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. Those choices I do not here address. John Coates - Agent - New York Life Insurance Company | LinkedIn Although some are reluctant to consider legislative history or expert contemporaneous commentary in interpreting statutes, it is useful to do so briefly here for a simple reason. (IOC) (AOC) 2020IOC ICAS . The Commission has always required information about a U.S. public companys consolidated subsidiarieswherever located. John Coates, the producer of the classic animation film The Snowman, has died of cancer. Aside from the elementary fact that the Commission has no authority to edit Congressionally adopted statutes, the concept release actually says precisely the opposite. Companies either do or do not have property, plant and equipment in flood plains. Financial reporting quality appears to have gone up after SOX but research on causal attribution is weak. It is against this backdrop that I think about the regulation of ESG disclosures. Many legal issues are open to reasonable debate. John Coates holds court at last AOC farewell - Australian Financial Review I write to comment on legal authority. As we address these questions, we should keep in mind some additional points. The Commissions authority, to reiterate, includes discretion to promulgate rules governing corporate disclosure. A SPAC is a shell company with no operations. [6] SPAC Status by Year of IPO, SPACInsider (last visited Apr. Her leadership will be invaluable as the Division facilitates disclosure under our current rules and undertakes rule modernization to meet the challenges of today. Specifically, for the largest companies, the proposed rule would require three types of specific disclosures: Of these, the first and third are inarguably about financial risks and opportunities related to climate change. Rather, it calls for specific disclosures that investors in US public companies need to evaluate and price climate-related financial risks and opportunities. As a result, depending on current capital market pricing, the rule could increase climate-impacting activities. Statement of John Coates, Harvard Law School . Nothing in law suggests that uncertainty, however reasonable, legally forbids rulemaking. Banks and insurance companies are increasingly demanding similar information to make loans or underwrite policies. In its overall framework, the proposed rule builds on the Task Force on Climate Related Financial Disclosure (TCFD), whose leadership includes the CFO of Unilever, the General Manager of Mitsubishi, and the former CAO of HSBC, and whose work has been supported by Bank of America, Barrick Gold, Dupont, Hewlett Packard, and Pepsico, among scores of other companies. The economic essence of an initial public offering is the introduction of a new company to the public. Starting with the costs, critics of ESG disclosure requirements often point to the costs associated with preparing the disclosures. 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. The staff at the Securities and Exchange Commission are continuing to look carefully at filings and disclosures by SPACs and their private targets. [4] SPACs What You Need To Know, Investor.gov (Dec. 10, 2020). Rep. No. 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 proposed rule does not itself restrict or limit environmentally harmful activity. Cost-Benefit Analysis of Financial Regulation: Case Studies and The status quo is costly for companies, and increasingly so over time. L. Sch. 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. . Many contain materiality qualifiers, but many do not. As with the 1933 Act, this statutory language authorizes periodic reports and imposes no subject-matter restriction on those reports. That does not make those rules unduly burdensome or costly. Robust public disclosure has been a hallmark of effective securities regulation since the 1930s, said SEC Chair Gary Gensler. No. You can see John Rubin's blog on this here. 5, 2021); Priya Cherian Huskins, Why More SPACs Could Lead to More Litigation (and How to Prepare), A.B.A. Companies objectively do or do not have strategies that reflect transition risk or physical risks of climate change. [11] See, e.g., Beck v. Dobrowski, 559 F.3d 680, 682 (7th Cir. SEC Issues Guidance in Light of Ongoing Surge in SPAC IPOs 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. Information should be cost-effective and reliable, and not materially misleading, in every securities transaction. 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 . 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. 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). Financial Disclosure Reports include information about the source, type, amount, or value of the incomes of Members, officers, certain employees of the U.S. House of Representatives and related offices, and candidates for the U.S. House of Representatives. Jones is a member of the American Law Institute and has served as the Co-Chair of the Securities Law Committee of the Boston Bar Association. Recognizing innovation in the legal technology sector for working on precedent-setting, game-changing projects and initiatives. The PSLRA was passed by Congress in 1995 to stem what was considered to be a rising tide of frivolous or unwarranted securities lawsuits aimed at operating companies filing routine annual and quarterly reports under the Exchange Act. The D.C. Circuits decision, moreover, was premised in part on a representation by the Commission that the Commission would continue to reevaluate the need for such [new disclosure] requirements from time to time. The climate disclosure rule now proposed by the Commission is precisely in keeping with that long-standing commitment by the Commission. 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. Instead, the rules limitsto public companies with securities trading in the U.S.again underscore how it is well within the scope of traditional securities law, designed for investor protection, and not for other goals. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). An IPO is where the protections of the federal securities laws are typically most needed to overcome the information asymmetries between a new investment opportunity and investors in the newly public company. 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. 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. 104-369, 43 (November 28, 1995) (Congress created the safe harbor provision to enhance market efficiency by encouraging companies to disclose forward-looking information.). This post is based on his recent comment letter. On April 12, 2021, the Staff of the U.S. Securities and Exchange Commission (SEC), under the signature of Acting Director of the Division of Corporate Finance John Coates and Acting Chief Accountant Paul Munter, released the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies 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. Authority for disclosure under the 1934 Act addressed more than the need for protection of the initial investor acquiring securities. ESG issues are global issues. This is for the obvious reason that investors in the parent company face the consequences of all economic results created by that company. 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). The purpose of the disclosure was also to protect markets and market pricing, and improve the resulting allocation of capital. 25, 2021); Jennifer Bennett, Canoo Faces Investor Suits Over Post-SPAC Deal Focus Changes, Bloomberg Law (Apr. The employee's supervisor, with his ethics official, should decide on the remedy. 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. 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. John Coates Coates has served as the SEC's Acting Director of the Division of Corporation Finance since February 2021. The United States Securities and Exchange Commission has focused increasingly on SPACs in recent months, and is particularly concerned with conflicts of interest that incentivize a SPAC's sponsors, directors, officers, and affiliates to close a de-SPAC transaction even when doing so is not in the best interests of SPAC shareholders, and whether He joined his billionaire sister and co-CEO, Denise, in 2001 to launch Bet365 after she . When Congress passed the PSLRA, the path to becoming a public company was fairly simple and standardized. Is guidance needed about how projections and related valuations are presented and used in the documents for any of these paths? Our existing system contains some mandatory ESG disclosure requirements (e.g., disclosure of how a companys board considers diversity in identifying director nominees). In 2004 he returned to Cambridge to research the biology of More about John Coates It does not impose a carbon tax or create a cap-and-trade regime. 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. 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.