U.S.: Fifth Circuit Vacates Nasdaq Board Diversity Rules

On December 11, 2024, the U.S. Court of Appeals for the Fifth Circuit vacated three Nasdaq rules related to the board diversity of companies listed on the securities exchange.

The Nasdaq rules required corporations listed on the exchange to disclose the number of people who identify as women, LGBTQ+ persons or underrepresented minorities on their boards. Corporations were also required to retain at least one woman and one person identifying as LGBTQ+ or an underrepresented minority, or else to publicly disclose why they did not do so.

On October 18, 2023, a panel of three Democrat-appointed Fifth Circuit judges unanimously upheld the Securities and Exchange Commission’s (“SEC”) approval of the rules. However, following this rehearing by the en banc Fifth Circuit, nine Republican-appointed judges found that the diversity rules did not have a sufficient “connection to the ails Congress designed the [Securities Exchange Act] to eradicate,” such as “speculation, manipulation, and fraud,” and ordered the SEC’s approval of the rules vacated. Eight Democrat-appointed judges dissented, arguing that the SEC’s approval of the rules falls squarely within the Commission’s statutory authority to “remove impediments to and perfect the mechanism of a free and open market and a national market system.” 

The SEC is currently considering whether to appeal the ruling to the U.S. Supreme Court. Nasdaq, which had previously intervened in the matter, has indicated it will not appeal the verdict despite disagreeing with the Fifth Circuit’s decision.

For further details, see our Debevoise Debrief.

Link:

Opinion and Dissent

U.S.: Government Sanctions Eight Foreign Entities for Human Rights Violations

On December 10, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) added eight entities to its list of foreign individuals, companies and organizations deemed a national security concern for the United States (the “Entity List”), under the Export Control Reform Act of 2018 and its implementing regulations, the Export Administration Regulations.

BIS added the entities, operating in China, Myanmar and Russia, to the Entity List, having found that they enabled human rights violations in their respective countries. One entity, for example, was found to have developed facial recognition and high surveillance technologies used to target peaceful protestors and minority groups, while another supplied military groups with materials to carry out attacks on the civilian population.

Parties on the Entity List are subject to certain export restrictions and licensing requirements. 

Link:

Bureau of Industry and Security


Hong Kong: Government to Fully Adopt ISSB Sustainability Standards by 2028

On December 10, 2024, the Hong Kong government announced a comprehensive roadmap to adopt sustainability reporting standards aligned with the International Financial Reporting Standards’ Sustainability Standards (the “ISSB Standards”). The initiative will extend to all large “publicly accountable entities” (“PAEs”), namely listed entities and financial institutions carrying “a significant weight in the jurisdiction.”

The Hong Kong Institute of Certified Public Accountants is currently finalizing the Hong Kong Sustainability Disclosure Standards (the “Hong Kong Standards”) “on a full alignment basis” with the ISSB Standards, with the final version expected before the end of 2024. The Hong Kong Standards will be effective from August 1, 2025. As a next step, the Hong Kong Exchanges and Clearing Limited plans to consult the market in 2027 on making the Hong Kong Standards mandatory for listed PAEs. The ultimate goal is to make the Hong Kong Standards applicable to all large PAEs by no later than 2028.

In parallel, entities listed on the Hong Kong Stock Exchange will be required to comply with a separate set of disclosure requirements modelled on the ISSB Standards’ IFRS S2 climate-related disclosures (referred to as the “New Climate Requirements”), which will be phased in gradually:

• for financial years beginning on or after January 1, 2025, Hong Kong Stock Exchange Main Board issuers will be required to make disclosures on a “comply or explain” basis; and

• for financial years beginning on or after January 1, 2026, Hang Seng Composite LargeCap Index issuers will be required to make disclosures on a mandatory basis.

For more details on the New Climate Requirements, see our Debevoise In Depth.

Links:

Press Release

Roadmap


UK: Committee Recommends That Government Adopt ISSB Sustainability Standards

On December 5, 2024, the United Kingdom Sustainability Disclosure Technical Advisory Committee (the “TAC”) published its draft recommendations that the government adopt the ISSB’s general sustainability disclosure standard (“IFRS S1”) and the climate disclosure standard (“IFRS S2”) with minor amendments. 

The Department for Business and Trade (“DBT”) set up the TAC in 2023 to consider the ISSB Standards and provide recommendations regarding their use in the United Kingdom. Following deliberations, the TAC endorsed the ISSB Standards, finding that they would be “conducive to the long-term public good in the UK.” The TAC also proposed minor amendments, including that the government (i) remove the transition relief in IFRS S1 that allows companies to delay reporting in the first year, and (ii) extend the “climate-first” reporting relief, which allows companies to report only on climate-related risks and opportunities, to two years (from the ISSB’s recommended one-year period). 

The TAC is now finalizing their recommendations, which are expected to be published in a report to the DBT by December 20, 2024.

Link:
TAC Recommendations

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