Companies may chooseas many do nowto go beyond what is required, to convince investors and others that (for example) their strategies are going to succeed. Robust public disclosure has been a hallmark of effective securities regulation since the 1930s, said SEC Chair Gary Gensler. As with the 1933 Act, this statutory language authorizes periodic reports and imposes no subject-matter restriction on those reports. 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. That is true for companies being acquired, as well as for companies going public. If useful for the protection of investors, disclosure was not limited to the four corners of, or even commentary on, financial statements. Even if the safe harbor clearly applies, its procedural and substantive provisions do not protect against false or misleading statements made with actual knowledge that the statement was false or misleading. By contrast, the focus of traditional environmental regulationincluding EPA reporting rulesis solely the reversethe impact of companies on climate change. 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. 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. Congress also created the Commission as an agency that could thoughtfully address problems too politically charged to be easily resolved on Capitol Hill. It is not a rule requiring or limiting opinions or controversial speech, and raises no First Amendment concerns. 1 The housing and financial crises of 2008 led to the Dodd-Frank Act, 2 which restructured the financial regulatory agencies, mandated more than 200 new rules, and required changes to many older rules. John Coates, named acting director of the SEC's Division of Corporation Finance on Feb. 1, made the remarks on Thursday during a conference on climate finance hosted by the Institute of. The Commissions proposed rule relies upon a traditional role for regulatory agenciesto find facts and use the facts so found to implement Congresss direction to require disclosures for a stated purposethe protection of investors. I am pleased to welcome Renee to the SEC and look forward to working with her., I am excited to join the Division of Corporation Finances team of experienced and dedicated public servants, said Jones. 12711-VCS, 2018 WL 1560293 (Del.Ch. If a given climate risk or opportunity is large for a company, then its investors need and would under the rule obtain information about that risk or opportunity, even if (when compared to the overall impact of all human activity on the environment) the risk or opportunity is not large enough to require reporting under some other regime (such as the EPAs greenhouse gas reporting regime). Again, this difference is in keeping with the Commissions focus on investors. The secondemissions datais widely used as measures of transition risk, that is, the risk that energy costs and policy responses by other lawmaking bodies (not the Commission) (some of which are already reflected in treaty commitments or other enacted policies of the US and other countries in which US public companies do business) will force companies to expend money to reduce their emissions or mitigate their impacts. Coates asked some of his former colleagues in London's City financial district to give him some time, and some spit. The disclosures would consist of facts, not opinions, and raise no First Amendment concern. [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]. Does that provide de-SPAC participants with protections in private litigation that are not available in a conventional IPO? If an officeholder has filed their annual financial disclosure statement, then a pdf of the filing will be posted. As discussed in Point II, each attack is mistaken and misleading because the proposed rule is not the critics fictional new rule. 2003) (holding that statements encompassing forward-looking and present or historical components were not entitled to safe harbor protection where the [c]omplaint alleges that the Defendants had no basis for their optimistic statements and already knew (allegedly) that certain risks had become reality and notably where plaintiffs adequately pled scienter). He had been serving as the independent monitor for the U.S.. Statements about current valuation or operations have been viewed as outside the safe harbor by some courts, even if they are derived from or linked to forward-looking projections or statements. Again, this limit may leave some climate advocates disappointed. I thank Michael Conley for his service as Acting General Counsel, and I look forward to continuing to work with Michael and John on critical matters before the Commission., I am honored to continue to help advance the SECs mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, said Coates. These decisions underscore the need for the Commission to have broad rulemaking authority to protect investors on the disclosure side of the firebreak between federal securities law and state corporate law. Investments are being held back in the absence of that information. Finally, it is beyond argument that the Clean Air Act nowhere mentions the Commission much less modifies its disclosure authority. 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. By seeking to address those considerations adequately and transparently, the SEC can and should play a leading role in the development of a baseline global framework that each jurisdiction can build upon to address its individual needs. The National Law Journal Elite Trial Lawyers recognizes U.S.-based law firms performing exemplary work on behalf of plaintiffs. Implied repeals occur only when two statutes are in irreconcilable conflict or when a later act covers the whole subject of the earlier one and is clearly intended as a substitute. In either case, the intention of the legislature to repeal must be clear and manifest. Nothing about the Clean Air Act is in irreconcilable conflict with the securities laws, and as just discussed, the Clean Air Act and subsequent EPA rulemaking address and could address only a part of what the proposed rule would address, even focusing narrowly on greenhouse gas emissions disclosure alone. Those limits were even more acute in 1933 (or even in 1996 when the Commission was first statutorily tasked with considering efficiency in some of its rulemakings). The legislative history includes statements that the safe harbor was meant for seasoned issuers with an established track-record.[16]. 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. Congress did not direct the Commission to protect investors through disclosure only when it is politically non-controversial to do so. Congress created the Commission as an expert agency with the capacity to address significant problems affecting the nations securities markets. But for purposes of assessing the legal issues raised by the proposed rule, this limit underscores how the rule is investor-oriented and tailored, consistent with the securities laws. Rather, they are faced with numerous, conflicting and frequently redundant requests for different information about the same topics. It does not cap emissions, an approach that would be typical of environmental regulation generally. 2017-0421-KSJM, 2019 WL 2564093 (Del.Ch. Our regime contains comply or explain requirements (e.g., if a company does not have an audit committee financial expert, it can explain why),[3] where the ability to explain makes the requirement less than rigidly mandatory and for some companies potentially more informative. This statement does not alter or amend applicable law and has no legal force or effect. On March 11, Acting Director of the SEC Division of Corporation Finance, John Coates, published a statement in connection with remarks he delivered at the 33rd Annual Tulane Corporate Law Institute, noting how important ESG issues have become to investors, public companies and capital markets, while at the same time acknowledging that The rest of this post details Points I and II. 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. These investors included individuals and institutions. See also Rodriguez v. Gigamon Inc., 325 F. Supp. An IPO is where the protections of the federal securities laws are typically most needed to overcome the information asymmetries between a new investment opportunity and investors in the newly public company. John Coates is a senior research fellow at the University of Cambridge. Finally, even if the major questions doctrine were thought relevant here, the contents of the proposal areas discussed at length above and in Annex Adirectly in keeping with the way that the Commission has functioned since inception. 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. The industry-leading media platform offering competitive intelligence to prepare for today and anticipate opportunities for future success. The commentary distinguishes between the full disclosure purpose of the 1933 Act from its separate, anti-fraud purpose. The legal authorities cited by the Commission in the proposing release are the conventional authorities for disclosure rules over nearly a century. This post is based on his recent comment letter. John C. Coates is the Acting Director of the SECs Division of Corporation Finance. 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.. Rather, I hope to highlight some of the issues that in my view policymakers should consider as the debate over ESG disclosures continues. But Congress has never cut back on the Commissions general obligation to specify the contents of its disclosure regime, such as by editing or reversing prior disclosure specifications. As a result, it would not intrude into topics or company-investor relationships that are markedly different from other authorized and long-standing rules. View the profiles of people named John Coates. I think it is only about 30 pages, while the British Companies Act is over 300 pages. US Steel abandoned plans to expand its Mon Valley Works in Pennsylvania, because it had expanded our understanding of steelmakings future in a rapidly decarbonizing world, resulting in $56 million write-off in 2021. President Thomas Bach. John Jenkins, SPACs: Is the PSLRA Safe Harbor Driving the Boom?, Deal Lawyers.com (Feb. 3, 2021); Bruce A. Ericson, Ari M. Berman and Stephen B. Amdur, The SPAC Explosion: Beware the Litigation and Enforcement Risk, Harv. 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. Under federal securities law, the touchstones for all securities offerings remain what they have long been. Nor did Congress trim back the Commissions authority whenafter the Commission published climate-related disclosure guidance in February 2010Congress adopted the Dodd-Frank Act four months later, with numerous additions (not subtractions) to the Commissions disclosure authorities. 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. 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. As discussed in Point I, critics of the rule cannot plausibly attack premise one. Starting with the costs, critics of ESG disclosure requirements often point to the costs associated with preparing the disclosures. Posted by John C. Coates (Harvard Law School), on, Harvard Law School Forum on Corporate Governance, on Proposal on Climate-Related Disclosures Falls Within the SECs Authority, The Illusory Promise of Stakeholder Governance, by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum, Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy A Reply to Professor Rock, Stakeholder Capitalism in the Time of COVID, Corporate Purpose and Corporate Competition, Congress created and in plain words authorized the Commission to protect investors by specifying public company disclosures of information about financial risks and. John Coates Named Acting Director of the Division of Corporation Finance FOR IMMEDIATE RELEASE 2021-19 Washington D.C., Feb. 1, 2021 The Securities and Exchange Commission announced today that John Coates will serve as Acting Director of the agency's Division of Corporation Finance. Although Congress gave the Commission power to conduct temporary testing programs to evaluate the effectiveness of disclosures in the Dodd-Frank Act, in neither that statute nor the original 1933 and 1934 Acts did it suggest the Commission use polling or surveys to establish the content of disclosures appropriate to protect investors. 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. Just as artificial manipulation tends to upset the true function of an open market, so the hiding and secreting of important information obstructs the operation of the markets as indices of real valueThe disclosure of information materially important to investors may not instantaneously be reflected in market value, but despite the intricacies of securities values truth does find relatively quick acceptance on the market. The case for the Commissions authority to adopt the proposed rule is a simple, two-premise syllogism: Hence the rule is authorized. 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. 6LinkedIn 8 Email Updates. 1 Twitter 2 Facebook 3RSS 4YouTube Even if some may find resistance to the rule (or new regulation generally) to be appealing from a policy standpoint, doing that here has no basis whatsoever in the statutes text.. This statement creates no new or additional obligations for any person. The result is a continuously adjusted, detailed system of disclosure specifications, reflecting the Commissions fact-finding and expertise. To view this content, please continue to their sites. But to develop and apply a disclosure rule of the kind proposed here does not require the same level of climate expertise as held by EPA (or, for climate changes impact on weather, the National Oceanic and Atmospheric Administration), and those agencies lack the expertise in finance, accounting and investment that is also necessary for any investor-oriented disclosure rule that addresses climate-related financial risk. Volkswagen announced $180 billion of investments in electronic vehicles. 6LinkedIn 8 Email Updates, What a SPAC Believer Thinks of SPAC Mania. Congress designed the safe harbor generally to permit and even encourage reporting companies to disclose information about future plans and prospects. Rec. Duke Energy is investing $52 billion in transitioning to lower carbon resources. The fact-finding for this rule, and the financial and accounting expertise on which it is based, is in keeping with the long tradition in which the Commission and its staff have applied expert knowledge about general risk/return, accrual and related concepts to an array of different source of risk and potential liability. [8] In re Netsmart Technologies, Inc., Shareholder Litig., 924 A.2d 171 (Del. 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. If Congress had intended to displace Commission disclosure authority regarding environmental matters (including climate-related financial disclosures) when it gave EPA authority to require disclosure in 1970, it seems surprising (to put it mildly) that Congress did not respond after the Commission adopted environmental disclosure rules in the 1970s. To be clear, the Commission has also routinely added required disclosures that do affect the financial statements, too. They of course help sell the deal, but they can also be a key component for boards and other participants in negotiating and understanding the economics indeed, the fairness of the transaction. Disclosure means: "To . It has never been EPAs job. (Jan. 14, 2021). In the Clean Air Act amendments of 1970, Congress gave EPA authority to require disclosures relating to the environment. E.g., In re Tesla Motors, Inc. 3 of 1970, nowhere mentions the Securities and Exchange Commission. Statement (PDF) . This demonstrates that the broader direction was consciously added during the legislative process. With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. With Such Low Win Rates, Should Law Firms Respond to So Many RFPs? 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. It may be time to revisit these issues. On balance, research on the Act's net . [8] Participants and their advisors are used and expect to prepare and disclose projections in acquisitions, including de-SPACs. One study worth highlighting, now published in a leading finance journal, finds that climate disclosures are already actively if imperfectly priced in the capital markets, effects confirmed in other published articles. Coates received his Bachelor of Arts with highest distinction from the University of Virginia and his law degree from New York University Law School. If the SPAC fails to find and acquire a target within a period of two years, the promote is forfeited and the SPAC liquidates. He chairs the faculty committee on executive education and teaches contracts, corporations, corporate governance and financial regulations. That climate risks overall have been overstated by climate activists. Open in Who Shared Wrong byline? John M Coates Mark Gurnell Zoltan Sarnyai Little is known about the role of the endocrine system in financial decision-making. Securities Act Rule 419 (which predated passage of the PSLRA) limits its definition of blank check company to one that issues penny stock. Most SPACs, however, avoid meeting the definition of penny stock issuer and are therefore neither a blank check company nor a penny stock issuer as those terms are defined. John Coates is the co-CEO of U.K. company Bet365, one of the world's largest online gambling businesses. 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). That possibility further calls into question any sweeping claims about liability risk being more favorable for SPACs than for conventional IPOs. Congressional ratification has been repeated and affirmativenot mere inaction. As detailed in Annex B to this post, not only has the Commission repeatedly specified more than the minima in the 1933 Act itself, it has repeatedly had its augmented disclosure rules acknowledged, accepted and ratified by Congress, through multiple amendments to its organic statutes. 30, 2021). [4] SPACs What You Need To Know, Investor.gov (Dec. 10, 2020). 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. 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). More specifically, any material misstatement in or omission from an effective Securities Act registration statement as part of a de-SPAC business combination is subject to Securities Act Section 11.
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