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. John C. Coates and R. Glenn Hubbard, Competition in the . . John C. Coates is the John F. Cogan, Jr. To be effective, he said, new SEC rules "must produce results that are useful, consistent, and comparable." Do particular disclosures, procedures, and liability rules reduce the all-in costs of capital? Washington D.C., June 14, 2021 . The limitations in 7(a)(2) were imposed in 2012, by which time (as detailed below and in Annex A), the Commission had repeatedly relied upon the language in Section 7(a)(1) to require disclosures of all kinds, including non-financial disclosures, environmental disclosures and climate-change related disclosures. 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. Any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst. Because the rule is an investor-oriented disclosure rule, it is within the Commissions expertise. It also illustrates the pace of ESG developments. Third, the 1933 Act includes a specific limit to this authority, that it be for the protection of investorsbut no further qualifier. 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 It is authorized by clear statutes, is consistent with settled understandings, and addresses disclosure topics covered by rules adopted long ago by the Commission and ratified by Congress. (Sept. 30, 2020). Copyright 2023 ALM Global, LLC. In simple terms, the PSLRA excludes from its safe harbor initial public offerings, and that phrase may include de-SPAC transactions. EPA, for example, exempts from reporting emission sources below source-specific thresholds. It does not cap emissions, an approach that would be typical of environmental regulation generally. On the issue of global comparability, in the first instance, arguments in favor of a single global ESG reporting framework are persuasive. The reason is simple: the public knows nothing about this private company. John Coates Acting Director, Division of Corporation Finance March 11, 2021 Statement Published in Connection with Remarks at the 33rd Annual Tulane Corporate Law Institute [1] Not long ago, the title of this statement would have needed to unpack "ESG" into Environmental, Social and Governance. 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. SEC taking hard look at SPAC warrants, disclosures | CFO Dive But it is also clear that companies are not doing so consistently, comparably, or reliably. 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. The subject of a disclosure is new, when the nature of business and investment is dynamic. 3d 1041, 1049-50 (N.D. Cal. Part of the difficulty is in the fact that ESG is at the same time very broad, touching every company in some manner, but also quite specific in that the ESG issues companies face can vary significantly based on their industry, geographic location and other factors. Often these requirements have been specific and prescriptive in nature. Information should be cost-effective and reliable, and not materially misleading, in every securities transaction. John Coates - Forbes S190602 (daily ed. Mar. I am unaware of any relevant case law on the application of the IPO exclusion. Investors and owners commonly view forward-looking information as decision-useful and relevant. But critics claim that EPA authority repealed the Commissions authority is even more basically addressed by noting the significant differences in the two agencies organic statutes as applied to climate-related financial risk. 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. Would it have resulted in more timely, clear and useful information for investors about asbestos manufacturers, sellers and insurance companies? The safe harbor is also not available if the statements in question are not forward-looking. Protecting investors has been the Commissions job since 1934. All those sources here align with the 1933 Acts plain, ordinary meaning, and so confirm the above conclusions. John Coates: The Helpful Hand Guiding Brisbane's Olympic Win - The New [17] See Division of Corporation Finance, Disclosure Guidance: Topic No. If a U.S. public company owns facilities outside the US, as many do, they would be required to provide investors with information about those facilities. John Coates has few regrets on his way out the AOC door 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. Congress created the Commission as an expert agency with the capacity to address significant problems affecting the nations securities markets. 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. 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. SEC to Move 'Promptly' on ESG Rulemaking in 2021, Official Says [11] See, e.g., Beck v. Dobrowski, 559 F.3d 680, 682 (7th Cir. Myriam Robin is a Rear Window columnist based in the Financial Review's Melbourne . 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. The release cites a number of studies to this effect. Nor did Congress trim back the Commissions authority whenafter the Commission published climate-related disclosure guidance in February 2010Congress adopted the Dodd-Frank Act four months later, with numerous additions (not subtractions) to the Commissions disclosure authorities. 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. Do current liability provisions give those involved such as sponsors, private investors, and target managers sufficient incentives to do appropriate due diligence on the target and its disclosures to public investors, especially since SPACs are designed not to include a conventional underwriter at the de-SPAC stage? If useful for the protection of investors, disclosure was not limited to the four corners of, or even commentary on, financial statements. Coates received his Bachelor of Arts with highest distinction from the University of Virginia and his law degree from New York University Law School. John C. Coates, IV, Lucian A. Bebchuk, John C. Coffee, Bernard S. Black, . When the only dissenting Commissioners primary basis for dissenting is that the Commission has already addressed the topic in prior rulemakings upheld by courts, courts have no basis for using one discretionary canon to apply personal policy judgments on a topic within the Commissions conventional and textually clear statutory authority. Simply put, any such asserted difference seems uncertain at best. 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. It does not address how to measure or use the social cost of carbon, as is done by other agencies. Those important topics remain for Congress, and the proposal on its own does not raise new major questions warranting a deviation from standard statutory interpretation. EPA was created in 1970. The economic essence of an initial public offering is the introduction of a new company to the public. (IOC) (AOC) 2020IOC ICAS . Nothing at stake in this proposed rule justifies such judicial lawmaking. 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. The Commissions authority to consider environmental risks was reinforced and made even more clear by another statute, which critics do not seem to have even noted, much less considered, as detailed below. Critics of Coates say he has too . Law Offices of Gary Martin Hays & Associates PDF ISSN 1936-5349 (print) HARVARD - Harvard Law School Bare claims that a later-in-time-statute addressing a different agency and a different set of legislative purposes are ever viewed by courts as silently trumping earlier statutes if their content overlaps in any way, or if the later one is in some way more specific than the earlier one, are wrong as a matter of law. 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. Such a conclusion should hold regardless of what structure or method it used to do so. 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. 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. 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. 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. Appropriate liability should attach to whatever claims it is making, or others are making on its behalf. A consortium of public energy companies is raising $1 billion for emissions reductions technology. 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.