Sustainable Finance Newsletter - More info on 'Natural Asset Companies' please

By Ross Kerber

Jan 3 (Reuters) - Happy 2024. My first order of business for the New Year is a notice from just before the holiday break. On Dec. 21 the U.S. Securities and Exchange Commission issued an order inviting more comments on what has become a controversial proposal to create "Natural Asset Companies," or NACs, for investors. NACs are business designed primarily to maximize ecological performance of natural assets rather than strictly for profit. As put forth by the New York Stock Exchange, the idea is to connect investors with conservation goals. But, as its order lays out, the SEC has many questions including about the companies' licensing and the accounting they would use.

One area the agency could also address is how their operations would relate to government land policies, a matter raised by a set of Republican governors.

You can read about the issue below. I've also included links to stories about a settlement Google has tentatively reached over consumer privacy concerns and a big guest headed for the Davos global economic conference later this month.

Feel free to connect with me on LinkedIn. Or, if you have a news tip, potential content, or general thoughts feel free to email me at ross.kerber@thomsonreuters.com

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SEC seeks more comments on "Natural Asset Companies" The top U.S. securities regulator wants more details about a proposal to create new companies to channel money to environmental goals, according to a Dec. 21 order. The extra time could allow critics and proponents alike to air out questions about the role the investments would play in the management and control of land.

In September the New York Stock Exchange asked the SEC to allow the listing of "Natural Asset Companies," or NACs.

Investors would use new financial accounting tools to value ecological benefits. NACs would "hold the rights to the ecological performance produced by natural or working areas, such as national reserves or largescale farmlands, and have the authority to manage the areas for conservation, restoration, or sustainable management," according to the order.

After an IPO, a NAC might earn money via ecotourism or regenerative farming, but could not conduct activities like mining that degrade ecosystems, the order states.

The concept has drawn fire from U.S. Republican politicians and local officials worried NACs would lock up public lands from development or diminish tax revenue, according to comment letters so far. The SEC's order asked for comments on areas like what legal arrangements the NACs could take on. The review could also explore how the companies would relate to current land policies, an issue at the heart of many of the critical comments. For instance on Oct. 25 the governors of four Western U.S. states wrote that "it is difficult to understand why the Departments of the Interior and Agriculture have not been involved with rolling out this rule, given its impact to public lands, national forests and other federal, state, local and tribal land uses."

Utah State Treasurer Marlo Oaks said in an interview that NACs could diminish the influence of agencies like the Bureau of Land Management, part of the Department of the Interior.

"Privatizing this sort of activity makes it difficult to have any accountability on what's happening," Oaks said.

The NYSE and the Department of the Interior declined to comment. The Department of Agriculture did not respond to messages.

The idea for NACs came from Intrinsic Exchange Group, created by former biotech executive Douglas Eger. He said critics should not worry about the displacement of land authority since NACs "can only do what's permitted under existing rules."

"The NAC cannot change the use of a piece of a land. Only the owners of that piece of land can control what it's used for," he said. Eger also said NACs can help fund preservation efforts, and that a number of local U.S. agencies and Latin American governments have expressed interested in what he termed a "free market" idea.

"This isn't imposing anything on a private or public landowners. Its strengthening property rights, not diminishing them," Eger said. Vinson & Elkins securities lawyer Ramey Layne said it is rare for federal departments to weigh in with the SEC. Judging by its questions, the SEC may be most skeptical of the arrangements between the NYSE and Eger's company, in which the NYSE holds a minority stake.

"The body lean is negative" on that aspect of the proposal, Layne said.

Company News Search giant Google agreed to settle a consumer privacy lawsuit that sought at least $5 billion. While settlement terms were not disclosed, lawyers said they expected to present a formal settlement for court approval by Feb. 24.

Microsoft finally can make up ground in the market for mobile software applications, my colleague Jennifer Saba writes, building on investments in games and ChapGPT owner OpenAI. But it will want to avoid regulatory scrutiny, 25 years after it was a defendant in a landmark U.S. antitrust case.

Two U.S. Senators have written to Tesla CEO Elon Musk, seeking swift recalls of any steering and suspension parts that pose a safety risk. Their letter cites a Dec. 20 Reuters investigation showing how the electric carmaker has blamed drivers for the frequent failure of parts it knew were defective.

On my radar Apple can keep selling its smartwatches after an appeals court paused an import ban on the devices in a patent battle with bad public-relations vibes for the device maker. A U.S. trade body must respond to Apple's motion for a longer-term pause by Jan. 10, and so must California-based Masimo, which holds medical monitoring patents that are in dispute.

The World Economic Forum's annual meeting in Davos, Switzerland is coming up Jan 15-19 and the guest list will include Chinese Premier Li Qiang, says our story here. His message will be that Beijing is open for business, but China stocks still face an uneven economic recovery and subdued business confidence, according to Reuters. (Reporting by Ross Kerber; Additional reporting by Kate Abnett and David Gregorio)