability to live up to its own predictions of water quality during the mine’s operation and closure. Water risk disclosure has improved since the SEC released its interpretive guidance on climate change related disclosure in 2010. However, data on company water use and the financial impacts of water related risks remain infrequent in financial filings. This is despite the fact that early this year the World Economic Forum ranked water crises as the greatest risk to industry over the next 10 years.
The non-profit Earthworks, along with a consortium of other environmental organizations echoed the same concerns as the Water Center in its own letter. The Earthworks’ comment additionally requests information on particular risks: (1) the financial assurances companies’ provide guaranteeing that there will be funds available for post-operation mine reclamation and; (2) whether exploratory drilling indicates that the mine will likely experience acid main drainage and require water treatment in perpetuity.
The SEC is proposing a requirement that companies submit a technical report along with its financial filings that provides details on a mine’s environmental impact, permitting challenges, and exposure to climate and water risk. This technical report would need to be prepared by a “qualified person” who would have to sign and date the report, and be liable as an “expert” under Section 11 of the Securities Act for any misstatements made in the report. The Water Center agrees that company representatives should be held accountable for predictions made to investors regarding exposure to environmental risk. Indeed, several shareholder class actions alleging corporate misrepresentation of the risk of tailings dam failure are already underway under the existing rules.
The U.S. Chamber of Commerce disagrees. In its letter, the chamber asserted that the technical report requirement would create too costly of a compliance burden for companies compiling a “litany” of information and that investors would have difficulty “unpacking highly technical disclosures” without gaining material insights into their investments. Newmont Mining Corp. also challenged the technical report requirement, pointing out that it “discloses material environmental, social, and governance information for investors and stakeholders in our corporate social responsibility reports” available on their website. Newmont did not address the fact that these voluntary reports are not subject to the same accountability checks provided under Section 11.
Vale, the largest producer of nickel and iron in the world, did not object to the expert liability imposed on the qualified person, but instead argued a company should be permitted to indemnify their representative against this liability. Meaning that in the event a qualified person was found in violation of Section 11 for misstatements made in the technical report, the company would be obligated to cover her liabilities. As pointed out by the Chamber of Commerce, the SEC does not typically allow for indemnification for violation of federal securities law, holding that it is against public policy.
The SEC is required to consider the comments received on this proposed rule as it formulates its final rule updating disclosure requirements. The final rule will be released along with a summary of all comments received, as well as the SEC’s analysis and response to these comments.
All comments received by the SEC on its proposed changes to disclosure rules for mining registrants are publicly available here.
Madison Condon is a postdoctoral research scientist at the Columbia Water Center. She conducts research in water risk in the mining industry and natural resource governance.