An increasing number of US public companies are making major capital expenditures to pursue climate-related strategies, raising financial risks to pursue opportunities for their investors. 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. As background, noted in the proposing release, the Commission published a request for comment a year earlieron March 15, 2021so that its current process has already gone beyond the requirements of administrative law. Reporting requirements regarding emissions of all kinds were a subsidiary authority given to EPA to supplement the more direct, substantive power to regulate the amount and type of emissions. We can and should continue to adapt existing rules and standards to the realities of climate risk, for example, and the fact that investors increasingly are asking for ESG information to help them make informed investment and voting decisions. De-SPAC transactions also may give rise to liability under state law. At an athletics meet in Melbourne early this year, he ran into John Wylie, the investment banker who chairs the Australian Sports Commission. Congress also recognized that full and fair disclosure would enhance investor confidence. To be sure, an IPO is generally understood to be the initial offering of a companys securities to the public, and the SPAC shell company initially offers redeemable equity securities to the public when it first registers to raise funds in order to look for and later acquire a target. 2020) (breach of duty of candor due to failure to disclose conflict of interest in merger); Chester County Emp.s Ret. SEC is scrutinizing SPAC projections, seeks clearer disclosures - CNBC Based on a review of current sustainability reports that cover the same topics as would be required by the proposed rule, companies with material climate risks could create compliant disclosure that would take up a relatively small share of a typical annual report. Donilon - 278.pdf Robert Downing - 278.pdf Travis Dredd - 278.pdf Anita Dunn - 278.pdf Stacy Eichner - 278.pdf John Elias . That legal questionwhether the proposed disclosures could reasonably be viewed in good faith by the Commission as beneficial for investor protectionis easy to answer in the affirmative, based on the record before the Commission when it voted to propose them. Aside from the elementary fact that the Commission has no authority to edit Congressionally adopted statutes, the concept release actually says precisely the opposite. Statement (PDF) . Financial Disclosure - United States Department of Justice He steps down from the AOC on Saturday, less than 12 months after helping Australia win its third Games bid, this time in Brisbane in 2032, but retains his exalted IOC status. Because the rule is an investor-oriented disclosure rule, it is within the Commissions expertise. It is true that many companies are spending money to do thisfurther evidence of the importance of the information. To make their case, they distort the proposed rule beyond any fair reading, into a new, fictional rule that addresses environmental concerns rather than investor concerns. 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. Neither EPA nor any other federal agency has authority to elicit the full range of information about financial risks that would be provided to investors under this rule. It is against this backdrop that I think about the regulation of ESG disclosures. SPACs, IPOs and Liability Risk under the Securities Laws Site Map, Advertise| 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. ': ABA Rejects Proposal to Make Law School Admissions Tests Optional, 'A Very Virginia Spin': Businesses Must Establish Internal Appeals Process Under New State Consumer Data Privacy Laws, Read the Document: DOJ Urges Court to Deny Trump Immunity in Jan. 6 Appeal, Paul Clement Says Tribalism at Law Schools Hurts Judicial Legitimacy, Law.com Editors and Analysts Offer Top Trends to Watch for 2023. And thank you very much for the invitation to be in a place I don't usually go, right? 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. Introduction. For example, they point to the broader ESG movement and claim the fictional new rule requires disclosure about ESG, or about environmental impacts not relevant to investors. Starting with the costs, critics of ESG disclosure requirements often point to the costs associated with preparing the disclosures. John Coates is the co-CEO of U.K. company Bet365, one of the world's largest online gambling businesses. Articles by John Coates's Profile | Medium, The New York Times, Daily Statement of John Coates, Harvard Law School . 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. Not surprisingly, disclosure about these risks did not initially show up in SEC filings, but there too they went from invisible to increasingly disclosed. During his prior service on the SECs Investor Advisory Committee, he chaired the Investor-as-Owner Subcommittee. But Coates will have his own financial . John Coates, Former Wall Street Trader, Studies Neuroscience Behind PDF Testimony of Professor John C - United States Senate Committee on Not long ago, the title of this statement would have needed to unpack ESG into Environmental, Social and Governance. The case for the Commissions authority to adopt the proposed rule is a simple, two-premise syllogism: Hence the rule is authorized. 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. Nothing at stake in this proposed rule justifies such judicial lawmaking. Terms of Service. The Biden administrations new acting head of a key component of the U.S. Securities and Exchange Commission reported earning more than $2.5 million in law school income and consulting fees paid by financial firms and major U.S. companies, according to a newly released financial statement. Authority for disclosure under the 1934 Act addressed more than the need for protection of the initial investor acquiring securities. 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 . Funding needs to be reliable and adequate, both now and over a reasonable time period into the future, and should not detract from other essential elements of the system for public company disclosures. Because the items listed in the statutes themselves could not reasonably be understood to cover all pertinent facts, the final language in the statute also reflected an expectation that Commission regulations would be needed to augment the statute itself. 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. Mar. 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. But for investors in that company, they reasonably could be, because the transition risks (in the form of higher energy costs or potential need for capital expenditures to mitigate their impacts) could be large for that company, depending on its size, capital, liquidity and financial resources. Existing rules already cover material climate risks is the first point she makes. Open in Who Shared Wrong byline? This statement does not alter or amend applicable law and has no legal force or effect. Consistent with the long tradition of disclosure requirements sketched above and in Annex A, the proposed rule specifies disclosure of climate-related financial risks to and opportunities for public companies. 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. Tokyo 2020: John Coates response to Annastacia - dailytelegraph 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. Sydney Olympics 'bought to a large extent' said organiser John Coates 2, 2021). Although courts have increasingly applied the First Amendment to disclosure obligations over time, critics are able to cite no case law supporting the notion that simply because facts may inform or be relevant to a political debate, requirements calling for disclosure of those facts are subject to heightened scrutiny, much less violate the First Amendment. SEC taking hard look at SPAC warrants, disclosures | CFO Dive [11] Any material misstatement or omission in connection with a tender offer is subject to liability under Exchange Act Section 14(e). Volkswagen announced $180 billion of investments in electronic vehicles. Public companies are already subject to more regulation, however, and if the requirements of the Sarbanes-Oxley Act did not drive a wave of going private transactions (and they did not), the marginal additions to disclosure required by this rule is highly unlikely to do so. 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. 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 SEC.gov | John Coates 2021; 2020; 2019; 2018; 2017; 2016; 2015; 2014; 2013; How might a different disclosure regime have elicited different disclosures? He had been serving as the independent monitor for the U.S. Justice Department in the prosecution of Boston-based State Street Corp. What lessons can we learn from earlier examples of evolving risks? Law Offices of Gary Martin Hays & Associates The purpose of the disclosure was also to protect markets and market pricing, and improve the resulting allocation of capital. As noted above, this claim is wrong because the securities laws already limit the Commissions power in two ways, to the use of disclosure (versus merits review) as a regulatory tool, and to the use disclosure for the protection of investors. These claims are further belied by a string of decisions in which courts have rejected attempts by the Commission to rely on disclosure and anti-fraud authority to engage in substantive regulation of corporate transactions or corporate mismanagement. Nothing at stake in this proposed rule justifies such judicial lawmaking. If arguments of that kind could limit rulemaking authority, the Commission could never have adopted any disclosure rules. I write to comment on legal authority. John CoatesActing Director, Division of Corporation Finance. In the Clean Air Act amendments of 1970, Congress gave EPA authority to require disclosures relating to the environment. SPAC sponsors and targets and their affiliates and advisors should already be providing the public with the information material to the investment opportunities a de-SPAC represents, regardless of how the liability analyses ultimately play out. Second, there may be advantages to providing greater clarity on the scope of the safe harbor in the PSLRA. If those targets are simply greenwashing, the proposed rules will reduce their potential to harm investors caused by fraud or misleading disclosure short of fraud. But just as important is the recognition of the costs associated with not having ESG disclosure requirements. For example, the famous phrase full and fair disclosure is in the full title to the 1933 Act, and so part of its statutory meaning. Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst. So, instead, like a cuckoo putting its eggs into anothers nest, critics have resorted to mischaracterizing the proposal, and inventing their own, fictional rulenot actually proposedto attack premise two, and claim the Commission lacks authority for their fictional new rule. They point to a footnote in a 2016 Concept release to support this claim. The multiple places the statutes give the Commission authority to go beyond its text (to create exemptions, tailor its requirements, and add to them). When Congress passed the PSLRA, the path to becoming a public company was fairly simple and standardized. 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. To be sure, projections are woven into the fabric of business combinations. John Coates - Keynote Speaker | London Speaker Bureau In this way, SPACs offer private companies an alternative pathway to go public and obtain a stock exchange listing, a broader shareholder base, status as a public company with Exchange Act registered securities, and a liquid market for its shares. [3] E.g., Andrew Ross Sorkin et al., What a SPAC Believer Thinks of SPAC Mania, N.Y. Times (Mar. [6] SPAC Status by Year of IPO, SPACInsider (last visited Apr. 2007) (enjoining a merger because the proxy statement omitted the projections used to render the fairness opinion). The Division plays an essential role in ensuring investors have the information they need to make informed investment decisions. An extended comment on the 1933 Act published in the Michigan Law Review in March 1934 echoes these points, summarizing the law as having two purposes: (1) that there shall be filed with the Federal Trade Commission a full, accurate and complete statement of all pertinent facts concerning issues of the securities and (2) that instruments of transportation or communication in interstate commerce and the mails shall not be used directly or indirectly to effectuate fraudulent sales. 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. Investments are being held back in the absence of that information. The proposed rule specifies the details of disclosure, just as Congress directed the Commission to do. Claims that disclosure would incentivize companies only to reduce or mitigate climate change impacts are not well considered. Annex A contains just a samplingmany more additions and refinements have been adopted in the decades since 1933. As with the 1933 Act, this statutory language authorizes periodic reports and imposes no subject-matter restriction on those reports. 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. Rather, they are faced with numerous, conflicting and frequently redundant requests for different information about the same topics. John Coates named fellow of American College of Governance Counsel 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. Executive compensation is its own, complex and specialized area of management and finance, leading companies to hire expert advisors to develop compensation plans. Its creation was accomplished by Presidential directive, subsequently approved by Congress in 1984. Is guidance needed about how projections and related valuations are presented and used in the documents for any of these paths? Private equity fund investors are already and increasingly demanding climate-related information and commitments from the funds or their advisors. 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. Your article was successfully shared with the contacts you provided. 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. Recommendation from the Investor-as-Owner Subcommittee of the SEC 5 C.F.R. 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. The rule builds on decades-long efforts by public companiessuch as 3M, Abbott Laboratories, Amazon, Apple, Chevron, Fujitsu, IBM, Johnson Controls, Michelin, P&G, Verizon and Walmartto develop practical, decision-useful, consistent, comparable and verifiable ways to report about climate risks and opportunities. 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. But its basic statutory authority does not limit the level of generality at which an otherwise long-required disclosure topic may be addressed. Biography. What is proposed is to not to add new subject matters to public company disclosures, but to refine the mode and detail of already-required disclosures. 'Horrendous enemy, terrific friend': What drives AOC head John Coates? How three decades of pain for John Coates drove Brisbane's bid for 2032 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. 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. S190602 (daily ed. The creation of an entire new agency (the Commission) to implement and enforce the laws. Rather than casting disclosure rules in stone, Congress opted to rely on the discretion and expertise of the SEC for a determination of what types of additional disclosure would be desirable. We'll send you a myFT Daily Digest email rounding up the latest Denise Coates news every morning. LexisNexis and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. John Coates's research works | University of Cambridge, Cambridge (Cam Previously, she represented private and public companies on corporate and securities matters at Hill & Barlow law firm. ESG Disclosure - Keeping Pace with Developments Affecting Investors 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. Modern finance and valuation techniques focus on risk and expected future cash flows. Large multinationalseven in the oil and gas or energy sectors, even actively emitting greenhouse gases in the USwould be unaffected if they list no securities in our markets. Protecting investors has been the Commissions job since 1934. [8] Participants and their advisors are used and expect to prepare and disclose projections in acquisitions, including de-SPACs. 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. As stressed by Justice Alito, when he was a Judge on the Third Circuit: Because the materiality standards for Rule 10b-5 [the Commissions primary anti-fraud rule] and SK-303 [an affirmative disclosure requirement for known trends and uncertainties, among other things] differ significantly, the demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b-5.. The Securities and Exchange Commission today announced that Renee Jones has been appointed Director of the Division of Corporation Finance. The proposed rule would not require national banks to consider climate-risks in lending activitiesthat is for banking regulators. Cost-Benefit Analysis of Financial Regulation: Case Studies and Contrary to some critics, letters from individuals also supported climate-related disclosures and were cited several times in the proposing release. Congress designed the safe harbor generally to permit and even encourage reporting companies to disclose information about future plans and prospects. Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. Join National Law Journal now! But the proposing release goes beyond the numerous supportive investor comments in the March comment file to note at length many kinds of additional evidence showing ways in which more, more comparable, and more reliable information would protect investors by improving their ability to assess and price climate-related financial risks and opportunities, both at the time of initial stock investments and in secondary market trading. Economically, and practically, the private target of a SPAC is a different organization than the SPAC itself. 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. 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. The proposed disclosures, including emission data, will help investors assess and price these risks and opportunities. Section 12 of the 1934 Act conditions exchange-trading privileges unless securities are registered by companies disclosing such information, in such detail, as to the [company] as the Commission may by rules and regulations require, as necessary or appropriate in the public interest or for the protection of investors, in respect of the following: the organization, financial structure, and nature of the business.. Delaware corporate law, in particular, conventionally applies both a duty of candor and fiduciary duties more strictly in conflict of interest settings, absent special procedural steps, which themselves may be a source of liability risk. It only specifies disclosures, and does not regulate climate change, or regulate climate emissions. Many contain materiality qualifiers, but many do not. 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 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. Instead, basic principles of statutory interpretation support the Commissions authority to adopt the proposed rule. The American College of Governance Counsel is a professional, educational, and honorary association of lawyers widely recognized for their achievements in the field of governance. Second, in thinking about ESG disclosures, we should not view ourselves as forced into a stark choice between voluntary and mandatory disclosure. (Sept. 30, 2020). He has been the . The proposed rule does not itself restrict or limit environmentally harmful activity. 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.). SEC.gov | John Coates Named Acting Director of the Division of As discussed in Point I, critics of the rule cannot plausibly attack premise one. Litig., 238 F. Supp. Simply put, any such asserted difference seems uncertain at best. 'What Are We Fixing? 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. Circuit affirmatively held that the Commission had authority to do that, and, in its judgment, to potentially go further. The title of the 1933 Act states its purpose as creating a regime of full and fair disclosure.. 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.
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