The Securities and Exchange Commission (SEC or the commission), under Chair Gary Gensler, was active during 2022 in its attempt to fulfil its stated three-part mission—to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation, and the commission looks set to continue this trend into 2023.

Certain commission activities in 2022, such as proposed rules mandating climate disclosures, amendments to the proxy process, and enforcement actions in the crypto assets space, look set to form the foundation of the SEC's rulemaking and enforcement agenda in 2023 as set forth in this overview.

SEC Rulemaking Priorities in 2023

Climate-Related Disclosures

It is anticipated that climate-related disclosures will continue to be a focus of the SEC's rulemaking, with final rules expected imminently following the SEC's proposed rules issued in March 2022. These proposed rules would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.

The proposal garnered significant comments from various stakeholders, with the SEC receiving more than 5,000 unique comments on the proposal. Though there is general support for climate-related disclosures in some form, there are differing opinions on the details of specific aspects of the proposal. While the SEC's regulatory agenda initially indicated that a final rule would be approved by October 2022, the extensive volume of comments received on the proposal and a technical glitch that impacted the SEC's receipt of comments for this proposal delayed the issuance of any final rule. Given the level of public attention and divergent opinions surrounding the proposed rules, it seems likely that legal challenges to the final rule will be made almost immediately, potentially delaying implementation of the final rule.

Despite rumors that the SEC may dial back some of its proposed rules on climate-related disclosures, issuers should still pay close attention to such disclosures given the high priority placed upon enforcement actions on ESG issues by the commission. Issuers should expect continued focus in 2023 by the SEC on climate-related disclosures and should continue to follow the 2010 guidance and the staff's sample comment letter on climate-related disclosures issued in September 2021 to guide their disclosure practice.

Human Capital Including Board Diversity

The SEC has also indicated that it will propose disclosure rules relating to human capital in 2023 that will supplement what it adopted in fall 2020. According to its regulatory agenda, the commission intends to release a proposal on human capital management disclosure this spring. In prepared remarks at London City Week in June 2021, Gensler suggested that a human capital disclosure proposal could include metrics such as workforce turnover, skills and development training, compensation, benefits, and workforce demographics that include diversity and health and safety. A rule proposal on corporate board diversity disclosures is also on the SEC's regulatory agenda for 2023, though no details about this proposal have been provided.

Cybersecurity

Issuers should also expect further rulemaking regarding cybersecurity. The SEC plans to implement a final rule this spring that would mandate public company disclosures regarding cybersecurity risk governance. The proposed rule, which was introduced in March 2022, would require registrants to report on material cyber incidents and periodically disclose information about their policies and procedures for identifying and managing cybersecurity risks, as well as management's involvement and expertise in assessing and managing these risks. Similar to the climate-related disclosure proposal, the cybersecurity proposal would also require issuers to disclose information about their board's involvement with cybersecurity, including the presence of a director with cybersecurity expertise and the nature of such expertise. Given the continuing challenges companies face that are posed by malicious software and hacking, the SEC staff is expected to continue monitoring issuers' cybersecurity disclosures in 2023 and has advised issuers to refer to the commission's 2018 statement and guidance on public company cybersecurity disclosures when preparing SEC filings.

Special Purpose Acquisition Companies (SPACs)

In late 2021, Gensler gave remarks before the Healthy Markets Association Conference where he highlighted what he saw a disparity between the disclosure requirements in a traditional IPO and in what he refers to as a "SPAC Target IPO" and contended that all "investors deserve the protections they receive from traditional IPOs." In March 2022, the SEC announced proposed rules, in line with Gensler's stated opinion, that aim to cause SPACs to be treated more like traditional IPOs and to provide SPAC investors the same level of protections as those afforded to an investor in a traditional IPO. The proposed rule would require additional disclosures for SPACs conducting an IPO or de-SPAC transaction, including information about sponsor roles, conflicts of interest, shareholder dilution, and transaction fairness. The SEC has indicated that it plans to take action on a final rule related to SPAC disclosures by spring 2023.

Proxy Process

In 2023, issuers can anticipate further rulemaking relating to the proxy process. The SEC's recent rulemaking in this area has proven controversial. In October 2020, the SEC adopted highly controversial amendments to Rule 14a-8 related to shareholder proposals that resulted in much heated debate, both at open meetings of the commission and comments submitted to the commission. In July 2022, the SEC proposed new amendments to Rule 14a-8, which generally mandate companies to include shareholder proposals in their proxy statements unless there is a basis for exclusion, by clarifying and actually narrowing three substantive bases for exclusion of shareholder proposals in proxy statements. Similar to the reaction provoked by the October 2020 amendments, the proposed amendments resulted in divergent views between the investor and issuer communities. The SEC has identified October 2023 as the target date for publishing the final rule.

SEC Enforcement Priorities in 2023

We can expect to see continued focus on enforcement by the SEC in 2023. The commission's enforcement program is likely to focus on high-priority issues such as crypto assets and ESG-related disclosures.

Crypto Assets

The SEC's oversight of the crypto asset industry was a significant topic of discussion in 2022 and is expected to remain so in 2023. Gensler maintains his stance that most crypto assets are securities and should be subject to existing SEC registration requirements. He has also stressed the importance of companies in the crypto asset space complying with all securities laws and regulations. The SEC has not yet included any crypto asset-focused rulemaking on its regulatory agenda and is instead taking a "regulation by enforcement" approach to crypto assets.

On May 3, 2022, reflecting the SEC's focus on crypto assets, the SEC announced that the Crypto Assets and Cyber Unit would nearly double its size to 50 dedicated positions, including trial counsel. The expanded unit would "focus on investigating securities law violations related to crypto asset offerings, exchanges, broker-dealers, and lending and staking products; decentralized finance (DeFi) platforms; nonfungible tokens (NFTs); and stablecoins." The SEC took several actions in 2022 relating to crypto assets, including against a crypto lending platform for allegedly offering unregistered securities and failing to register as an investment company and cases charging providers of digital assets with unregistered securities offerings.

In addition, on Dec. 8, 2022, the SEC issued a sample letter discussing recent developments in crypto-asset markets and urged companies to evaluate their disclosures about the impact that bankruptcies and financial distress have had or may have on their business and consider whether existing disclosures should be updated. High-profile bankruptcies in the crypto industry ensure that crypto-related enforcement in an effort to safeguard investors will remain a priority of the SEC throughout 2023.

Katayun I. Jaffari is chair of the corporate governance group and co-chair of the capital markets and securities and ESG groups at Cozen O'Connor. She counsels public and private companies in the areas of corporate governance and securities law and compliance, including capital-raising transactions and reporting requirements under SEC, NYSE and Nasdaq regulations. She can be reached at [email protected] or 215-665-4622.

John Crozier is an associate in the firm's corporate department and a member of the capital markets and securities practice group. He can be reached at [email protected] or 612-260-9077.