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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. Investors and owners commonly view forward-looking information as decision-useful and relevant. 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. Starting with the costs, critics of ESG disclosure requirements often point to the costs associated with preparing the disclosures. Biography. Climate-affecting companies owned by individuals, governments, families, or private equity funds would not be directly affected. 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 12711-VCS, 2018 WL 1560293 (Del.Ch. Equally clear is that any material misstatement or omission in connection with a proxy solicitation is subject to liability under Exchange Act Section 14(a) and Rule 14a-9, under which courts and the Commission have generally applied a negligence standard. The release cites a number of studies to this effect. It does not embody a general policy to address climate change, or engage the range of social and economic issues that climate change raises. 2, 2021). SEC Focuses on Potential Updates to U.S. Climate Change Disclosure The employee's supervisor, with his ethics official, should decide on the remedy. Instead of the resulting input showing the idea would be a bad one, or not reasonably designed to protect investors, the request generated substantial evidence that climate-related disclosures would be valued by investors. 5-min read. 6LinkedIn 8 Email Updates, What a SPAC Believer Thinks of SPAC Mania. Information should be cost-effective and reliable, and not materially misleading, in every securities transaction. These reports are filed with the Clerk of the House as required by Title I of the Ethics . 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). View the profiles of people named John Coates. A SPAC is a shell company with no operations. 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. Mar. John Coates is a senior research fellow in neuroscience and finance at the University of Cambridge. 6LinkedIn 8 Email Updates. ESG problems are global problems that need global solutions for our global markets. This heightened scrutiny for a companys first introduction to the public market applies in other contexts as well such as a companys first registration of a class of securities under the Securities Exchange Act of 1934 or an A/B exchange offer. With Such Low Win Rates, Should Law Firms Respond to So Many RFPs? Congress also created the Commission as an agency that could thoughtfully address problems too politically charged to be easily resolved on Capitol Hill. Often these requirements have been specific and prescriptive in nature. Executive compensation is its own, complex and specialized area of management and finance, leading companies to hire expert advisors to develop compensation plans. Mar. [5] For studies of SPACs, see, e.g., Michael Klausner, Michael Ohlrogge and Emily Ruan, A Sober Look at SPACs, Yale J. Reg. Companies face higher costs in responding to investor demand for ESG information because there is no consensus ESG disclosure system. Surveys of institutional investors published in peer-reviewed financial journals confirm this evidence. 30, 2021). License our industry-leading legal content to extend your thought leadership and build your brand. He had been serving as the independent monitor for the U.S.. Myriam Robin is a Rear Window columnist based in the Financial Review's Melbourne . This list contains the names for all officeholders. Moreover, is it appropriate that the choice of how to go public may determine or be determined by liability rules? Rep. No. 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. But we do have a provision that permits the Commission to set up rules and regulations which will have the effect of law. Shareholder Litig. 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? 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. 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. L. Sch. Donilon - 278.pdf Robert Downing - 278.pdf Travis Dredd - 278.pdf Anita Dunn - 278.pdf Stacy Eichner - 278.pdf John Elias . As discussed in Point I, critics of the rule cannot plausibly attack premise one. He chairs the faculty committee on executive education and teaches contracts, corporations, corporate governance and financial regulations. But critics claim that EPA authority repealed the Commissions authority is even more basically addressed by noting the significant differences in the two agencies organic statutes as applied to climate-related financial risk. 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. Rather, I hope to highlight some of the issues that in my view policymakers should consider as the debate over ESG disclosures continues. The 1933 Act does not limit additional disclosures to those that are related or similar to the items in Schedule A, or material, or financial, despite the fact that Congress frequently used those very qualifiers elsewhere in the statute. The ways investors may use the information are not predetermined by the rule, nor would the rule itself limit how companies speak about whether (for example) climate risks are currently being overestimated or producing excessive disinvestment. First, the 1933 Act itself required disclosure not only of specified financial items, but also qualitative, open-ended information, such as the general character of the companys business, compensation, and material contracts, and reinforced its breadth by referring not only to opinions of accountants and appraisers but also engineers and other professionals, such as lawyers oras under the present proposalexperts on greenhouse gas accounting. 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. It is true that the subject matter of the financial risks and opportunities raised by climate change are complex, and climate experts have specialized knowledge about climate science. 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. If arguments of that kind could limit rulemaking authority, the Commission could never have adopted any disclosure rules. Again, this limit may leave some climate advocates disappointed. It would be unhelpful for multiple standards to apply to the same risks faced by the same companies that happen to raise capital or operate in multiple markets. With this subscription you will receive unlimited access to high quality, online, on-demand premium content from well-respected faculty in the legal industry. 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. 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. 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. 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. Without such confidence, Congress astutely observed: Easy liquidity of the resources in which wealth is invested is a danger rather than a prop to the stability of [the market] system. As a result, Congress, markets, analysts, and the SEC staff typically treat these introductions differently from other kinds of capital raising transactions. Detailed case studies of six rules - (1) disclosure rules under Sarbanes-Oxley Section 404, (2) the SEC's mutual fund governance reforms, (3) Basel III's heightened capital requirements for banks, (4) the Volcker Rule, (5) the SEC's cross-border swap proposals and (6) the FSA's mortgage reforms - finds that precise, reliable, quantified CBA 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. 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. As discussed in Point II, the proposed rule requires disclosures about financial risks and opportunities, so even if there were an explicit limit on the Commissions authority that disclosures under Section 7 be financial in nature, or related to the financial statements, or to the elements in the statute, the proposed rule would still be authorized. Contrary to some critics, letters from individuals also supported climate-related disclosures and were cited several times in the proposing release. 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. John C. Coates and R. Glenn Hubbard, Competition in the . . Not long ago, the title of this statement would have needed to unpack ESG into Environmental, Social and Governance. 28, 2018) (refusing to dismiss claim that Musk controlled Tesla despite owning only 22% of the voting power due to actual domination and control). [13] See, e.g., In re Quality Systems, Inc. Securities Litigation, 865 F.3d 1130, 1142, (9th Cir. Nor does the proposal purport to be authorized by a newly discovered power in the securities lawsthe power is disclosure, as it has been for nearly a century. Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. Financial Reports. 1 Twitter 2 Facebook 3RSS 4YouTube He served as a Department of Justice-appointed independent monitor for a large, systemically important financial institution and as an independent consultant to the SEC in one of the first Fair Fund distributions. A consortium of public energy companies is raising $1 billion for emissions reductions technology. [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 ESG Disclosures - A Continued Discussion | LawCast.com Economic analysis and expert fact-finding and assessments may inform choices about how detailed and what the details should be, and the Commission needs to follow its own economic analysis guidance in arriving at its conclusions, as well as comply with administrative law. He had been serving as the independent monitor for the U.S. Justice Department in the prosecution of Boston-based State Street Corp. 2021 Financial Disclosure Statements. 3 The sweep of regulatory change has reignited criticism for failure to base the changes . At the time, companies were thought by some to be reluctant to provide forward-looking information at least in part due to the prevalence of so-called strike suits which, irrespective of the merits of the claim, were usually less costly to settle than to fight in court. 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. Our Team Account subscription service is for legal teams of four or more attorneys. But Coates will have his own financial . In addressing this research, it is insufficient for critics to gesture generically at the fact that correlation is not necessarily causation, or that no single such study can definitively prove a causal effect of climate on financial returns. If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday. 2019-0100-KSJM, 2019 WL 1313408 (Del.Ch. That ESG no longer needs to be explained illustrates how important these issues have become to todays investors, public companies and capital markets. 'What Are We Fixing? 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). 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. Another finds that climate risks are reflected (but imperfectly) in out-of-the-money put option prices. Yet no one has ever successfully argued that the Commission should not develop, adapt or apply disclosure rules to banks, mining companies, asset-backed issuers, airlines or defense contractors, despite the specialized knowledge that a full understanding of those companies would require, and despite the fact that the Commission does not have full-time staff who are themselves experts of the same kind that other regulators may have, or which companies hire to provide them with advice about such topics. As with the 1933 Act, this statutory language authorizes periodic reports and imposes no subject-matter restriction on those reports. Existing rules already cover material climate risks is the first point she makes. Both options are priced the same. Those authorities are general in nature, not limited to specific topics. [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. Striking down regulations adopted pursuant to clear and limited delegated authority would turn the doctrines purpose against itself, prevent Congress from assigning traditional fact-finding and implementation roles to agencies, turn courts into unelected mini-legislatures, and subvert rather than reinforce the separation of powers. Introduction. 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. If there are risks to the use of cost-effective, complete, and reliable forward-looking information in any setting, those risks should be carefully evaluated in light of the goals of the federal securities laws. Not a Bloomberg Law Subscriber?Subscribe Now. Instead, as summarized by the D.C. Statement (PDF) . Despite all of this, it may still be thought that the PSLRA offers something for SPACs not available to conventional IPOs. 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. They point to a footnote in a 2016 Concept release to support this claim. New climate envoy John Kerry sold off energy holdings to avoid conflict Volkswagen announced $180 billion of investments in electronic vehicles. 3 of 1970, nowhere mentions the Securities and Exchange Commission. 2021; 2020; 2019; 2018; 2017; 2016; 2015; 2014; 2013; But nothing in the 1933 Act or the 1934 Act imposes limits on the Commissions authority to refine the mode, detail, format, method, or specificity of required disclosures. These investors included individuals and institutions. The text, the ordinary meaning of its key words (that is, other and information), and their context (the title and relevant headings of the Commissions organic statutes), as analyzed above, are clear as to the Commissions ability to require the proposed disclosures for the protection of investors. The industry-leading media platform offering competitive intelligence to prepare for today and anticipate opportunities for future success. In 2004 he returned to Cambridge to research the biology of More about John Coates John Coates, Former Wall Street Trader, Studies Neuroscience Behind Before joining the faculty at Harvard, he was a partner at Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and financial institutions. Although the D.C. Your article was successfully shared with the contacts you provided. Despite this clear authority, critics argue the Commission lacks authority to move forward with the proposal. But beyond academic research, hardest for any neutral observer to challenge as evidence of the financial risks related to climateand the reasonableness of climate-related financial disclosures to protect investorscomes from public companies themselves. 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 The rule is also calibrated to companies, not the environment. The event, which was organized by the nonprofit consumer advocacy organization Public Citizen, also included speeches by former Harvard Law School [] The legislative history includes statements that the safe harbor was meant for seasoned issuers with an established track-record.[16]. John Coates - Keynote Speaker | London Speaker Bureau The only limit on companies ability to speak about climate is a long-standing limitnot created by the proposed rulethat they not lie or deceptively omit material information in doing so. 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. 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). First, and most directly, all involved in promoting, advising, processing, and investing in SPACs should understand the limits on any alleged liability difference between SPACs and conventional IPOs. Copyright 2023 ALM Global, LLC. Clear statement canons play no role when statutes speak clearly. Still another study finds that mutual fund managers are misestimating climate risks based on current, inconsistent and unreliable disclosures. 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. Coates, recently finished work on a follow-up to the 1982 film to celebrate its . [10] See infra note 12. Our existing disclosure regime, however, is already more nuanced than that, and there is no reason an ESG disclosure system would need to be less nuanced. For example: Instead, the proposed rule would increase the climate-related information provided by public companies to investors. John C. Coates - Harvard Law School The same could be said of most existing disclosure requirements. 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. The resulting awareness of the need for detailed specification of disclosures led to the delegation reflected in the 1933 Act. If useful for the protection of investors, disclosure was not limited to the four corners of, or even commentary on, financial statements. John C. Coates | Professional and Lifelong Learning [17] See Division of Corporation Finance, Disclosure Guidance: Topic No. [1],[2] Shareholder advocates as well as business journalists and legal and banking practitioners, and even SPAC enthusiasts themselves[3] are sounding alarms about the surge. He also served on the SECs Investor Advisory Committee, for which he chaired the Investor-as-Owner Subcommittee. Disclosure means: "To . 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. The subject of a disclosure is new, when the nature of business and investment is dynamic. "John is widely recognized as an expert on corporate governance, corporate transactions, and compliance and disclosure processes," Lee said in a statement. Site Map, Advertise| The information, including financial statements, relevant to evaluating the investment changes dramatically in the de-SPAC because the private target has operations unlike the SPAC; and initial SPAC investors commonly have the right to and do sell or have their shares redeemed. Each attorney is granted unlimited access to high quality, on-demand premium content from well-respected faculty in the legal industry along with administrative access to easily manage CLE for the entire team. 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.