3 The sweep of regulatory change has reignited criticism for failure to base the changes . 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. Companies objectively do or do not have strategies that reflect transition risk or physical risks of climate change. To be clear, the Commission has also routinely added required disclosures that do affect the financial statements, too. All Rights Reserved. The PSLRA was passed by Congress in 1995 to stem what was considered to be a rising tide of frivolous or unwarranted securities lawsuits aimed at operating companies filing routine annual and quarterly reports under the Exchange Act. A process to create such standards is not likely to be simple, quick or easy. The disclosures would consist of facts, not opinions, and raise no First Amendment concern. 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. Nothing in law suggests that uncertainty, however reasonable, legally forbids rulemaking. And thank you very much for the invitation to be in a place I don't usually go, right? The status quo is costly for companies, and increasingly so over time. Again, this language is not limited to what is necessary to protect investors, but gives the Commission discretion to specify what information is appropriate to protect investors and markets, based on its fact-finding and expert application of the statutes goals to evolving investor needs. Professor of Law and Economics at Harvard Law School. Important and challenging questions must be addressed, such as: These are questions that the SEC should be a key part of answering. 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. We'll send you a myFT Daily Digest email rounding up the latest Denise Coates news every morning. 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. Your article was successfully shared with the contacts you provided. The Constitution, and Congress, have given the Commissionand not the courtsauthority to make those judgments. 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. John C. Coates is the Acting Director of the SECs Division of Corporation Finance. 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. 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. Indeed, the texts are so clear thatin contrast to the many times the Commission has been challenged on anti-fraud rulemakings, where authority has been interpreted as limited by common law anti-fraud principlesfew attempts have been made to challenge the Commissions use of its basic disclosure authorities to require disclosure. Private companies that combine with SPACs to enter the public markets have no more of a track record of publicly-disclosed historical information than private companies that are going through a conventional IPO. Specifically, Section 7 gives the Commission unambiguous authority to specify the contents of disclosure documents used to register securities for sale to the public. SEC Focuses on Potential Updates to U.S. Climate Change Disclosure The statute refers to the Commissions rules defining blank check company and to the Exchange Acts definition of penny stock.[15], By contrast, however, the PSLRAs exclusion for initial public offering does not refer to any definition of initial public offering. No definition can be found in the PSLRA, nor (for purposes of the PSLRA) in any SEC rule. The safe harbor is also not available if the statements in question are not forward-looking. 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. Open in Who Shared Wrong byline? The title of the 1933 Act states its purpose as creating a regime of full and fair disclosure.. In simple terms, the PSLRA excludes from its safe harbor initial public offerings, and that phrase may include de-SPAC transactions. The fact that those areas are themselves specialized, with their own experts with far more knowledge than exists at the Commission, does not mean the Commission cannot adequately apply its disclosure regime to those risks. 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. How might a different disclosure regime have elicited different disclosures? I am unaware of any relevant case law on the application of the IPO exclusion. An effective ESG disclosure system does not imply a rigid and soon-to-be outdated set of limited disclosures. 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. Letter to the Stakeholders of the Olympic Movement - Olympic News 2 years ago | By John Coates | Olympics.com Forum on Corp. Gov. EPA was created in 1970. Nonetheless, whatever one thinks about the incentives for companies to go public or private, that question only bears on the efficiency or capital-formation impacts of the proposed rule, and how they compare to its advancement of investor protection, not on its legality. John Coates | Harvard Law School What is the best way to verify or provide assurance about disclosures? John Coates Archives - Corporate Governance He received his law degree from New York University Law School and his Bachelor of Arts with highest distinction from the University of Virginia. Nor has the major questions doctrine ever been used to overturn authority unambiguously granted by the plain text of a statute. Under federal securities law, the touchstones for all securities offerings remain what they have long been. 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. PDF ISSN 1936-5349 (print) HARVARD - Harvard Law School It does not regulate climate activity itself (e.g., greenhouse gas emissions) and would have modest effects on the economy as a whole. 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. Litig., 238 F. Supp. The D.C. In fact, its basic disclosure authorities (in Section 7 of the 1933 Act and Sections 12 and 13 of the 1934 Act) are augmented by additional specific authority to to prescribe the form or forms in which required information shall be set forth. If the Commission after fact-finding reasonably believes more detail is needed to protect investors about a concededly authorized topic, it is legally authorized to require more detail, as it has done through both rules and disclosure review since 1933. It is also not a rule the EPA or any other regulatory agency has adopted or could legally adopt. 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? ESG problems are global problems that need global solutions for our global markets. [1] This statement represents the views of the Acting Director of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC or Commission). 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. Copyright 2023 ALM Global, LLC. Although some are reluctant to consider legislative history or expert contemporaneous commentary in interpreting statutes, it is useful to do so briefly here for a simple reason. The proposed rule is a rule that specifies details of disclosure requirements. Establishing a global framework, however, is complex and raises a number of considerations. 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. 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. [16] Debate in Senate to Override President's Veto, 141 Cong. 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. It requires no disclosure from privately held unlisted companies. 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. It addresses global climate risks to public companies, and not all climate risks created by domestic activities of all companies, public and private. Rather, it calls for specific disclosures that investors in US public companies need to evaluate and price climate-related financial risks and opportunities. 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. 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.. 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). If an officeholder has filed their annual financial disclosure statement, then a pdf of the filing will be posted. They will continue to be vigilant about SPAC and private target disclosure so that the public can make informed investment and voting decisions about these transactions. John Coates has few regrets on his way out the AOC door Does that provide de-SPAC participants with protections in private litigation that are not available in a conventional IPO? John Coates: The Helpful Hand Guiding Brisbane's Olympic Win - The New On March 22, 2021, the SEC launched a new page on its website bringing together all things ESG including agency actions and the latest information on ESG investing. [1]This statement represents the views of the Acting Director of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC or Commission). The proposal is well within the Commissions authority to adopt. 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. And earlier this month, Bloomberg reported that John Coates, the SEC's Acting Director of the Division of Corporation Finance, indicated that new disclosure requirements would focus on three areas: diversity, equity and inclusion; climate change; and human capital management. 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. 6LinkedIn 8 Email Updates. 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. [8] Participants and their advisors are used and expect to prepare and disclose projections in acquisitions, including de-SPACs. 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. Congress wanted and authorized the Commission to require disclosure to protect investors despite these limits, based on its expert judgment about what its experience and qualitative evidence showed it, supplemented by whatever science can add. Many ESG-related issues are similar to ones we have faced before. 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. As discussed in Point II, each attack is mistaken and misleading because the proposed rule is not the critics fictional new rule. What about the Private Securities Litigation Reform Act? If that risk drives choices about what information to present and how, it should not in my view be different in the de-SPAC process without clear and compelling reasons for and limits and conditions on any such difference. Do particular disclosures, procedures, and liability rules reduce the all-in costs of capital? Consideration of such costs is important, as is getting clear about their causes. Do current liability provisions give those involved such as sponsors, private investors, and target managers sufficient incentives to do appropriate due diligence on the target and its disclosures to public investors, especially since SPACs are designed not to include a conventional underwriter at the de-SPAC stage? 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. 104-369, 43 (November 28, 1995) (Congress created the safe harbor provision to enhance market efficiency by encouraging companies to disclose forward-looking information.). Recommendation from the Investor-as-Owner Subcommittee of the SEC Specifically, the Commission relied upon wide-ranging and deep engagement over more than a year, gathering input from public comments, in public discussions, and meetings with and through letters from companies, investors, trade groups, climate specialists, EPA and other experts regarding corporate environmental and climate reporting, to craft its proposed rule, just as it has done in other areas. : John Dowling Coates 1950 57 - . 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.). 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. 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. Any answer to that question should note the limits of the safe harbor in the PSLRA. General Motors announced it plans to sell only electric passenger vehicles by 2035. Both appointments are effective June 21, 2021. Rep. No. To be sure, projections are woven into the fabric of business combinations. The commentary distinguishes between the full disclosure purpose of the 1933 Act from its separate, anti-fraud purpose.

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