At the same time, the risk of misuse of such information should also be carefully evaluated in light of the economic realities of the capital formation process. But companies will not be limited by the rule itself in how they and their investors respond to climate change. Rather, I hope to highlight some of the issues that in my view policymakers should consider as the debate over ESG disclosures continues. It may be time to revisit these issues. With Such Low Win Rates, Should Law Firms Respond to So Many RFPs? (Jan. 14, 2021). It would have a relatively modest impact on the economy as a whole, and basically levels up disclosure requirements to disclosures already made by the majority of large companies. But it remains true that IPOs are understood as a distinct and challenging moment for disclosure. But we do have a provision that permits the Commission to set up rules and regulations which will have the effect of law. When you do that you have a better chance of being more fully valued.)); cf. The rule as proposed would provide a framework for companies to inform investors about all of the effectsprofitable and loss-causingthat climate risks may have on a company. These understandings help explain Congresss decision to direct the Commission to specify additional disclosures under the 1934 Act, to adapt the statute to emerging financial risks and opportunities and maintain efficient capital market pricing and investor confidence over time. Anyone who argues that the Commission should leave the job of climate disclosure to the EPA has to have an answer to how the EPA could possibly protect US investors with information about the large amount of activities of US public companies that are located beyond the reach of the EPAs jurisdiction. This demonstrates that the broader direction was consciously added during the legislative process. It is true that many companies are spending money to do thisfurther evidence of the importance of the information. Courts have rejected attempts to deny application of the securities laws and the philosophy of full disclosure in cases involving the sale of a whole company, if effected through the sale of securities, or where conduct may violate both corporate law and the Commissions disclosure laws. We can and should continue to adapt existing rules and standards to the realities of climate risk, for example, and the fact that investors increasingly are asking for ESG information to help them make informed investment and voting decisions. Congress provided a safe harbor for forward-looking statements made by established, publicly traded, reporting companies. About 1,020 U.S. companies voluntarily disclosed their Scope 3 emissions last year.. Because, finally, the disclosures are financial and do not extend to the large part of the economy owned by private companies, they would not constitute general climate change policy, such as a carbon tax or emissions cap-and-trade scheme. A topic of a disclosure is political, or controversial, or is not uncontroversially for investor protection, any of which would only invite interest groups to politicize a topic in the hopes of later arguing it should be off limits for the Commission to address. It does not say, for example, annual financial reports, but simply annual reports. As with the 1933 Act, the authority is not unboundedit is limited by the phrase appropriate for the proper protection of investors, with the gloss that the rules also be appropriate to insure fair dealing in the security, a reflection of the fact that the 1934 Act was designed to govern securities that were already trading on securities markets. John Coates failed to apologise for his comments towards Annastacia Palaszczuk. The creation of an entire new agency (the Commission) to implement and enforce the laws. It does not even address new topics for purposes of disclosure, but instead (as discussed above) changes the specificity and mode of disclosure about long-regulated topics. Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. Harvard Law School Professor John C. Coates spoke at a briefing on Oct. 30 in Washington, D.C., to urge the Securities and Exchange Commission to require publicly traded companies to disclose their political spending. I think it is only about 30 pages, while the British Companies Act is over 300 pages. For example, it does not call for disclosure of a companys climate-related impacts on employees or customers or communities, except to the extent those impacts result in overall financial or business risks or opportunities (which do impact investors). If we do not treat the de-SPAC transaction as the real IPO, our attention may be focused on the wrong place, and potentially problematic forward-looking information may be disseminated without appropriate safeguards. Of course, as Commissioner Peirce does not do much to dispute, and as the proposing release makes clear, existing disclosures are spotty, inconsistent, incomplete and unverified under existing Commission rules. To be clear, the Commission has also routinely added required disclosures that do affect the financial statements, too. The president's financial disclosure reports are extensively reviewed for potential or actual conflicts of interest and compliance with applicable laws and policies by the Chief Compliance and Ethics Officer of the Bank, and the Chairman of the Bank's board of directors. Coates has served as the SECs Acting Director of the Division of Corporation Finance since February 2021. This post is based on his recent comment letter. Only at that time did EPA take the position its 1970 authority over air pollution gave it authority to require climate-related disclosures. If an officeholder has filed their annual financial disclosure statement, then a pdf of the filing will be posted. The financial disclosure that John Coates filed also offered a rare public peek into the costs of corporate compliance monitors. From a legal authority point of view, company- and investor-based calibration is in keeping with the Commission focusing on investors, rather than on environmental priorities. A company in possession of multiple sets of projections that are based on reasonable assumptions, reflecting different scenarios of how the companys future may unfold, would be on shaky ground if it only disclosed favorable projections and omitted disclosure of equally reliable but unfavorable projections, regardless of the liability framework later used by courts to assess the disclosures. The reason is simple: the public knows nothing about this private company. Another finds that climate risks are reflected (but imperfectly) in out-of-the-money put option prices. Prior to joining the SEC, John was the John F. Cogan Professor of Law and Economics at Harvard University, where he also served as Vice Dean for Finance and Strategic Initiatives. They believe climate risks are minimal for the company, or for the world, for whatever reason, if that is their honest belief. First, I am not pro- or anti-SPAC. Again, some may view this company-calibrated focus as distracting, because the rule is not limited (for example) to industries that have the greatest environmental impact, such as oil and gas, or energy. It proceeds in two stages. Rather, it calls for specific disclosures that investors in US public companies need to evaluate and price climate-related financial risks and opportunities. The statute refers to the Commissions rules defining blank check company and to the Exchange Acts definition of penny stock.[15], By contrast, however, the PSLRAs exclusion for initial public offering does not refer to any definition of initial public offering. No definition can be found in the PSLRA, nor (for purposes of the PSLRA) in any SEC rule. Congress expected the Commission to use expert judgment to update disclosure over time, as new or newly identified risks emerge. The proposed rule is reasonably designed to address these inconsistencies, give investors comparable information, and make it more reliable. The rule builds on decades-long efforts by public companiessuch as 3M, Abbott Laboratories, Amazon, Apple, Chevron, Fujitsu, IBM, Johnson Controls, Michelin, P&G, Verizon and Walmartto develop practical, decision-useful, consistent, comparable and verifiable ways to report about climate risks and opportunities. Fund v. KCG Holdings, Inc., No. If that risk drives choices about what information to present and how, it should not in my view be different in the de-SPAC process without clear and compelling reasons for and limits and conditions on any such difference. [2] See Ben Scent, Wall Streets $100 Billion SPAC Boom Upends the League Table, Bloomberg Law (Apr. In truth, as this Point will detail, the actual proposed rule best fits with what investors need and want, and not what climate activists seeking to reduce climate impacts of business would seek, or even a rule they might write to elicit reporting about those impacts. Join National Law Journal now! Letter to the Stakeholders of the Olympic Movement - Olympic News 2 years ago | By John Coates | Olympics.com She received an undergraduate degree from Princeton University and a J.D. An extended comment on the 1933 Act published in the Michigan Law Review in March 1934 echoes these points, summarizing the law as having two purposes: (1) that there shall be filed with the Federal Trade Commission a full, accurate and complete statement of all pertinent facts concerning issues of the securities and (2) that instruments of transportation or communication in interstate commerce and the mails shall not be used directly or indirectly to effectuate fraudulent sales. "He has spent the last three decades deeply engaged with our capital markets as a scholar, practitioner, and member of the SEC's Investor Advisory Committee. 2018) (CFO's statement about corporation's large deferred service, healthy product backlog, and consistent quarterly linearity, which was a statement made with another statement as to expected earnings for an upcoming quarter, were non-forward-looking statements and were not protected by the PSLRA's safe-harbor; statement included facts regarding the present state of the corporation, not assumptions); NECA-IBEW Health & Welfare Fund v. Pitney Bowes Inc., No. The Constitution, and Congress, have given the Commissionand not the courtsauthority to make those judgments. Coates was angry because he believed Wylie was behind moves to unseat him at the then upcoming AOC election - an allegation Wylie denied. Her leadership will be invaluable as the Division facilitates disclosure under our current rules and undertakes rule modernization to meet the challenges of today. We will also need to be open to and supportive of innovation in both institutions and policies on the content, format and process for developing ESG disclosures. Finally, companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. The institutions included both passive index funds and actively managed funds, as well as pension funds and other kinds of institutions. Instead, basic principles of statutory interpretation support the Commissions authority to adopt the proposed rule. Public companies are already subject to more regulation, however, and if the requirements of the Sarbanes-Oxley Act did not drive a wave of going private transactions (and they did not), the marginal additions to disclosure required by this rule is highly unlikely to do so. They will go unresolved by this proposed rule. Critiques on legal grounds fall far short of what would be needed for a court to overturn the rule. An effective ESG disclosure system does not imply a rigid and soon-to-be outdated set of limited disclosures. In this way, SPACs offer private companies an alternative pathway to go public and obtain a stock exchange listing, a broader shareholder base, status as a public company with Exchange Act registered securities, and a liquid market for its shares. All Rights Reserved. The resulting awareness of the need for detailed specification of disclosures led to the delegation reflected in the 1933 Act. The focus of those amendments, however, was the creation of national air quality standardswhat we generally call pollutionand the enforcement of those standards on a set schedule. Third, the 1933 Act includes a specific limit to this authority, that it be for the protection of investorsbut no further qualifier. Bloomberg reports that, according to Coates, the new disclosure requirements will focus on three topics: diversity, equity and inclusion; climate change; and human capital management. E.g., Jeff Montgomery, SPAC Investor Sues in Chancery Over MultiPlans Stock Drop, Law360 (Mar. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargainby Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forumhere); Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy A Reply to Professor Rock by Lucian A. Bebchuk, Alma Cohen, and Charles C. Y. Wang (discussed on the Forum here); Stakeholder Capitalism in the Time of COVID, by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Corporate Purpose and Corporate Competition by Mark J. Roe (discussed on the Forumhere). 2d 613, 629 (S.D.N.Y. Despite all of this, it may still be thought that the PSLRA offers something for SPACs not available to conventional IPOs. Not surprisingly, disclosure about these risks did not initially show up in SEC filings, but there too they went from invisible to increasingly disclosed. The caption to Section 7Information required in registration statementcontains no qualifiers on information. The authorizing language in Section 7(a)(1) is limited by Section 7(a)(2), but only for a designated class of emerging growth companies, and not as to content. To the extent that those who disfavor consideration of legislative history truly give primacy to legislative text and structure, there is no plausible basis on which to argue the Commission lacks authority to adopt the proposed rule. 12 January, 2022 By John Coates John Coates, interim chief executive of Local Authority Recycling Advisory Committee (LARAC), looks at the development of the sector in 2022 This area is reserved. To make their case, they distort the proposed rule beyond any fair reading, into a new, fictional rule that addresses environmental concerns rather than investor concerns. EPA only has authority over US emission sources. To do so would turn the doctrines purpose against itself, turn courts into unelected mini-legislatures, and subvert rather than reinforce the separation of powers. It also cut back on liability of disclosure. Investments are being held back in the absence of that information. But as some critics do ignore the plain language of the statute, it should be emphasized that they find no more support for the notion that the Commission lacks authority in the legislative history, or in generations of legislative, executive, and judicial understanding of the statutes meaning. Coates asked some of his former colleagues in London's City financial district to give him some time, and some spit. Sixty percent of the Fortune 500 have announced climate targets, typically stated with reference to emissions data, including 17% with net-zero targets, yet 72% of investors lack confidence companies are serious about these targets. With all these changes, the appeal of understanding and developing law around economic substance over form may be greater than ever. License our industry-leading legal content to extend your thought leadership and build your brand. In only two months, Ive come to rely upon Johns deep expertise and judgment, traits that are essential in the role of General Counsel, said Chair Gensler. It is the first time that public investors see the business and financial information about a company. Companies either do or do not have property, plant and equipment in flood plains. The case for the Commissions authority to adopt the proposed rule is a simple, two-premise syllogism: Hence the rule is authorized. Because it is an investor-focused disclosure rule, and in no plausible way advances a general policy on climate, it raises no new major question of that kind, that might theoretically justify a departure from standard methods of statutory interpretation. If a company would benefit from climate-mitigation policies adopted by other agencies, that information would be no less useful to investors than information about transition risk. The Commission has commonly limited requirements to material and related items, but that is not because of a legal limit on its authority, but as a subsidiary choice of how to implement Congresss policy judgment to require full and fair disclosure, based on its experience and expertise. Most companies now includeand sometimes are required to include industry- or firm-specific key performance indicators in their Commission filings, which require industry- or firm-specialized knowledge to understand and evaluate. He has testified before Congress and provided consulting services to the U.S. Department of Justice, the U.S. Department of Treasury, the New York Stock Exchange, and participants in financial markets, including hedge funds, investment banks, and private equity funds. John CoatesActing Director, Division of Corporation Finance. Site Map, Advertise| Those important topics remain for Congress, and the proposal on its own does not raise new major questions warranting a deviation from standard statutory interpretation. . . (IOC) (AOC) 2020IOC ICAS . In the last 25 years, companies have been able to raise increasingly large sums privately, and even provide some liquidity to shareholders while remaining private. 2008) (identifying a breach of fiduciary duties for failure to disclose material facts to stockholders before stockholder vote on merger); City of Fort Myers Gen. Emp.s Pension Fund v. Haley, 235 A.3d 702 (Del. 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. Delaware corporate law, in particular, conventionally applies both a duty of candor and fiduciary duties more strictly in conflict of interest settings, absent special procedural steps, which themselves may be a source of liability risk. It does not suggest any limit other than what is in the statutes themselves, including NEPA. [8] Participants and their advisors are used and expect to prepare and disclose projections in acquisitions, including de-SPACs. Dynamically explore and compare data on law firms, companies, individual lawyers, and industry trends. Image: Getty. It would not affect how mutual funds and other collective investment vehicles market themselves, even as to the climate risks in their portfoliosthat topic is within the Commissions authority, but it is not addressed in this proposed rule. These reports are filed with the Clerk of the House as required by Title I of the Ethics . Traditionally, and as it has been used by the Supreme Court to date, the major questions doctrine is one of many canons that courtsas faithful agents of the Constitution and the Congressuse to interpret statutes, not rewrite them. Surveys of institutional investors published in peer-reviewed financial journals confirm this evidence. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). This statement does not alter or amend applicable law and has no legal force or effect. The event, which was organized by the nonprofit consumer advocacy organization Public Citizen, also included speeches by former Harvard Law School [] To be sure, projections are woven into the fabric of business combinations. Importantly, supporting letters came from many public companies (e.g., Adobe; Bank of America; BNP Paribas; Chevron; Dow Credit Suisse; Etsy; Microsoft; Paypal; Salesforce.com). Funding needs to be reliable and adequate, both now and over a reasonable time period into the future, and should not detract from other essential elements of the system for public company disclosures. At the end of 2018, the US SIF Foundation identified $11.6 trillion in US-domiciled sustainable, responsible, and impact investment strategy assets, of which $8.6 trillion were managed on behalf of institutional investors and $3.0 trillion were managed on behalf of individual investors. These decisions show that the Commissions delegated power is limited, and that the statutory limits (protection of investors and markets) are intelligible and have bite. Yet the Commission nonetheless has long protected investors in bank holding companies by requiring detailed disclosure beyond the financial statement for such companies, as noted in Annex A. 5 . But Coates will have his own financial . The Commissions authority is plain in its organic statutes, legislative history, in long-standing precedent, in both court decisions and its own rules, and repeatedly accepted by Congress through amendments of the statutory bases for those rules. [2] Item 407(c)(2)(vi) of Regulation S-K. (Disclosure required of whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director and if the nominating committee (or board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how the policy is implemented, as well as how the nominating committee (or the board) assess the effectiveness of its policy.), STAY CONNECTED The long-recognized fact the statutes were remedial laws following the Crash of 29. Should the SEC reconsider the concept of underwriter in these new transactional paths? First, while we should be mindful of the costs of new ESG disclosures, we must at the same time acknowledge the costs from the absence of a consensus ESG-focused disclosure system. Investors need to know about sponsors and their financial arrangements, the procedural protections of the SPAC structure, and what kinds of returns the SPAC is likely to generate for investors absent a de-SPAC transaction or for those who choose to exit before the de-SPAC is completed. Instead, as summarized by the D.C. John Coates, the vice-president of the International Olympic Committee and outgoing president of the Australian National Olympic Committee, said "to a large extent" that Sydney was awarded the. 1 Twitter 2 Facebook 3RSS 4YouTube Would it have resulted in more timely, clear and useful information for investors about asbestos manufacturers, sellers and insurance companies? Second, forward-looking information can of course be valuable. Far from calling for lengthy or complex sustainability reports of the kind most S&P 500 companies already publish, these requirements could be met with relatively succinct disclosure for companies with minimal climate-related risks. The proposed rule does not itself restrict or limit environmentally harmful activity. In other words, the delegation to the Commission was deliberate, was specifically intended to apply to required disclosures, and was sensible, reflecting an anticipation that the Congress itself could not reasonably work out in detail the kinds of choices necessary to develop and keep up to date an appropriate disclosure regime. If a major shift in owners is in fact occurring in most or all SPACs as they progress through a de-SPAC, it is the de-SPAC as much as any other element of the process on which we should focus the full panoply of federal securities law protections including those that apply to traditional IPOs. The Commission is charged with protecting investors generally, and even if a subset of investors believe that they do not (or do) want or need particular information, their views should not necessarily control the Commission in the exercise of its expert judgment.