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30, 2021). Professor of Law and Economics at Harvard Law School, where he also serves as the Vice Dean for Finance and Strategic Initiatives, and Research Director of the Center on the Legal Profession. 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. Important and challenging questions must be addressed, such as: These are questions that the SEC should be a key part of answering. John Coates Financial Services Professional at NYLIFE Securities LLC If the public wants comprehensive disclosures of climate impact that extend beyond impacts on investors, legal authorities other than those used here may need to be usedperhaps by other agencies or Congress itself. The industry-leading media platform offering competitive intelligence to prepare for today and anticipate opportunities for future success. Some claim that the statutory limits on the Commissions disclosure authority have no real meaningbecause one can pretend that anything is for protection of investors, no real limiting principle exists in the 1933 and 1934 Acts on the Commissions authority, so either it impermissibly delegates or further limits need to be invented to make the statutes constitutional. Women, Influence & Power in Law UK Awards 2023, Legalweek Leaders in Tech Law Awards 2023, WORKERS COMPENSATION ATTORNEY - Hartford, CT, Offering an Opportunity of a Lifetime for Personal Injury Lawyers, What Does Your Business Agreement Really Mean? 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. The complete publication, including footnotes and annex, is available here. These understandings help explain Congresss decision to direct the Commission to specify additional disclosures under the 1934 Act, to adapt the statute to emerging financial risks and opportunities and maintain efficient capital market pricing and investor confidence over time. The Commission has not substantively amended the definition of blank check company since the passage of the PSLRA, but of course, it could consider doing so in the future. 9300 Shelbyville Road, Suite1250, Louisville, KY 40222 (502) 327-8589. and lifetime income strategies . Financial Reports. Economically, and practically, the private target of a SPAC is a different organization than the SPAC itself. Prior to joining the SEC, John was the John F. Cogan Professor of Law and Economics at Harvard University, where he also served as Vice Dean for Finance and Strategic Initiatives. The Securities and Exchange Commission won't wait long to act after the June 13 end of a public comment period on potential ESG regulations, John Coates, acting director of the SEC's Division of Corporation Finance, said Friday. 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. 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. On the issue of global comparability, in the first instance, arguments in favor of a single global ESG reporting framework are persuasive. When you do that you have a better chance of being more fully valued.)); cf. 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. 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. Funding, governance and public accountability are all critical elements of a reliable, trusted disclosure system. If the Commission or staff pursue that route, however, it would be important to keep the practicalities of SPACs in mind, in addition to other aspects of SPAC structures, relative to conventional IPOs as well as to other forms of achieving dispersed ownership, such as direct listings. About John Coates. Courts have rejected attempts to deny application of the securities laws and the philosophy of full disclosure in cases involving the sale of a whole company, if effected through the sale of securities, or where conduct may violate both corporate law and the Commissions disclosure laws. Although Congress gave the Commission power to conduct temporary testing programs to evaluate the effectiveness of disclosures in the Dodd-Frank Act, in neither that statute nor the original 1933 and 1934 Acts did it suggest the Commission use polling or surveys to establish the content of disclosures appropriate to protect investors. The long-recognized fact the statutes were remedial laws following the Crash of 29. 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. Concerns include risks from fees, conflicts, and sponsor compensation, from celebrity sponsorship and the potential for retail participation drawn by baseless hype, and the sheer amount of capital pouring into the SPACs, each of which is designed to hunt for a private target to take public. 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. Still another study finds that mutual fund managers are misestimating climate risks based on current, inconsistent and unreliable disclosures. 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. Volkswagen announced $180 billion of investments in electronic vehicles. Introduction. Second, forward-looking information can of course be valuable. 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. That there are limits on the limits is also clear from prior decisions. 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. Read fairly and dispassionatelynon-politically, one might saydisclosures specified by the rule are not about environmental impact, or climate change, but about financial risks and opportunities related to climate change. The resulting awareness of the need for detailed specification of disclosures led to the delegation reflected in the 1933 Act. It does not impose a carbon tax or create a cap-and-trade regime. 22, 2019) (enjoining two cross-conditioned mergers due to disclosure inadequacies concerning special procedures used to mitigate conflict of interest). If we do not treat the de-SPAC transaction as the real IPO, our attention may be focused on the wrong place, and potentially problematic forward-looking information may be disseminated without appropriate safeguards. 2009) (There is no required state of mind for a violation of section 14(a); a proxy solicitation that contains a misleading misrepresentation or omission violates the section even if the issuer believed in perfect good faith that there was nothing misleading in the proxy materials); Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on Potential Exchange Act Section 10(b) and Section 14(a) Liability, Exchange Act Release No. In sum, throughout its history, and consistently, the Commission has fulfilled its statutory mandate to specify required disclosure of information that was not directly financial in nature, but posed risks about a future financial impacts, often indirect, contingent or both. Congress in 2012 thus ratified long-standing Commission exercises of the unambiguous authority in 7(a)(1). 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. Washington D.C., June 14, 2021 . To be clear, in the initial offering by a SPAC, when the shell company is first raising funds to finance all (or more commonly a portion) of its hoped-for acquisition of the yet-to-be-named target, disclosures clearly have a role to play under the federal securities laws. As regards climate change, environmental agencies might do well to focus on global activities as well, but it is unclear how EPA could with its existing legal authority impose requirements on companies not operating in the US. STAY CONNECTED The directive consolidated authorities and activities spread across six different departments and agencies, ranging from the Department of Agriculture to the Atomic Energy Commission. Mr Coates told Channel 7's Sunrise he "overruled" Ms Palaszczuk after she initially said she would not be among the 1000 or so VIPs to attend the Opening Ceremony, which - like most of the . EPA has no authority over disclosures about physical risks, or the financial risks of climate change to companies (and investors). 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. New investors buy these shares in the aftermarket or participate in a new offering by the combined entity. Governance needs to ensure the independence and expertise of any individuals involved in the setting of ESG disclosure standards, and allow for a rigorous, inclusive and transparent process for developing standards. Investments are being held back in the absence of that information. A process to create such standards is not likely to be simple, quick or easy. 5-min read. 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. As noted in the Commissions 2010 climate guidance, A 2007 [GAO] report states that 88% of all property losses paid insurers between 1980 and 2005 were weather-related. Since 1980, the US alone has experienced 323 severe weather events causing more than $1 billion of damage each. The proposed rule would not require national banks to consider climate-risks in lending activitiesthat is for banking regulators. Ch. The focus of those amendments, however, was the creation of national air quality standardswhat we generally call pollutionand the enforcement of those standards on a set schedule. 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. Over the past six months, the U.S. securities markets have seen an unprecedented surge in the use and popularity of Special Purpose Acquisition Companies (or SPACs). Dec. 21, 1995) (statement of Sen. Diane Feinstein, The provisions [of the PSLRA] are only available to companies with an established track record. and I understand the safe harbor does not apply to a new company, but only applies to seasoned issuers.). Even if the safe harbor clearly applies, its procedural and substantive provisions do not protect against false or misleading statements made with actual knowledge that the statement was false or misleading. Indeed, the actual proposed rule requires disclosure about subject matters long covered by indisputably authorized disclosure requirementsthe first point made by Commissioner Peirce in her dissent. 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.. 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. As customary, and in keeping with the Division of Corporation Finances ordinary practices, staff are reviewing these filings, seeking clearer disclosure, and providing guidance to registrants and the public. The Congress authorizes and directs that, to the fullest extent possible: (1) the policies, regulations, and public laws of the United States shall be interpreted and administered in accordance with the policies set forth in this chapter, and (2) all agencies of the Federal Government shall make available to States, counties, municipalities, institutions, and individuals, advice and information useful in restoring, maintaining, and enhancing the quality of the environment. In 2004 he returned to Cambridge to research the biology of More about John Coates It does not impose regulatory control over millions of small greenhouse gas sources. Even as a disclosure rule, it only calls for a subset of the climate-related disclosures from a subset of companies that affect climate change. John F. Cogan, Jr. No offers may be made or accepted from any resident outside the specific states referenced. That ESG no longer needs to be explained illustrates how important these issues have become to todays investors, public companies and capital markets. June 21, 2019) (refusing to dismiss case challenging merger approved by shareholders on ground that disclosure prior to vote was inadequate); Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. The proposed rule does not call for opinion or controversial speech of the kind that raises First Amendment concerns. Striking down regulations adopted pursuant to clear and limited delegated authority would turn the doctrines purpose against itself, prevent Congress from assigning traditional fact-finding and implementation roles to agencies, turn courts into unelected mini-legislatures, and subvert rather than reinforce the separation of powers. 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. Surveys of individual investors by firms such as Morgan Stanley confirm this evidence. [15] The PSLRAs exclusion for blank check companies overlaps the exclusion for penny stock issuers. 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. [14], But, lest the safe harbor swallow the entire securities disclosure regime, the PSLRA specifically excludes from the safe harbor statements made in connection with specified types of securities offerings. The financial disclosure that John Coates filed also offered a rare public peek into the costs of corporate compliance monitors. Those authorities are general in nature, not limited to specific topics. There remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. 2d 613, 629 (S.D.N.Y. 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 Investors need to know about sponsors and their financial arrangements, the procedural protections of the SPAC structure, and what kinds of returns the SPAC is likely to generate for investors absent a de-SPAC transaction or for those who choose to exit before the de-SPAC is completed. 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. Another peer-reviewed, published study finds that exposure to sea level rises and flooding is causally reducing property values, consistent with physical risk already being actively if imperfectly priced in property markets, which in turn expose investors in public companies that own real estate to related financial risks. Credit quality of loan portfolios requires expertise to understand in detail, which is typically found in bank regulatory agencies. MD&A: The 12-month period ended June 30, 2022, represents the first period in which companies were required to comply with the amended MD&A disclosure requirements adopted by the SEC in November 2020. Although climate change overall indisputably raises important policy questions, those remain for Congress. Claims that disclosure would incentivize companies only to reduce or mitigate climate change impacts are not well considered. Companies either do or do not engage in activities that result in the emission of greenhouse gases. 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. 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. Access to additional free ALM publications, 1 free article* across the ALM subscription network every 30 days, Exclusive discounts on ALM events and publications. Here, the proposal frames difficult, subsidiary choices, which divide reasonable observers. Many legal issues are open to reasonable debate. Coates asked some of his former colleagues in London's City financial district to give him some time, and some spit. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. 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. Detailed case studies of six rules - (1) disclosure rules under Sarbanes-Oxley Section 404, (2) the SEC's mutual fund governance reforms, (3) Basel III's heightened capital requirements for banks, (4) the Volcker Rule, (5) the SEC's cross-border swap proposals and (6) the FSA's mortgage reforms - finds that precise, reliable, quantified CBA

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