The Securities Exchange Commission (SEC) has withdrawn a controversial proposal to allow “natural asset companies” (NACs) to trade on the New York Stock Exchange (NYSE).
On Jan. 17, just a day ahead of the deadline to submit comments on the proposed rule, the SEC withdrew the rule. The rule was first published for a public comment period in early October of last year, which was then extended through mid-January.
“This is a resounding win for our states and our constituents, as we protect access to multiple legal, productive, and responsible uses of our lands and other natural resources,” Utah Attorney General Sean D. Reyes wrote in a news release. Reyes helped lead a group of 25 state attorneys general (AG) in providing comments against the measure.
The AGs argued the rule went against the governing Exchange Act and violated the major questions doctrine. Furthermore, they said the rule was part of an “interlocking scheme designed to facilitate another agency’s violation of the law,” in addition to not protecting investors and the public interest.
Reyes said creating NACs and listing them on the stock exchange was a new front in the effort to promote environmental, social and governance policies at the expense of economic growth.
Background
The SEC and NYSE proposed to list a new kind of investment on the stock exchange known as a NAC. The agency defined a NAC as a company whose primary purpose is to actively “manage, maintain, restore (as applicable), and grow the value of natural assets and their production of ecosystem services.”
NYSE said the intended purpose was to end the overconsumption of and underinvestment in nature, “which requires bringing natural assets into the mainstream.”
NACs were a concept created by the Intrinsic Exchange Group, founded by the Rockefeller Foundation. The group said on their LinkedIn page, “We believe that investment in nature via NACs can create financial value for natural asset owners and investors, environmental and social impact, and power a transition to a truly sustainable economy.”
NACs would be companies that held the rights to the ecological performance produced by nature or working areas, including mineral rights, water rights or air rights. Sovereign nations could also be subject to the control of NACs.
The proposed rule faced much opposition and scrutiny from landowners and agricultural producers alike, who equated the rule to a power grab by large corporations.
AG opposition
In their 16-page letter, the AGs noted the proposed rule was intended to serve as the funding mechanism behind the Bureau of Land Managment’s (BLM) “Conservation and Landscape Health” rule, which would allow BLM to grant conservation leases for public lands.
As the AGs pointed out: “Left unspoken in the BLM rule is where the money for these ‘conservation leases’ will come from. Such leases will not provide financial returns for leaseholders. To the contrary, their entire purpose is to lock up lands to prohibit productive economic uses thereof.”
They continued, “So where will the money come from? Or stated differently, who are the entities or organizations that will sink money into these unprofitable leases?”
The AGs explained this is where the NACs were to come in. While NACs were not intended to make money, they would be able to conduct “revenue-generating operations” if the revenue-generating was consistent with the NAC’s primary purpose and if the operation would “not cause any material adverse impact on the natural assets.”
“By authorizing the NYSE to list NACs on its exchange, the proposed rule provides a mechanism for companies whose purpose is not to make money, but instead to lock up land to prohibit productive economic uses thereof, to find investors and capital so they can obtain conservation leases and other ‘ecological performance rights,’” the AGs said.
Signatories included attorneys general from the following states: Alabama, Alaska, Arkansas, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming.
Additional comments
On Jan. 17, the date of the rule’s withdrawal, over 2,800 comments were submitted on the rule, with many ag industry groups sharing their opposition.
American Agri-Women wrote, “To create a system that monetizes our natural assets, including minerals, water, forests and air for the benefit of the elite few through an investment portfolio is a national security threat.”
The Independent Cattlemen of Wyoming also opposed the rule, writing, “We do not want our country’s public lands, waters and even air sold to private interests obliged to preclude the productive use of such resources to the betterment of our society and the strengthening of our economy.”
The environmental group World Wildlife Fund wrote in support of the rule: “We believe that a financial mechanism to define, measure, and disclose the value of natural capital is necessary to create incentives for the financial system to protect natural capital.”
The American Stewards of Liberty, a nonprofit concerned with protecting private property rights, was another organization against the rule. The group celebrated the rule withdrawal, but noted the fight is not yet over as “the White House is still proceeding with a strategy to monetize ‘natural processes,’ and ‘ecosystem services’ and add this to the federal balance sheet through ‘Natural Capital Accounts.’” — Anna Miller, WLJ managing editor





