2020) (breach of duty of candor due to failure to disclose conflict of interest in merger); Chester County Emp.s Ret. 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. And now, according to Reuters , Acting Corp Fin Director John Coates remarked during a conference on climate finance that the SEC "'should help lead' the creation of a disclosure system for environmental, social and governance (ESG) issues for corporations." But how to craft the new rules? 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. One need not be a strong believer in the efficient market hypothesis to believe that disclosure often aligns market prices with investment risk and returns, albeit sometimes with delays and errors, which makes ongoing refinements in disclosure requirements all the more important to healthy markets. Third, the 1933 Act includes a specific limit to this authority, that it be for the protection of investorsbut no further qualifier. 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. Second, forward-looking information can of course be valuable. These reports are filed with the Clerk of the House as required by Title I of the Ethics . First, I am not pro- or anti-SPAC. 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. (Jan. 14, 2021). Economically, and practically, the private target of a SPAC is a different organization than the SPAC itself. With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. John F. Cogan, Jr. 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. It is true that the subject matter of the financial risks and opportunities raised by climate change are complex, and climate experts have specialized knowledge about climate science. 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. Robust public disclosure has been a hallmark of effective securities regulation since the 1930s, said SEC Chair Gary Gensler. But Coates will have his own financial . An effective ESG disclosure system does not imply a rigid and soon-to-be outdated set of limited disclosures. In contrast to the specific mentions of these other federal agencies, the authorizing document, Reorganization Plan No. Although the rule is more limited than what an impact advocate would want, it is in one important way broader than anything EPA has adopted or is likely to have to power to implement: its geographic reach. 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. 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. That ESG no longer needs to be explained illustrates how important these issues have become to todays investors, public companies and capital markets. Nothing at stake in this proposed rule justifies such judicial lawmaking. SPAC shareholders typically have a vote on the so-called de-SPAC transaction, and many investors who purchased securities in the first stage SPAC either sell on the secondary market or have their shares redeemed before or shortly after the de-SPAC. Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. Fund v. KCG Holdings, Inc., No. It may be time to revisit these issues. Second, there may be advantages to providing greater clarity on the scope of the safe harbor in the PSLRA. About 1,020 U.S. companies voluntarily disclosed their Scope 3 emissions last year.. What lessons can we learn from earlier examples of evolving risks? Professor Coates served as General Counsel and as Acting Director for the Division of Corporation Finance for the SEC. Rec. Starting with the costs, critics of ESG disclosure requirements often point to the costs associated with preparing the disclosures. 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. 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. Finally, companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. [3] E.g., Andrew Ross Sorkin et al., What a SPAC Believer Thinks of SPAC Mania, N.Y. Times (Mar. 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. To be sure, some elements of the SECs regulatory regime reflect a recognition that small or new public companies may not be as able to shoulder the costs of all disclosure requirements as older, larger companies. [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. Claims that disclosure would incentivize companies only to reduce or mitigate climate change impacts are not well considered. Ch. For example, it does not call for disclosure of a companys climate-related impacts on employees or customers or communities, except to the extent those impacts result in overall financial or business risks or opportunities (which do impact investors). Nor has the major questions doctrine ever been used to overturn authority unambiguously granted by the plain text of a statute. 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. Bloomberg reports that, according to Coates, the new disclosure requirements will focus on three topics: diversity, equity and inclusion; climate change; and human capital management. The Commissions proposed rule relies upon a traditional role for regulatory agenciesto find facts and use the facts so found to implement Congresss direction to require disclosures for a stated purposethe protection of investors. However, many legal questions have clear answers. 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. [10] See infra note 12. The U.S. Supreme Court has repeatedly and recently emphasized that the fundamental purpose of the 1934 Act [was] to substitute a philosophy of full disclosure for the philosophy of caveat emptor . 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. Congress expected the Commission to use expert judgment to update disclosure over time, as new or newly identified risks emerge. It has never been EPAs job. Even if one has a strong belief in the value of the major questions doctrine as an important tool for enforcing the constitutional principle of separation of powers, there is no role for a clear statement principle when the text and context of a statute are as clear and consistent as the 1933 and 1934 Acts are. Section 13(a)(2) of the 1934 Act goes further still, and requires companies to disclose, under rules the Commission: may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security such annual reports and such quarterly reports as the Commission may prescribe. Critics of Coates say he has too . John Coates Named Acting Director of the Division of Corporation Finance FOR IMMEDIATE RELEASE 2021-19 Washington D.C., Feb. 1, 2021 The Securities and Exchange Commission announced today that John Coates will serve as Acting Director of the agency's Division of Corporation Finance. It does not impose a carbon tax or create a cap-and-trade regime. De-SPAC transactions also may give rise to liability under state law. 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. Aircraft manufacturers essentially have their own specialized program accounting, due to the unusually long and complex capital investment process they follow. It would not affect the way that property insurers underwrite, pool or reserve against climate risksthat is for insurance regulators. The idea that the SEC can go out and do more research on these issues, however, was dismissed by former SEC general counsel John Coates, now a professor at Harvard Law School, who wrote in his. 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. It does not suggest any limit other than what is in the statutes themselves, including NEPA. 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. The directive consolidated authorities and activities spread across six different departments and agencies, ranging from the Department of Agriculture to the Atomic Energy Commission. Its creation was accomplished by Presidential directive, subsequently approved by Congress in 1984. A comprehensive reporting regime would apply to all companies, worldwide, regardless of ownership, and would encompass impacts generally, rather than solely physical risks and transition risks to investors in US public companies. 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. Rather, it calls for specific disclosures that investors in US public companies need to evaluate and price climate-related financial risks and opportunities. 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. 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. "John is widely recognized as an expert on corporate governance, corporate transactions, and compliance and disclosure processes," Lee said in a statement. Biography. I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions. 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. Getting The Talent Balance Right: From Layoffs to Laterals to Mergers, How Can Firms Staff for Success? People often think of mandatory disclosure in a way that suggests that there is nothing more than an on/off switch between mandatory and voluntary disclosure. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). In 2004 he returned to Cambridge to research the biology of More about John Coates These decisions show that the Commissions delegated power is limited, and that the statutory limits (protection of investors and markets) are intelligible and have bite. John Coates is author of the financial bestseller The Hour Between Dog and Wolf: How Risk-Taking Transforms Us, Body and Mind. They have been adopted under Chairs appointed by both Democratic and Republican Presidents, in every decade since 1933. LONDON, Oct 10 (Reuters) - When John Coates was on a winning streak during his days as a trader at Deutsche Bank and Goldman Sachs, the narcotic-like "high" he experienced was so powerful he was determined to find out more. 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. 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. https://www.law.com/nationallawjournal/2021/03/25/harvard-laws-john-coates-now-at-sec-reveals-consulting-income-clients/. The economic essence of an initial public offering is the introduction of a new company to the public. 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. It is not a transformative surprising regulatory departure, raising such a major question as to justify interpretive methods other than those of a faithful agent of Congress. 6LinkedIn 8 Email Updates, Accounting and Financial Reporting Guidance, Compliance and Disclosure Interpretations, No-Action, Interpretive and Exemptive Letters, Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (SPACs), SPACs, IPOs and Liability Risk under the Securities Laws, ESG Disclosure Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets. 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. 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. 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. ESG issues are global issues. The basics of a typical SPAC are complex, but can be simplified as follows. The Commission has neither approved nor disapproved its content. It does not cap emissions, an approach that would be typical of environmental regulation generally. Moreover, state law, such as in Delaware, may require disclosure of projections used by the boards or their advisors in these transactions. With Such Low Win Rates, Should Law Firms Respond to So Many RFPs? 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.. The Commission has always required information about a U.S. public companys consolidated subsidiarieswherever located. Climate-affecting companies owned by individuals, governments, families, or private equity funds would not be directly affected. The rule proposes disclosures of information about financial risks and opportunities that are reasonably understood as appropriate for the protection of investors. 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. What is the upshot of this? Shareholder Litig. 2634.101-805 (see Subparts A-H) Financial disclosure reports are used to identify potential or actual conflicts of interest. Congress did not direct the Commission to protect investors through disclosure only when it is politically non-controversial to do so. He is a former Research Fellow in Neuroscience and Finance at the University of Cambridge, and previously traded derivatives for Goldman Sachs and ran a trading desk for Deutsche Bank. They believe climate change is not primarily caused by human activity. It does not address how to measure or use the social cost of carbon, as is done by other agencies. 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. That does not make those rules unduly burdensome or costly. STAY CONNECTED First, while we should be mindful of the costs of new ESG disclosures, we must at the same time acknowledge the costs from the absence of a consensus ESG-focused disclosure system. . 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. Companies either do or do not have property, plant and equipment in flood plains. 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. License our industry-leading legal content to extend your thought leadership and build your brand. 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. Three of those exclusions are of note: those made in connection with an offering of securities by a blank check company, those made by a penny stock issuer, and those made in connection with an initial public offering. They of course help sell the deal, but they can also be a key component for boards and other participants in negotiating and understanding the economics indeed, the fairness of the transaction. John C. Coates and R. Glenn Hubbard, Competition in the . Because it is an investor-focused disclosure rule, and in no plausible way advances a general policy on climate, it raises no new major question of that kind, that might theoretically justify a departure from standard methods of statutory interpretation. 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). On balance, research on the Act's net . John Coates, acting director of the SEC's Division of Corporation Finance, similarly stated in a recent speech that 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," noting in particular the task of adapting existing rules and The Commissions authority to adopt the actual proposed rule remains intact, and clear. These cases also show that protection of investors includes disclosure not only about securities, but also companies that issue them, and risks to investors their activities create. Dynamically explore and compare data on law firms, companies, individual lawyers, and industry trends. The Commission has authority over disclosure about all activities of a consolidated multinational if it is a US public company, including the 40+% or more of those activities that are located outside the US, as noted above. Is guidance needed about how projections and related valuations are presented and used in the documents for any of these paths? He observed first-hand the powerful emotions driving traders. It is true that many companies are spending money to do thisfurther evidence of the importance of the information. As the proposing release notes, half of all public companies already make some climate disclosures in their SEC reports, and the Chamber of Commerce reports that more than half of surveyed companies publish sustainability reports. No court has ever found that this long line of exercises of the basic authorities on which the current rule relies were beyond the Commissions authority. As such, there is no one set of metrics that properly covers all ESG issues for all companies. Coates received his Bachelor of Arts with highest distinction from the University of Virginia and his law degree from New York University Law School. 2019-0100-KSJM, 2019 WL 1313408 (Del.Ch. . 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. The 1933 Act does not limit additional disclosures to those that are related or similar to the items in Schedule A, or material, or financial, despite the fact that Congress frequently used those very qualifiers elsewhere in the statute. The president's financial disclosure reports are extensively reviewed for potential or actual conflicts of interest and compliance with applicable laws and policies by the Chief Compliance and Ethics Officer of the Bank, and the Chairman of the Bank's board of directors. Important and challenging questions must be addressed, such as: These are questions that the SEC should be a key part of answering. 5-min read. 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. Circuit affirmatively held that the Commission had authority to do that, and, in its judgment, to potentially go further. Finally, it is beyond argument that the Clean Air Act nowhere mentions the Commission much less modifies its disclosure authority. Renee brings deep expertise in corporate governance and securities law to the Division of Corporation Finance. Securities Act Rule 419 (which predated passage of the PSLRA) limits its definition of blank check company to one that issues penny stock. Most SPACs, however, avoid meeting the definition of penny stock issuer and are therefore neither a blank check company nor a penny stock issuer as those terms are defined. During his prior service on the SECs Investor Advisory Committee, he chaired the Investor-as-Owner Subcommittee. 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. The safe harbor is also not available if the statements in question are not forward-looking. Facebook gives people the power to. Congress, having made a fundamental policy judgment to require full and fair disclosure to protect investors, directed the Commission to make ongoing subsidiary choices of precisely what details of disclosure to require and when, after engaging in fact-finding and analysis that Congress chose not to try to do itself. As detailed in Annex B to this post, not only has the Commission repeatedly specified more than the minima in the 1933 Act itself, it has repeatedly had its augmented disclosure rules acknowledged, accepted and ratified by Congress, through multiple amendments to its organic statutes. 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 The caption to Section 7Information required in registration statementcontains no qualifiers on information. The authorizing language in Section 7(a)(1) is limited by Section 7(a)(2), but only for a designated class of emerging growth companies, and not as to content. The event, which was organized by the nonprofit consumer advocacy organization Public Citizen, also included speeches by former Harvard Law School [] 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. 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. 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.
john coates financial disclosure