Second, in thinking about ESG disclosures, we should not view ourselves as forced into a stark choice between voluntary and mandatory disclosure. Litig., 238 F. Supp. In short, disclosure authority extends beyond what would constitute fraud at common law, and has long been used by the Commission to specify disclosure of what would not necessarily be material for that purpose. 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. 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. 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. Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. 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 With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. They will continue to be vigilant about SPAC and private target disclosure so that the public can make informed investment and voting decisions about these transactions. What is the best way to verify or provide assurance about disclosures? This post is based on his recent comment letter. 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. Do particular disclosures, procedures, and liability rules reduce the all-in costs of capital? 11, 2019) (refusing to apply deferential review where special conflict of interest procedures were not applied ab initio); FrontFour Capital Group LLC v. Taube, No. 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 the House Report accompanying the 1934 Act explained: The idea of a free and open public market is built upon the theory that competing judgments of buyers and sellers as to the fair price of a security brings about a situation where the market price reflects as nearly as possible a just price. This is for the obvious reason that investors in the parent company face the consequences of all economic results created by that company. The context for the authorizing sections of those statutes supports the Commissions authority: Canons against ineffectiveness and in favor of validity, and the general terms canon all caution against courts making up their own limits on textual authority, particularly on grounds such as: For the Commission programmatically to refuse to protect investors due to concerns about politics would itself be a political and controversial policy position. On the issue of global comparability, in the first instance, arguments in favor of a single global ESG reporting framework are persuasive. Annex A contains just a samplingmany more additions and refinements have been adopted in the decades since 1933. Financial risks importantly include physical risks, such as those arising from severe weather events, such as floods, hurricanes, and wildfires. 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 The status quo is costly for companies, and increasingly so over time. On March 22, 2021, the SEC launched a new page on its website bringing together all things ESG including agency actions and the latest information on ESG investing. Author Page for John C. Coates, IV :: SSRN This discretion continues to be sensible, in light of the fact that: The Commissions task [is] a peculiarly difficult one, requiring it to find a path between the views of the parties to the rulemaking polarized in support of the broadest disclosure or in opposition to any disclosure, to interpret novel statutory commands, and to make decisions against the background of rapidly changing conditions . It has never been EPAs job. Clear statement canons play no role when statutes speak clearly. Its greenhouse gas emission disclosure elements are aligned with the EPAs existing requirements for US emission sources, which in turn are aligned with the widely used and privately developed Greenhouse Gas Protocol, which was a joint product of companies, investors and other organizations. Moreover, the landscape is changing rapidly so issues that yesterday were only peripheral today are taking on greater importance. The proposed rule would not require national banks to consider climate-risks in lending activitiesthat is for banking regulators. The proposed rule does not call for opinion or controversial speech of the kind that raises First Amendment concerns. Although the content and nature of the disclosure have long been covered by Commission rules, the proposed rules add specificity, detail, and consistency (and require assurance) in ways that existing rules do not. It does not embody a general policy to address climate change, or engage the range of social and economic issues that climate change raises. Professor of Law and Economics Harvard Law School 1875 Cambridge Street Cambridge, MA 02138, United States phone: 617-496-4420 e-mail: jcoates@law.harvard.edu *Corresponding Author Electronic copy available at : http ://ssrn.com /abstract = 2375396 COST-BENEFIT ANALYSIS OF FINANCIAL REGULATION: CASE STUDIES AND IMPLICATIONS Recommendation from the Investor-as-Owner Subcommittee of the SEC It does not cap emissions, an approach that would be typical of environmental regulation generally. 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. Anyone who sees a role for law to require disclosure of comprehensive information about the sources of greenhouse gas emissions will not be satisfied by this rule. Congress could not have predicted the wave of SPACs in which we find ourselves. The SEC is well equipped to lead and facilitate a discussion on when and how ESG risks and data must be disclosed, and how to create and maintain an effective ESG-disclosure system that would promote the disclosure of decision-useful, reliable and, where appropriate, globally comparable ESG information. 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. These claims raise significant investor protection questions. The Helpful Hand Guiding Brisbane's Olympic Victory. About 1,020 U.S. companies voluntarily disclosed their Scope 3 emissions last year.. Private equity fund investors are already and increasingly demanding climate-related information and commitments from the funds or their advisors. [1] This statement represents the views of the Acting Director of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC or Commission). A topic of a disclosure is political, or controversial, or is not uncontroversially for investor protection, any of which would only invite interest groups to politicize a topic in the hopes of later arguing it should be off limits for the Commission to address. Said plainly, many investors in the SPACs own initial offering are not the investors in the ultimate public companys ongoing business operations. 6LinkedIn 8 Email Updates. In the first stage, it registers the offer and sale of redeemable securities for cash through a conventional underwriting, sells them primarily to hedge funds and other institutions, and places the proceeds in a trust for a future acquisition of a private operating company. SEC Regulation of ESG Disclosures - The Harvard Law School Forum on 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. The financial effects of physical risks are large and growing. John Coates is the co-CEO of U.K. company Bet365, one of the world's largest online gambling businesses. PDF Statement of John Coates, Harvard Law School JOHN COATES, HARVARD - FEC Not long ago, the title of this statement would have needed to unpack ESG into Environmental, Social and Governance. 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. Many ESG-related issues are similar to ones we have faced before. [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 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. Thousands more have been filed since the release was proposed, including many from self-identified individual investors. PDF ISSN 1936-5349 (print) HARVARD - Harvard Law School Simply put, any such asserted difference seems uncertain at best. 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. There remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. 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. For example, the Commission could use the rulemaking process to reconsider and recalibrate the applicable definitions, or the staff could provide guidance explaining its views on how or if at all the PSLRA safe harbor should apply to de-SPACs. That is because it is true that the Commissions authority does not run so far as to require disclosures for any reason, or for reasons not specified in its organic statutes. Cost-Benefit Analysis of Financial Regulation: Case Studies and Tokyo 2020: John Coates response to Annastacia - dailytelegraph 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. With all these changes, the appeal of understanding and developing law around economic substance over form may be greater than ever. Site Map, Advertise| On balance, research on the Act's net . John Coates, Keeping Pace with ESG Disclosure Developments Affecting Investors, Public Companies and the Capital Markets, . Duke Energy is investing $52 billion in transitioning to lower carbon resources. It may be time to revisit these issues. 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. But its basic statutory authority does not limit the level of generality at which an otherwise long-required disclosure topic may be addressed. By contrast, the focus of traditional environmental regulationincluding EPA reporting rulesis solely the reversethe impact of companies on climate change. (forthcoming 2021); Minmo Gahng, Jay R. Ritter and Donghang Zhang, SPACs, Working Paper (Mar. With this subscription you will receive unlimited access to high quality, online, on-demand premium content from well-respected faculty in the legal industry. 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. John Coates - Penguin Random House Speakers Bureau The proposed rule does not itself restrict or limit environmentally harmful activity. 12711-VCS, 2018 WL 1560293 (Del.Ch. 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. Don't miss the crucial news and insights you need to make informed legal decisions. Open in Who Shared Wrong byline? Because the items listed in the statutes themselves could not reasonably be understood to cover all pertinent facts, the final language in the statute also reflected an expectation that Commission regulations would be needed to augment the statute itself. 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. Because, finally, the disclosures are financial and do not extend to the large part of the economy owned by private companies, they would not constitute general climate change policy, such as a carbon tax or emissions cap-and-trade scheme. In this regard, the work of the IFRS Foundation to establish a sustainability standards board appears promising. 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. AOC's annual report details $40,000 pay rise for John Coates - the Guardian Financial Disclosures - Other White House Officials . STAY CONNECTED 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. John Coates - Agent - New York Life Insurance Company | LinkedIn The Hour Between Dog and Wolf by John Coates: 9780143123408 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. They believe climate risks are minimal for the company, or for the world, for whatever reason, if that is their honest belief. The 2023 Reporting Season: Recent SEC Guidance The brief historical review in Annexes A and B (and much more detail could be added) shows that nothing about the current proposed rules contents (discussed more below) should be legally surprising in any meaningful way, to Congress or to companies or their investors. The Commissions authority is plain in its organic statutes, legislative history, in long-standing precedent, in both court decisions and its own rules, and repeatedly accepted by Congress through amendments of the statutory bases for those rules. 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. As stressed by Commissioner Peirce in her dissenting statement, the proposed disclosures called for by the rule are in line with prior Commission-required disclosures, as detailed in Annex A. 2021 Financial Disclosure Statements. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). The new law creates a process for immediate disclosure for death or serious bodily injury. See also Rodriguez v. Gigamon Inc., 325 F. Supp. However, many legal questions have clear answers. Finally, companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. Congressional support for the Commissions clear (but statutorily limited) disclosure authority is shown by the fact that over time, in the face of repeated Congressional amendments and annual budget laws (in which Congress can and has inserted riders further limiting Commission discretion), the Commissions requirements ranged far beyond the limited lists of information in the 1933 and 1934 Acts themselves. An effective ESG disclosure system does not imply a rigid and soon-to-be outdated set of limited disclosures. 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. Based on a review of current sustainability reports that cover the same topics as would be required by the proposed rule, companies with material climate risks could create compliant disclosure that would take up a relatively small share of a typical annual report. 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 . Existing rules already cover material climate risks is the first point she makes. But it remains true that IPOs are understood as a distinct and challenging moment for disclosure. The employee's supervisor, with his ethics official, should decide on the remedy. John Coates named fellow of American College of Governance Counsel A consortium of public energy companies is raising $1 billion for emissions reductions technology.