It also illustrates the pace of ESG developments. Where and how should disclosures be globally comparable? 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. No offers may be made or accepted from any resident outside the specific states referenced. Forum on Corp. Gov. Professor of Law and Economics at Harvard Law School. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargainby Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forumhere); Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy A Reply to Professor Rock by Lucian A. Bebchuk, Alma Cohen, and Charles C. Y. Wang (discussed on the Forum here); Stakeholder Capitalism in the Time of COVID, by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Corporate Purpose and Corporate Competition by Mark J. Roe (discussed on the Forumhere). But Congress has never cut back on the Commissions general obligation to specify the contents of its disclosure regime, such as by editing or reversing prior disclosure specifications. But companies will not be limited by the rule itself in how they and their investors respond to climate change. 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. The proposal is well within the Commissions authority to adopt. As a result, the rule will minimize costs and maximize benefits of compliance. To be effective, he said, new SEC rules "must produce results that are useful, consistent, and comparable." If markets are currently overly negative about a companys physical risks (e.g., to floods), such disclosures would facilitate a reduction in that companys cost of capital. 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. ESG issues are global issues. 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). To the extent that those who disfavor consideration of legislative history truly give primacy to legislative text and structure, there is no plausible basis on which to argue the Commission lacks authority to adopt the proposed rule. [5] Initial investors also commonly obtain warrants to buy additional stock as at a fixed price, and sponsors of the SPAC obtain a promote greater equity than their cash contribution or commitment would otherwise imply and their promote is at risk. 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 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. As to motivations, the long and extensive record leading to the proposal of the rule can be reviewed in its entirety and nowhere will any evidence be found that the purpose of the rule is other than to protect investors. Join Facebook to connect with John Coates and others you may know. The rule would create a framework for reliable disclosures of climate-related information that is potentially positive for investors, such as opportunities, and is not limited to risks. John CoatesActing Director, Division of Corporation Finance. Nothing in law suggests that uncertainty, however reasonable, legally forbids rulemaking. (Sept. 30, 2020). Statements about current valuation or operations have been viewed as outside the safe harbor by some courts, even if they are derived from or linked to forward-looking projections or statements. Some claim the Commission has acknowledged or adopted limits on its disclosure authorities, beyond limits in the text of the statutes. First, I am not pro- or anti-SPAC. 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. That information may play a role in affecting the kinds of opportunities and risks that public companies can pursue with other peoples (investors) money, and how investors price those opportunities and risks, and use whatever governance or liquidity rights they have to respond to corporate behavior. 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). 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? 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. Donilon - 278.pdf Robert Downing - 278.pdf Travis Dredd - 278.pdf Anita Dunn - 278.pdf Stacy Eichner - 278.pdf John Elias . Rep. No. Getting The Talent Balance Right: From Layoffs to Laterals to Mergers, How Can Firms Staff for Success? Before joining the SEC, he served as the John F. Cogan Professor of Law and Economics at Harvard University, where he also was Vice Dean for Finance and Strategic Initiatives. How should the SEC, its staff, and private actors weigh the capital-formation costs and benefits of disclosures, procedures, and liability rules? 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. Congress both expanded authorities and limited which and how specific types of companies and transactions are covered by its disclosure regime. John Coates is the John F. Cogan Professor of Law and Economics at Harvard Law School, where he also serves as the Deputy Dean for Finance and Strategic Initiatives and Research Director of the Center on the Legal Profession. 3 of 1970, nowhere mentions the Securities and Exchange Commission. However, the rule does need to at least be rationally designed for investor protection to be authorized. Finally, companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. That is, the rules perspective of that of investors and companiestheir strategies, risk management, governance and metricswithout regard to whether a given company independently creates a climate impact that is large or small for the overall environment, or whether it is more or less exposed than other companies to physical risks of climate change. 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. 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. With Such Low Win Rates, Should Law Firms Respond to So Many RFPs? In contrast to the specific mentions of these other federal agencies, the authorizing document, Reorganization Plan 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. In plain unambiguous text, they encompass financial risks and opportunities related to any source. The Commission cannot shirk its duty to protect investors even if that duty to an extent overlaps with EPAs duty to protect the environment. If an officeholder has filed their annual financial disclosure statement, then a pdf of the filing will be posted. But the Commissions authorities go further, precisely because Congress recognized that investors need information beyond the moment of initial offer and sale, which are addressed by the 1933 Act. John C. Coates and R. Glenn Hubbard, Competition in the . 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. In simple terms, the PSLRA excludes from its safe harbor initial public offerings, and that phrase may include de-SPAC transactions. Changes came as part of an omnibus criminal law Session Law 2021-138, Part XXI. The guidance on potential conflicts of interest in the context of the initial public offering of a SPAC is divided into five categories: (1) insiders' competing fiduciary or contractual obligations to other entities, (2) the specified timeframe to complete an initial business combination, (3) deferred underwriter compensation, (4) economic terms But for purposes of assessing the legal issues raised by the proposed rule, this limit underscores how the rule is investor-oriented and tailored, consistent with the securities laws. Large asset managers are already having to comply with similar requirements in Europe (regardless of where their portfolio investments are located). 6LinkedIn 8 Email Updates. It is against this backdrop that I think about the regulation of ESG disclosures. Second, forward-looking information can of course be valuable. Dynamically explore and compare data on law firms, companies, individual lawyers, and industry trends. If the person charged with reviewing an employee's report finds a conflict, he should impose a remedy immediately. 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. He joined his billionaire sister and co-CEO, Denise, in 2001 to launch Bet365 after she . Because (they claim) the fictional new rule reflects climate change policy, and because climate change is new and important, the plain text of the Commissions statutory authority cannot really mean what it says. These data, again, are thus directly relevant to financial risks and opportunities for public companies. If useful for the protection of investors, disclosure was not limited to the four corners of, or even commentary on, financial statements. Starting with the costs, critics of ESG disclosure requirements often point to the costs associated with preparing the disclosures. 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. Biography. [5] For studies of SPACs, see, e.g., Michael Klausner, Michael Ohlrogge and Emily Ruan, A Sober Look at SPACs, Yale J. Reg. 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. 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. . On March 11, Acting Director of the SEC Division of Corporation Finance, John Coates, published a statement in connection with remarks he delivered at the 33rd Annual Tulane Corporate Law Institute, noting how important ESG issues have become to investors, public companies and capital markets, while at the same time acknowledging that Join National Law Journal now! Regardless, as long as the disclosures are fairly designed for the protection of investors, a factual assessment of the kind commonly delegated by Congress to regulatory agencies, they would fall within the clear limiting principle of that law. In closing, I want to make three final points. 2021; 2020; 2019; 2018; 2017; 2016; 2015; 2014; 2013; 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. 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. I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions. If the American people, through their representatives, wish to remediate climate change, or fulfill climate-related treaty obligations, this rule will not do those jobs. The proposal is both narrower and broader than the critics fictional rule because it calls for and is limited to investor-focused information from public companiestraditional and long-standing hallmarks of U.S. securities laws and regulations. But it remains true that IPOs are understood as a distinct and challenging moment for disclosure. Apr. Companies objectively do or do not have strategies that reflect transition risk or physical risks of climate change. 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 example, many companies have no major facilities in flood plains, do not consume significant amounts of energy, and do not produce significant greenhouse gas emissions. [14] See generally, H.R. Laws against fraud have always been consistent with the First Amendment. Many contain materiality qualifiers, but many do not. When you do that you have a better chance of being more fully valued.)); cf. EPA, by contrast, focuses on conduct in the United States. 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. 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. New investors buy these shares in the aftermarket or participate in a new offering by the combined entity. The proposed rule is a rule that specifies details of disclosure requirements. Coates was angry because he believed Wylie was behind moves to unseat him at the then upcoming AOC election - an allegation Wylie denied. When Congress passed the PSLRA, the path to becoming a public company was fairly simple and standardized. It is not a rule requiring or limiting opinions or controversial speech, and raises no First Amendment concerns. At an athletics meet in Melbourne early this year, he ran into John Wylie, the investment banker who chairs the Australian Sports Commission. Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. 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. John Coates has conceded the Australian Olympic Committee's (AOC) brand has been damaged by a bitter presidency campaign in which he emerged victorious. Introduction. Congress also created the Commission as an agency that could thoughtfully address problems too politically charged to be easily resolved on Capitol Hill. 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. Although climate change overall indisputably raises important policy questions, those remain for Congress. These include (for example) asbestos and other sources of tort liability, contract and other kinds of commercial litigation, and cybersecurity and other kinds of technology risks. 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. 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. 5-min read. A company in possession of multiple sets of projections that are based on reasonable assumptions, reflecting different scenarios of how the company's future may unfold, would be on shaky ground if it only disclosed favorable projections and omitted disclosure of equally reliable but unfavorable projections, regardless of the liability framework It may be time to revisit these issues. 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. Law Offices of Gary Martin Hays & Associates Finally, even if the major questions doctrine were thought relevant here, the contents of the proposal areas discussed at length above and in Annex Adirectly in keeping with the way that the Commission has functioned since inception. 1 Twitter 2 Facebook 3RSS 4YouTube Private equity fund investors are already and increasingly demanding climate-related information and commitments from the funds or their advisors. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. Moreover, is it appropriate that the choice of how to go public may determine or be determined by liability rules? Further reducing concerns about whether the rule is within the Commissions expertise, the proposed rule aligns with ways that companies and investors have jointly and voluntarily agreed to provide climate-related information. 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. Under federal securities law, the touchstones for all securities offerings remain what they have long been. The Commission is charged with protecting investors generally, and even if a subset of investors believe that they do not (or do) want or need particular information, their views should not necessarily control the Commission in the exercise of its expert judgment. The proposed rule does not itself restrict or limit environmentally harmful activity. In adopting mandatory risk factor disclosures, for example, which had previously been made by many companies, but not by all; in adopting disclosure requirements for derivative contracts, which many companies had disclosed in detail, but others had not; and in codifying thresholds for disclosure of environmental liabilities, which many companies had been previously disclosing, but not all, or consistently, or reliably. 30, 2021). 2d 613, 629 (S.D.N.Y. Shareholder Litig. At the same time, the risk of misuse of such information should also be carefully evaluated in light of the economic realities of the capital formation process. In other words, the delegation to the Commission was deliberate, was specifically intended to apply to required disclosures, and was sensible, reflecting an anticipation that the Congress itself could not reasonably work out in detail the kinds of choices necessary to develop and keep up to date an appropriate disclosure regime. 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. 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. Fund v. KCG Holdings, Inc., No. John Coates, the Divisions current Acting Director, has been named SEC General Counsel.