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. The limitations in 7(a)(2) were imposed in 2012, by which time (as detailed below and in Annex A), the Commission had repeatedly relied upon the language in Section 7(a)(1) to require disclosures of all kinds, including non-financial disclosures, environmental disclosures and climate-change related disclosures. If the person charged with reviewing an employee's report finds a conflict, he should impose a remedy immediately. As a result, the rule will minimize costs and maximize benefits of compliance. But it is also clear that companies are not doing so consistently, comparably, or reliably. As a result: As a result of these limits, climate advocates appropriately view the rule as incomplete, and from the point of view of environmental protection, the rule could not reasonably be viewed as complete or effective at addressing climate change. Financial Disclosure Reports include information about the source, type, amount, or value of the incomes of Members, officers, certain employees of the U.S. House of Representatives and related offices, and candidates for the U.S. House of Representatives. Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. So, my background is, my introduction alluded to it, is the corporate and financial market side and I was blissfully ignorant of and happy to ignore everything that Second, the 1933 Act makes clear that Congress expected and directed the Commission to go beyond content specified in the Act, and granted authority to go beyond what is necessary to include what the Commission concludes is appropriate for the protection of investors. John Coates has few regrets on his way out the AOC door Even as he steps down from 32 years in the top job, the knowledge and contacts of Australia's Olympic supremo will be tapped for years to. Are current liability protections for investors voting on or buying shares at the time of a de-SPAC sufficient if some SPAC sponsors or advisors are touting SPACs with vague assurances of lessened liability for disclosures? It is against this backdrop that I think about the regulation of ESG disclosures. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. This is exactly how the Commission has taken on similar issues in the past, as detailed in Annex A. John CoatesActing Director, Division of Corporation Finance. 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. At hearings on what became the 1933 Act, the Senate heard testimony advocating longer or shorter periods of time for financial statements, specific proposals for additions to or eliminations from the list of disclosure items, arguments about whether audits should be done by reference to industry peers, and how expensive audits would be. . 6, 2021). Volkswagen announced $180 billion of investments in electronic vehicles. Establishing a global framework, however, is complex and raises a number of considerations. 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. As a result, depending on current capital market pricing, the rule could increase climate-impacting activities. In the nature of corporate investment, investors in multinational US public companies bear climate-related financial risks and have opportunities to profit from their global activities. SPAC shareholders typically have a vote on the so-called de-SPAC transaction, and many investors who purchased securities in the first stage SPAC either sell on the secondary market or have their shares redeemed before or shortly after the de-SPAC. What about the Private Securities Litigation Reform Act? Voluntary, unassured disclosures are more likely to include greenwashing, impairing investors ability to assess and price risk, and undermining honest companies ability to communicate with investors and build confidence; some greenwashing rises to the level of fraud, while other disclosures or omissions may not rise to the level of actionable fraud with proof of scienter. If arguments of that kind could limit rulemaking authority, the Commission could never have adopted any disclosure rules. A comprehensive reporting regime would apply to all companies, worldwide, regardless of ownership, and would encompass impacts generally, rather than solely physical risks and transition risks to investors in US public companies. : John Dowling Coates 1950 57 - . EPA, for example, exempts from reporting emission sources below source-specific thresholds. Image: Getty. It is not a transformative surprising regulatory departure, raising such a major question as to justify interpretive methods other than those of a faithful agent of Congress. John Coates, the John F. Cogan, Jr., Professor of Law and Economics at Harvard Law School, has joined the American College of Governance Counsel as a Fellow. 5-min read. 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. 14, 2014) (setting forth special procedures required in mergers involving control shareholders, without which heightened entire fairness must be shown by interested fiduciaries); Olenik v. Lodzinski, 208 A.3d 704 (Del. Women, Influence & Power in Law UK Awards 2023, Legalweek Leaders in Tech Law Awards 2023, WORKERS COMPENSATION ATTORNEY - Hartford, CT, Offering an Opportunity of a Lifetime for Personal Injury Lawyers, What Does Your Business Agreement Really Mean? 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. Congress provided a safe harbor for forward-looking statements made by established, publicly traded, reporting companies. https://www.law.com/nationallawjournal/2021/03/25/harvard-laws-john-coates-now-at-sec-reveals-consulting-income-clients/. 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. Rec. About John Coates. How much standardization can be achieved across industries? The financial disclosure that John Coates filed also offered a rare public peek into the costs of corporate compliance monitors. Some may view these limits as creating incentives for public companies to go private, or for private companies to not go public. The result is a continuously adjusted, detailed system of disclosure specifications, reflecting the Commissions fact-finding and expertise. 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. US public companies (e.g., the S&P 500) derive 40% of their revenues on average from non-US operations, and many have larger shares of their activities located offshore. Many legal issues are open to reasonable debate. Coates, recently finished work on a follow-up to the 1982 film to celebrate its . A draft of what would become the 1933 Act in the Senate included disclosure items directly in the statute, and did not contain the equivalent language later adopted in Section 7, which directs the Commission to go beyond that list (which is separate from the Commissions general rulemaking authority in Section 19). It cannot fairly be argued that losing production or even permanent asset impairments due to weather damage are not financial risks for companies with property, plant and equipment in flood plains or otherwise exposed to climate-related weather events. Executive compensation is its own, complex and specialized area of management and finance, leading companies to hire expert advisors to develop compensation plans. Dynamically explore and compare data on law firms, companies, individual lawyers, and industry trends. 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. Earnings statements, analyst call scripts, investor presentations, and the regular flows of press releases, investor relations communications and other ways companies supplement disclosure requirements are commonly longer or more complex than anything required by the Commissions rules. Second, forward-looking information can of course be valuable. 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. Circuit concluded in 1979 that based on the record before it at that time, the Commission was not required to adopt environmental disclosure obligations beyond what it had already adopted, the Court also concluded that it was authorized to and could do so, if the Commission itself came to an expert judgment that doing so was in service of its statutory missions of protecting investors and promoting the public interest. Three points about this text are worth emphasizing. 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. Rather, it calls for specific disclosures that investors in US public companies need to evaluate and price climate-related financial risks and opportunities. 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. John Coates does not need much of an introduction. A process to create such standards is not likely to be simple, quick or easy. John Coates is the John F. Cogan Professor of Law and Economics at Harvard Law School, where he also serves as the Deputy Dean for Finance and Strategic Initiatives and Research Director of the Center on the Legal Profession. General Motors announced it plans to sell only electric passenger vehicles by 2035. John Coates had copped further backlash for his comments towards . 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. In simple terms, the PSLRA excludes from its safe harbor initial public offerings, and that phrase may include de-SPAC transactions. 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). Mr Coates told Channel 7's Sunrise he "overruled" Ms Palaszczuk after she initially said she would not be among the 1000 or so VIPs to attend the Opening Ceremony, which - like most of the . . 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. 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. [7] This, such observers assert, is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses. [12] Cede & Co. v. Technicolor Inc., 634 A.2d 345, 361 (Del. Specifically, for the largest companies, the proposed rule would require three types of specific disclosures: Of these, the first and third are inarguably about financial risks and opportunities related to climate change. He had been serving as the independent monitor for the U.S. Justice Department in the prosecution of Boston-based State Street Corp. In short, disclosure authority extends beyond what would constitute fraud at common law, and has long been used by the Commission to specify disclosure of what would not necessarily be material for that purpose. Australian Olympic Committee president John Coates received a $40,000 pay rise last year, part of $300,000 in extra remuneration for senior AOC figures. Congress also recognized that full and fair disclosure would enhance investor confidence. Efforts by critics to dismiss these votes ignore the fact that most shareholder proposals fail due to well-known collective action problems affecting public company governance. 3d 1041, 1049-50 (N.D. Cal. 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. 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. The resulting awareness of the need for detailed specification of disclosures led to the delegation reflected in the 1933 Act. 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. 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. (Sept. 30, 2020). For questions call 1-877-256-2472 or contact us at [emailprotected], Shearman and Hogan Lovells Call Off Merger Talks, Early Reports: 2023 Am Law 200 Financials, Beyond Excess Capacity, Pooled Services and Automation Expedite Staff Layoffs, Dozens of Law Firms Grew Their Equity Partner Tier, Even as Profits and Demand Plummeted. 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. Where and how can disclosures be aligned with information companies already use to make decisions. 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. 1 Twitter 2 Facebook 3RSS 4YouTube Copyright 2023 ALM Global, LLC. Those involved should be accountable to relevant constituencies, including investors and companies. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). 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. Annex A contains just a samplingmany more additions and refinements have been adopted in the decades since 1933. EPA has authority over private companies, while the Commissions proposed rule covers only public companies. That possibility further calls into question any sweeping claims about liability risk being more favorable for SPACs than for conventional IPOs. As noted in the Commissions 2010 climate guidance, A 2007 [GAO] report states that 88% of all property losses paid insurers between 1980 and 2005 were weather-related. Since 1980, the US alone has experienced 323 severe weather events causing more than $1 billion of damage each. But companies will not be limited by the rule itself in how they and their investors respond to climate change. Despite this clear authority, critics argue the Commission lacks authority to move forward with the proposal. For years, asbestos-related risks were invisible, and information about asbestos would likely have been called non-financial. Over time, those risks went from invisible to visible to extremely clear, and clearly financial. EPA is charged by Congress to have a concern for the environment, not for investors. Mar. 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. In Delaware, as under SEC Rule 405, control can be found to exist raising the corporate law standard in state court review of conflict of interest transactions where a shareholder owns less than 50% of the stock, but exercises control over the business affairs of the corporation. They believe climate risks are minimal for the company, or for the world, for whatever reason, if that is their honest belief. It also illustrates the pace of ESG developments. 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 'What Are We Fixing? Finally, it is beyond argument that the Clean Air Act nowhere mentions the Commission much less modifies its disclosure authority. 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 . 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 does not alter or amend applicable law and has no legal force or effect. 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. Join Facebook to connect with John Coates and others you may know. 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. Washington D.C., June 14, 2021 . Part of the difficulty is in the fact that ESG is at the same time very broad, touching every company in some manner, but also quite specific in that the ESG issues companies face can vary significantly based on their industry, geographic location and other factors. The question of whether the proposed disclosures would in fact be an all-in good idea, cost-justified, appropriately considering efficiency, competition and capital formation is not a legal question. As discussed in Point II, each attack is mistaken and misleading because the proposed rule is not the critics fictional new rule. Many ESG-related issues are similar to ones we have faced before. The Commissions authority to consider environmental risks was reinforced and made even more clear by another statute, which critics do not seem to have even noted, much less considered, as detailed below. In other words, public companies disclosures were expected to go beyond basic financial statements. 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. Growing Mineola firm with national practice seeks associate (with 3-6 years experience) to handle complex general liability matters.Competit CASH KRUGLER & FREDERICKS LLC is Celebrating Our 20th Anniversary & Newest Partners! 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. About 1,020 U.S. companies voluntarily disclosed their Scope 3 emissions last year.. Congress created the Commission as an expert agency with the capacity to address significant problems affecting the nations securities markets. The event, which was organized by the nonprofit consumer advocacy organization Public Citizen, also included speeches by former Harvard Law School [] Evidence regarding the clear and present financial materiality of transition risk is discussed below. Public Statement on ESG Disclosure On March 11, 2021, the SEC published a statement by John Coates, acting director of the SEC's Division of Corporation Finance, in connection with remarks given at the 33 rd Annual Tulane Corporate Law Institute (available here ). With all these changes, the appeal of understanding and developing law around economic substance over form may be greater than ever. The rule is also calibrated to companies, not the environment. In the National Environmental Policy Act (NEPA), Congress made environmental considerations part of the SECs substantive mission. That statutestill on the booksprovides (among other things): The Congress recognizes that each person should enjoy a healthful environment and that each person has a responsibility to contribute to the preservation and enhancement of the environment. 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. I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions. With this subscription you will receive unlimited access to high quality, online, on-demand premium content from well-respected faculty in the legal industry. It does not impose a carbon tax or create a cap-and-trade regime. In that section, companies are required to disclose a specified list of financial disclosure and documents set out in Schedule A, to obtain consents from any accountant, engineer, or appraiser or other professional identified in the disclosures, andin a separate sentenceto disclose such other information, and be accompanied by such other documents, as the Commission may by rules or regulations require as being necessary or appropriate for the protection of investors.. In sum, each attack succeeds only as applied to a fictional new rule. Asbestos-related disclosure is a great example. 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). Not long ago, the title of this statement would have needed to unpack ESG into Environmental, Social and Governance. [14] See generally, H.R. This statement does not alter or amend applicable law and has no legal force or effect. John Coates, Keeping Pace with ESG Disclosure Developments Affecting Investors, Public Companies and the Capital Markets, . John C. Coates is the John F. Cogan, Jr. On balance, research on the Act's net . 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. Where and how should disclosures be globally comparable? The legislative history includes statements that the safe harbor was meant for seasoned issuers with an established track-record.[16]. As a result, Congress, markets, analysts, and the SEC staff typically treat these introductions differently from other kinds of capital raising transactions. As the House Report accompanying the 1934 Act explained: The idea of a free and open public market is built upon the theory that competing judgments of buyers and sellers as to the fair price of a security brings about a situation where the market price reflects as nearly as possible a just price. John Coates Financial Services Professional at NYLIFE Securities LLC [5] For studies of SPACs, see, e.g., Michael Klausner, Michael Ohlrogge and Emily Ruan, A Sober Look at SPACs, Yale J. Reg. A consortium of public energy companies is raising $1 billion for emissions reductions technology. It is authorized by clear statutes, is consistent with settled understandings, and addresses disclosure topics covered by rules adopted long ago by the Commission and ratified by Congress. Dec. 21, 1995) (statement of Sen. Diane Feinstein, The provisions [of the PSLRA] are only available to companies with an established track record. and I understand the safe harbor does not apply to a new company, but only applies to seasoned issuers.). 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. Does that provide de-SPAC participants with protections in private litigation that are not available in a conventional IPO? The D.C. Circuits decision, moreover, was premised in part on a representation by the Commission that the Commission would continue to reevaluate the need for such [new disclosure] requirements from time to time. The climate disclosure rule now proposed by the Commission is precisely in keeping with that long-standing commitment by the Commission. Financial risks importantly include physical risks, such as those arising from severe weather events, such as floods, hurricanes, and wildfires. Financial Disclosures - Other White House Officials . It addresses global climate risks to public companies, and not all climate risks created by domestic activities of all companies, public and private. These investors included individuals and institutions. Any answer to that question should note the limits of the safe harbor in the PSLRA. Finally, a coordinated global disclosure system has great potential benefits, but achieving one will take careful attention to institutional design. First, I am not pro- or anti-SPAC. Recognition of the need for exercises of delegated disclosure authority can be found in other court decisions. Three of those exclusions are of note: those made in connection with an offering of securities by a blank check company, those made by a penny stock issuer, and those made in connection with an initial public offering. Coates' Canons NC Local Government Law. Claims that disclosure would incentivize companies only to reduce or mitigate climate change impacts are not well considered. The SEC is well equipped to lead and facilitate a discussion on when and how ESG risks and data must be disclosed, and how to create and maintain an effective ESG-disclosure system that would promote the disclosure of decision-useful, reliable and, where appropriate, globally comparable ESG information. 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. In contrast, proposals to give the Commission discretion to approve or disapprove of the soundness of stock offerings was rejected by Congressthe 1933 Act in the end embraced full and fair disclosure as the method to protect investors. It is not clear that claims about the application of securities law liability provisions to de-SPACs provide targets or anyone else with a reason to prefer SPACs over traditional IPOs. The claim that the proposed rules requirements are so unrelated to investor protection as to altogether fall outside the Commissions obligation to specify financial risk disclosures is without merit. On April 12, 2021, the Staff of the U.S. Securities and Exchange Commission (SEC), under the signature of Acting Director of the Division of Corporate Finance John Coates and Acting Chief Accountant Paul Munter, released the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies 5, 2021); Priya Cherian Huskins, Why More SPACs Could Lead to More Litigation (and How to Prepare), A.B.A. John Coates Acting Director, Division of Corporation Finance March 11, 2021 Statement Published in Connection with Remarks at the 33rd Annual Tulane Corporate Law Institute [1] Not long ago, the title of this statement would have needed to unpack "ESG" into Environmental, Social and Governance.
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