The Commission cannot shirk its duty to protect investors even if that duty to an extent overlaps with EPAs duty to protect the environment. 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. Harvard Law School Professor John C. Coates spoke at a briefing on Oct. 30 in Washington, D.C., to urge the Securities and Exchange Commission to require publicly traded companies to disclose their political spending. Congress created the Commission as an expert agency with the capacity to address significant problems affecting the nations securities markets. 23, 2013) (citing Sawant v. Ramsey, 3:07-CV-980 VLB, 2010 WL 3937403 (D. Conn. Sept. 28, 2010) (holding that otherwise forward-looking statements that contain misrepresentations of current facts are not protected by the safe harbor provision of the PSLRA or the bespeaks caution doctrine); In re Nortel Networks Corp. Sec. 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. It does not say, for example, annual financial reports, but simply annual reports. As with the 1933 Act, the authority is not unboundedit is limited by the phrase appropriate for the proper protection of investors, with the gloss that the rules also be appropriate to insure fair dealing in the security, a reflection of the fact that the 1934 Act was designed to govern securities that were already trading on securities markets. 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. 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. Here, we survey research on steroid hormones and their cognitive. EPA has no authority over disclosures about physical risks, or the financial risks of climate change to companies (and investors). 1 Twitter 2 Facebook 3RSS 4YouTube The rule is also calibrated to companies, not the environment. 11, Special Purpose Acquisition Companies (December 22, 2020). [13] Nor is the safe harbor available unless forward-looking statements are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. Despite all of this, it may still be thought that the PSLRA offers something for SPACs not available to conventional IPOs. [8] Participants and their advisors are used and expect to prepare and disclose projections in acquisitions, including de-SPACs. Modern finance and valuation techniques focus on risk and expected future cash flows. Congress could not have predicted the wave of SPACs in which we find ourselves. Companies objectively do or do not have strategies that reflect transition risk or physical risks of climate change. Dynamically explore and compare data on law firms, companies, individual lawyers, and industry trends. 30, 2021). Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. But most SPACs since 2009 have gone on to identify acquisition candidates. That ESG no longer needs to be explained illustrates how important these issues have become to todays investors, public companies and capital markets. The major questions doctrine has no role to change the plain text of the 1933 and 1934 Acts. Copyright 2023 ALM Global, LLC. 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. 2, 2021). [16] Debate in Senate to Override President's Veto, 141 Cong. Site Map, Advertise| 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. 25, 2021); Jennifer Bennett, Canoo Faces Investor Suits Over Post-SPAC Deal Focus Changes, Bloomberg Law (Apr. 1, 2005) (Where the failure to make such disclosure is negligent, an issuer would violate Section 14(a) of the Exchange Act and Rule 14a-9 thereunder). The Commission has neither approved nor disapproved its content. It would not affect how mutual funds and other collective investment vehicles market themselves, even as to the climate risks in their portfoliosthat topic is within the Commissions authority, but it is not addressed in this proposed rule. For investors, despite an abundance of ESG data, there is often a lack of consistent, comparable, and reliable ESG information available upon which to make informed investment and voting decisions. For centuries, it has been a cardinal rule that repeals by implication are not favored. Indeed, a standard reference on statutory interpretation by Antonin Scalia and Bryan Garner goes further, makes the rule one of its black-letter canons, and emphasizes it, writing: Repeals by implication are disfavoredvery much disfavored. It also offers a sensible explanation for the canon: A doctrine of readily implied repealer would repeatedly place earlier enactments in doubt.. He observed first-hand the powerful emotions driving traders. They will go unresolved by this proposed rule. The disclosures would consist of facts, not opinions, and raise no First Amendment concern. Her leadership will be invaluable as the Division facilitates disclosure under our current rules and undertakes rule modernization to meet the challenges of today. 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. Because the rule is an investor-oriented disclosure rule, it is within the Commissions expertise. 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. It also illustrates the pace of ESG developments. Claims that disclosure would incentivize companies only to reduce or mitigate climate change impacts are not well considered. First, I am not pro- or anti-SPAC. Many ESG-related issues are similar to ones we have faced before. He previously worked for Goldman Sachs and ran a trading desk for Deutsche Bank in New York. A process to create such standards is not likely to be simple, quick or easy. Rather, as long as the Commission considers that question in good faith and follows appropriate process, Congress has directed that the Commission make that decision, not the courts. 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. Financial disclosures released by former Secretary of State John Kerry indicate that until March of this year he held hundreds of thousands of dollars of investments in energy-related companies . 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. About 1,020 U.S. companies voluntarily disclosed their Scope 3 emissions last year.. 2008) (identifying a breach of fiduciary duties for failure to disclose material facts to stockholders before stockholder vote on merger); City of Fort Myers Gen. Emp.s Pension Fund v. Haley, 235 A.3d 702 (Del. View the profiles of people named John Coates. That request elicited massive amounts of public input on potential climate-related disclosure, and gave anyone skeptical about the project ample notice that it was on the Commissions agenda, and ample time to adduce evidence against it. I am pleased to welcome Renee to the SEC and look forward to working with her., I am excited to join the Division of Corporation Finances team of experienced and dedicated public servants, said Jones. If these facts about economic and information substance drive our understanding of what an IPO is, they point toward a conclusion that the PSLRA safe harbor should not be available for any unknown private company introducing itself to the public markets. John Coates is a senior research fellow in neuroscience and finance at the University of Cambridge. Gain access to some of the most knowledgeable and experienced attorneys with our 2 bundle options! 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. Such a conclusion should hold regardless of what structure or method it used to do so. [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). 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 ). 1 Twitter 2 Facebook 3RSS 4YouTube To be sure, projections are woven into the fabric of business combinations. 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 John M Coates Mark Gurnell Zoltan Sarnyai Little is known about the role of the endocrine system in financial decision-making. Coates was re-elected president at the AOC's annual general meeting in Sydney on Saturday morning, seeing off the challenge of hockey gold medallist Danni Roche by winning the vote count 58-35. The safe harbor is also not available if the statements in question are not forward-looking. 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. All Rights Reserved. The Commissions authority is plain in its organic statutes, legislative history, in long-standing precedent, in both court decisions and its own rules, and repeatedly accepted by Congress through amendments of the statutory bases for those rules. Its creation was accomplished by Presidential directive, subsequently approved by Congress in 1984. This post is based on his recent comment letter. John Coates has conceded the Australian Olympic Committee's (AOC) brand has been damaged by a bitter presidency campaign in which he emerged victorious. Letter to the Stakeholders of the Olympic Movement - Olympic News 2 years ago | By John Coates | Olympics.com Even if some may find resistance to the rule (or new regulation generally) to be appealing from a policy standpoint, doing that here has no basis whatsoever in the statutes text.. 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). Mar. 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.). Statement of John Coates, Harvard Law School . 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. Congress also created the Commission as an agency that could thoughtfully address problems too politically charged to be easily resolved on Capitol Hill. [2] See Ben Scent, Wall Streets $100 Billion SPAC Boom Upends the League Table, Bloomberg Law (Apr. 2020) (breach of duty of candor due to failure to disclose conflict of interest in merger); Chester County Emp.s Ret. The legislative history includes statements that the safe harbor was meant for seasoned issuers with an established track-record.[16]. Its greenhouse gas emission disclosure elements are aligned with the EPAs existing requirements for US emission sources, which in turn are aligned with the widely used and privately developed Greenhouse Gas Protocol, which was a joint product of companies, investors and other organizations. Join National Law Journal now! Anyone who argues that the Commission should leave the job of climate disclosure to the EPA has to have an answer to how the EPA could possibly protect US investors with information about the large amount of activities of US public companies that are located beyond the reach of the EPAs jurisdiction. Instead, as summarized by the D.C. JOHN COATES, HARVARD LAW SCHOOL: Okay, thank you. If the person charged with reviewing an employee's report finds a conflict, he should impose a remedy immediately. 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. In closing, I want to make three final points. The law went beyond combating affirmative fraud, where intent, materiality, and damages had a role to play, and added to it a general philosophy of seller beware, in which all pertinent facts must be disclosed before a company sells stock, and liability could attach even without traditional hallmarks of fraud, albeit with separate limiting conditions. Where do we go from here? One of the primary purposes of the 1934 Act was to augment the 1933 Act by giving the Commission authority to require ongoing reports by companies whose securities were traded on stock exchanges. 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. If comprehensive, economy-wide disclosure of climate impacts of all types of business is to be required by regulation, doing so will require more than the Commissions authority. As noted above, the JOBS Act, for example, limited the full requirements in Section 7 for emerging growth companies, but left the Commissions overall authority to require disclosure for other public companies intact. 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. 6, 2021). The secondemissions datais widely used as measures of transition risk, that is, the risk that energy costs and policy responses by other lawmaking bodies (not the Commission) (some of which are already reflected in treaty commitments or other enacted policies of the US and other countries in which US public companies do business) will force companies to expend money to reduce their emissions or mitigate their impacts. He received his law degree from New York University Law School and his Bachelor of Arts with highest distinction from the University of Virginia. 2d 613, 629 (S.D.N.Y. Appropriate liability should attach to whatever claims it is making, or others are making on its behalf. 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. 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. The Commissions authority, to reiterate, includes discretion to promulgate rules governing corporate disclosure. 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). Rather, they are faced with numerous, conflicting and frequently redundant requests for different information about the same topics. This is for the obvious reason that investors in the parent company face the consequences of all economic results created by that company. 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. Disclosure means: "To . 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. But companies will not be limited by the rule itself in how they and their investors respond to climate change. This is perfect for attorneys licensed in multiple jurisdictions or for attorneys that have fulfilled their CLE requirement but need to access resourceful information for their practice areas. 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. I thank Michael Conley for his service as Acting General Counsel, and I look forward to continuing to work with Michael and John on critical matters before the Commission., I am honored to continue to help advance the SECs mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, said Coates. Here, the proposal frames difficult, subsidiary choices, which divide reasonable observers. That climate risks overall have been overstated by climate activists. This statement does not alter or amend applicable law and has no legal force or effect. Coates has served as the SECs Acting Director of the Division of Corporation Finance since February 2021. Professor Coates served as General Counsel and as Acting Director for the Division of Corporation Finance for the SEC. Proposal on Climate-Related Disclosures Falls Within the SEC's Authority Posted by John C. Coates (Harvard Law School), on Wednesday, June 22, 2022 Comments Off Print E-Mail Tweet Climate change, ESG, Investor protection, Legal history, Materiality, SEC, SEC rulemaking, Securities regulation, Sustainability More from: John Coates Do particular disclosures, procedures, and liability rules reduce the all-in costs of capital? EPA was created in 1970. However, the rule does need to at least be rationally designed for investor protection to be authorized. My remarks here do not attempt to answer those or the multitude of other questions about ESG disclosures. 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 5 . STAY CONNECTED It requires no disclosure from privately held unlisted companies. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). Should the SEC reconsider the concept of underwriter in these new transactional paths? John Coates failed to apologise for his comments towards Annastacia Palaszczuk. EPA is charged by Congress to have a concern for the environment, not for investors. Laws against fraud have always been consistent with the First Amendment. About ten percent of SPACs have liquidated between 2009 and now.[6]. Most public companies could go dark today, if they were prepared to surrender their stock exchange listings. Where and how can disclosures be aligned with information companies already use to make decisions. A consortium of public energy companies is raising $1 billion for emissions reductions technology. Recognizing innovation in the legal technology sector for working on precedent-setting, game-changing projects and initiatives. EPA did not use its authority to develop greenhouse gas emission disclosure requirements until 2009, and did so only after being directed to do so by Congress in an annual budget appropriations rider. Coates' Canons NC Local Government Law. Citing to a 1975 release, the Commission in 2016 noted, non-controversially, that In [the 1975] release, the Commission concluded that, although it is generally not authorized to consider the promotion of social goals unrelated to the objectives of the federal securities laws, it is authorized and required by NEPA [the National Environmental Policy Act] to consider promotion of environmental protection as a factor in exercising its rulemaking authority. This statement denies authority only if disclosure is unrelated to investor protection, protection of market integrity, or the public interest more generally. He chairs the faculty committee on executive education and teaches contracts, corporations, corporate governance and financial regulations. Yet the Commission nonetheless has long protected investors in bank holding companies by requiring detailed disclosure beyond the financial statement for such companies, as noted in Annex A. 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. So, too, for mining companies, asset-backed issuers, and other sectors, as also detailed in Annex A. The plain language could not be clearer in directing the Commission to do what it is proposing to do: specify the details of disclosure appropriate to protect investors, based on its fact-finding and expert judgment. "John is widely recognized as an expert on corporate governance, corporate transactions, and compliance and disclosure processes," Lee said in a statement. 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. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. 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. Shareholder Litig. 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. In addition to being limited and calibrated to U.S. public companies, the rule does not require disclosure related to non-investor impacts. . About John Coates. 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. To recap what is discussed above, EPAs authority is both materially broader and narrower than the Commissions, even as to the subpart of the Commissions rule addressing greenhouse gas emissions: In sum, EPA could not duplicate (or even approximate) the proposed investor-oriented rule, and the Commission could not duplicate (or even approximate) EPAs greenhouse gas disclosure rules. Companies face higher costs in responding to investor demand for ESG information because there is no consensus ESG disclosure system. What is the best way to verify or provide assurance about disclosures? Empirical studies of financial markets and regulation have always had strong and inherent methodological limits, well-known and not seriously disputed, as well as data limitations. It specifies disclosure of facts, in neutral language. John, Joel. He had been serving as the independent monitor for the U.S..