Claims that disclosure would incentivize companies only to reduce or mitigate climate change impacts are not well considered. These include (for example) asbestos and other sources of tort liability, contract and other kinds of commercial litigation, and cybersecurity and other kinds of technology risks. 1 Twitter 2 Facebook 3RSS 4YouTube The rule proposes disclosures of information about financial risks and opportunities that are reasonably understood as appropriate for the protection of investors. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. 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. Large asset managers are already having to comply with similar requirements in Europe (regardless of where their portfolio investments are located). However, many legal questions have clear answers. To be effective, he said, new SEC rules "must produce results that are useful, consistent, and comparable." If those emissions targets are serious, they will matter to investors by leading to major changes in corporate strategy and investment policy, and in the financial risks and returns companies will generate for investors. Again, this difference is in keeping with the Commissions focus on investors. After completing his Ph.D., Coates traded derivatives for Goldman Sachs and Merrill Lynch, and then ran a trading desk for Deutsche Bank in New York. They argue that because the fictional new rule requires disclosure of environmental impact, the Commissions authority was silently removed when Congress authorized the Environmental Protection Agency (EPA) to address that impact. Nothing at stake in this proposed rule justifies such judicial lawmaking. Key points: Coates was a key figure in Brisbane's 1992 Summer Olympics bid, which lost out to Barcelona The IOC has designated Brisbane as the preferred candidate city to host the 2032 Olympics Coates says he is confident Brisbane can keep costs down if it does host the Games What Joseph L. Rini Knows, Attorney Rachel Y. Marshall A Pillar of Strength for the Community, SpotDraft Raises $26 Million in Series A Funding for AI-Powered Legal Software. If the public wants comprehensive disclosures of climate impact that extend beyond impacts on investors, legal authorities other than those used here may need to be usedperhaps by other agencies or Congress itself. Most large public companies report much climate information, albeit in a non-comparable and inconsistent way. Although the content and nature of the disclosure have long been covered by Commission rules, the proposed rules add specificity, detail, and consistency (and require assurance) in ways that existing rules do not. John Coates had copped further backlash for his comments towards . EPA only has authority over US emission sources. 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. 'Horrendous enemy, terrific friend': What drives AOC head John Coates? As with the 1933 Act, this statutory language authorizes periodic reports and imposes no subject-matter restriction on those reports. 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. 11, 2019) (refusing to apply deferential review where special conflict of interest procedures were not applied ab initio); FrontFour Capital Group LLC v. Taube, No. 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 Congress authorizes and directs that, to the fullest extent possible: (1) the policies, regulations, and public laws of the United States shall be interpreted and administered in accordance with the policies set forth in this chapter, and (2) all agencies of the Federal Government shall make available to States, counties, municipalities, institutions, and individuals, advice and information useful in restoring, maintaining, and enhancing the quality of the environment. As noted above, the JOBS Act, for example, limited the full requirements in Section 7 for emerging growth companies, but left the Commissions overall authority to require disclosure for other public companies intact. SEC is scrutinizing SPAC projections, seeks clearer disclosures - CNBC SEC's Coates says agency should help create ESG disclosure system But forward-looking information can also be untested, speculative, misleading or even fraudulent, as reflected in the limitations on the PSLRAs liability protections, even when the safe harbor applies. This statement creates no new or additional obligations for any person. Over the past six months, the U.S. securities markets have seen an unprecedented surge in the use and popularity of Special Purpose Acquisition Companies (or SPACs). The requirements have included disclosures about risks and uncertainties generally, and of information both qualitative (business segments; competitive conditions; management, environmental and other litigation; and contracts) and quantitative (mineral reserve estimates, loan performance statistics, coverage ratios, material transactions, and compensation). 2017-0421-KSJM, 2019 WL 2564093 (Del.Ch. When the only dissenting Commissioners primary basis for dissenting is that the Commission has already addressed the topic in prior rulemakings upheld by courts, courts have no basis for using one discretionary canon to apply personal policy judgments on a topic within the Commissions conventional and textually clear statutory authority. Law.com Compass delivers you the full scope of information, from the rankings of the Am Law 200 and NLJ 500 to intricate details and comparisons of firms financials, staffing, clients, news and events. Companies objectively do or do not have strategies that reflect transition risk or physical risks of climate change. [16] Debate in Senate to Override President's Veto, 141 Cong. Would it have resulted in more timely, clear and useful information for investors about asbestos manufacturers, sellers and insurance companies? 6LinkedIn 8 Email Updates. SEC Regulation of ESG Disclosures - The Harvard Law School Forum on 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. These cases also show that protection of investors includes disclosure not only about securities, but also companies that issue them, and risks to investors their activities create. P.C. About Us| Your article was successfully shared with the contacts you provided. LexisNexis and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information. A movement is afoot to impose cost-benefit analysis (CBA) on financial regulation (CBA/FR). Anyone who sees a role for law to require disclosure of comprehensive information about the sources of greenhouse gas emissions will not be satisfied by this rule. In the first stage, it registers the offer and sale of redeemable securities for cash through a conventional underwriting, sells them primarily to hedge funds and other institutions, and places the proceeds in a trust for a future acquisition of a private operating company. It means thoughtful engagement by trusted specialists seeking consensus among investors and companies about useful, reliable and comparable disclosures under standards flexible enough to remain relevant. Don't miss the crucial news and insights you need to make informed legal decisions. The Commission has neither approved nor disapproved its content. But it remains true that IPOs are understood as a distinct and challenging moment for disclosure. Evidence that such targets are at least partly serious can be easily compiled from public sources, some cited in the proposing release: A list of massivefar beyond materialbets being won or lost with public investor capital driven by climate risk could be significantly longer without being exhaustive. Companies in the defense industry report in their Commission-required filings using technical, specialized industry jargon on government procurement, budgets, military strategy, products and market dynamics about which staff at the Department of Defense have far more detailed knowledge than the Commission. Governance needs to ensure the independence and expertise of any individuals involved in the setting of ESG disclosure standards, and allow for a rigorous, inclusive and transparent process for developing standards. John Coates, acting director of the SEC's Division of Corporation Finance, similarly stated in a recent speech that the "SEC should help lead the creation of an effective ESG disclosure system so companies can provide investors with information they need in a cost effective manner," noting in particular the task of adapting existing rules and They will continue to be vigilant about SPAC and private target disclosure so that the public can make informed investment and voting decisions about these transactions. Our existing system contains some mandatory ESG disclosure requirements (e.g., disclosure of how a companys board considers diversity in identifying director nominees). Washington D.C., June 14, 2021 . 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. It does not impose a carbon tax or create a cap-and-trade regime. (Jan. 14, 2021). Although the D.C. Instead, as summarized by the D.C. John Coates - Penguin Random House Speakers Bureau Biography. As noted above, subsequent to the initial passage of the securities laws, but after the passage of the initial Clean Air Act and in the same year EPA was created (1970), Congress directed the Commission (along with all other agencies of the federal government) to consider environmental protection in its rulemakings. During my tenure as Acting Director of Corporation Finance, I experienced firsthand the unwavering commitment of the SEC staff, and I look forward to serving in a new role as the Commissions General Counsel., STAY CONNECTED No one at the time of NRDC v. SEC in 1979 argued that the creation of EPA in 1970 had overridden NEPA, or limited the 1933 or 1934 Acts, as the Commission itself would have done (because, recall, it was being sued in the 1970s for not doing enough to require environmental disclosure). The Commission has always required information about a U.S. public companys consolidated subsidiarieswherever located. Myriam Robin is a Rear Window columnist based in the Financial Review's Melbourne . Appropriate liability should attach to whatever claims it is making, or others are making on its behalf. S190602 (daily ed. Critiques on legal grounds fall far short of what would be needed for a court to overturn the rule. Regulation -- the Investment Company Act is one of the most successful disclosure laws . The Helpful Hand Guiding Brisbane's Olympic Victory. Over time, the Commission has used its authorities under the 1933 Act and the 1934 Act to specify the details of required disclosures about a range of matters, both in and outside corporate financial statements, as illustrated in detail in Annex A to this post. Financial Reports. In the Clean Air Act amendments of 1970, Congress gave EPA authority to require disclosures relating to the environment. Access to additional free ALM publications, 1 free article* across the ALM subscription network every 30 days, Exclusive discounts on ALM events and publications. John Coates Profiles | Facebook [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 actual rules fit with the goals of environmental activists is poor, and its fit with the goals of investor advocates is tight. Finally, critics sometimes argue that investors do not need protection of mandatory climate-related financial disclosures because companies are already voluntarily making such information available. Multiple paths to dispersed ownership now exist, including not only SPACs, but also direct listings and dual-track IPO/M&A processes. Nonetheless, whatever one thinks about the incentives for companies to go public or private, that question only bears on the efficiency or capital-formation impacts of the proposed rule, and how they compare to its advancement of investor protection, not on its legality. 2, 2021). In simple terms, the PSLRA excludes from its safe harbor initial public offerings, and that phrase may include de-SPAC transactions. 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. 1993) (To rebut the [business judgment] rule [presumption], a shareholder plaintiff assumes the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary dutygood faith, loyalty or due care.); In re Transkaryotic Therapies, Inc., 954 A.2d 346, 357-63 (Del.Ch. In sum, the text and context of the 1933 Act itself gives the Commission broad authority to require disclosures about financial risks and opportunities beyond the inevitably incomplete initial lists of information and documents included in the statute. 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. As John Coates steps down, two things make him 'very proud' [9] Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.[10]. Law.com Compass includes access to our exclusive industry reports, combining the unmatched expertise of our analyst team with ALMs deep bench of proprietary information to provide insights that cant be found anywhere else. Moreover, the landscape is changing rapidly so issues that yesterday were only peripheral today are taking on greater importance. Companies either do or do not have property, plant and equipment in flood plains. In the budget rider, Congress made no mention of any other agency, nor can the text of that law be reasonably interpreted to displace any agencys authority. It is also not a rule the EPA or any other regulatory agency has adopted or could legally adopt. The proposed disclosures, including emission data, will help investors assess and price these risks and opportunities. With Such Low Win Rates, Should Law Firms Respond to So Many RFPs? The idea that the SEC can go out and do more research on these issues, however, was dismissed by former SEC general counsel John Coates, now a professor at Harvard Law School, who wrote in his. My remarks here do not attempt to answer those or the multitude of other questions about ESG disclosures. 2021 Financial Disclosure Statements. June 21, 2019) (refusing to dismiss case challenging merger approved by shareholders on ground that disclosure prior to vote was inadequate); Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. The fact that those areas are themselves specialized, with their own experts with far more knowledge than exists at the Commission, does not mean the Commission cannot adequately apply its disclosure regime to those risks. Specifically, the Commission relied upon wide-ranging and deep engagement over more than a year, gathering input from public comments, in public discussions, and meetings with and through letters from companies, investors, trade groups, climate specialists, EPA and other experts regarding corporate environmental and climate reporting, to craft its proposed rule, just as it has done in other areas. Articles by John Coates's Profile | Medium, The New York Times, Daily In its overall framework, the proposed rule builds on the Task Force on Climate Related Financial Disclosure (TCFD), whose leadership includes the CFO of Unilever, the General Manager of Mitsubishi, and the former CAO of HSBC, and whose work has been supported by Bank of America, Barrick Gold, Dupont, Hewlett Packard, and Pepsico, among scores of other companies. Some but far from all practitioners and commentators have claimed that an advantage of SPACs over traditional IPOs is lesser securities law liability exposure for targets and the public company itself. Three points about this text are worth emphasizing. It does not impose regulatory control over millions of small greenhouse gas sources. Even as a disclosure rule, it only calls for a subset of the climate-related disclosures from a subset of companies that affect climate change. Congressional ratification has been repeated and affirmativenot mere inaction. The industry-leading media platform offering competitive intelligence to prepare for today and anticipate opportunities for future success. Coates was re-elected president at the AOC's annual general meeting in Sydney on Saturday morning, seeing off the challenge of hockey gold medallist Danni Roche by winning the vote count 58-35. The Commission does, but has no investor-protection authority over climate impacts more generally, such as those on communities or habitats, beyond impacts that are important to investors decision-making. 2017) ([W]here defendants make mixed statements containing non-forward-looking statements as well as forward-looking statements, the non-forward-looking statements are not protected by the safe harbor of the PSLRA.). Finally, a coordinated global disclosure system has great potential benefits, but achieving one will take careful attention to institutional design. In their second stage, SPACs complete a business combination transaction, in which the SPAC, the target (i.e., the private company to be acquired), or a new shell holdco issues equity to target owners, and sometimes to other investors. Companies either do or do not engage in activities that result in the emission of greenhouse gases. The legal authorities cited by the Commission in the proposing release are the conventional authorities for disclosure rules over nearly a century. He is a former Research Fellow in Neuroscience and Finance at the University of Cambridge, and previously traded derivatives for Goldman Sachs and ran a trading desk for Deutsche Bank. Those choices I do not here address. Here, we survey research on steroid hormones and their cognitive. 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. In the context of legislation that does not implicate fundamental rights or a suspect class, faithful enforcement of the Constitution requires a court to hew as closely as possible to the norm of faithful agency by enforcing the text unadulterated by judicial tweaking.. That climate risks overall have been overstated by climate activists. 6, 2021). ESG issues are global issues. As a result, it would not intrude into topics or company-investor relationships that are markedly different from other authorized and long-standing rules. Professor of Law and Economics at Harvard Law School. "John is widely recognized as an expert on corporate governance, corporate transactions, and compliance and disclosure processes," Lee said in a statement. PDF Statement of John Coates, Harvard Law School JOHN COATES, HARVARD - FEC When you do that you have a better chance of being more fully valued.)); cf. VIA EMAIL: coatesjo@sec.gov John Coates, Acting Director Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street NE Washington, DC 20549 April 14, 2021 Re: Guidance Needed to Issuers on the Presentation of Shareholder Proposals Dear Director Coates: I am writing to urge the Division of Corporation Finance to issue [17] But it also is clear that investors at the time of the initial SPAC filing cannot understand all aspects of the long-term value proposition of the offering, precisely because a SPAC does not have operations or a business plan beyond a search for a target. 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. John C. Coates is the Acting Director of the SECs Division of Corporation Finance. The Ferocious, Well-Heeled - Institutional Investor PDF Testimony of Professor John C - United States Senate Committee on