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. It does not embody a general policy to address climate change, or engage the range of social and economic issues that climate change raises. John Coates has few regrets on his way out the AOC door SEC Issues Guidance in Light of Ongoing Surge in SPAC IPOs Asbestos-related disclosure is a great example. Copyright 2023 ALM Global, LLC. About John Coates. PDF Testimony of Professor John C - United States Senate Committee on 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. STAY CONNECTED Some critics argue that investor demand should not be equated with investor protection, and it is true that the Commission has not (for good reason) attempted to survey investors in setting its own rulemaking agenda. He had been serving as the independent monitor for the U.S.. Volkswagen announced $180 billion of investments in electronic vehicles. [7] See, e.g., Chris Bryant, Why Chamath Palihapitiya Loves SPACs So Much, Bloomberg Opinion (January 28, 2021) (citing Haystack, Alignment Summit Chats: SPACS (w/ Chamath Palihapitiya), YouTube (Dec. 2, 2020) (statement of Chamath Palihapitiya) (Because the SPAC is a merger of companies, youre all of a sudden allowed to talk about the future. Harvard Law's John Coates, Now at SEC, Reveals Consulting Income As noted above, subsequent to the initial passage of the securities laws, but after the passage of the initial Clean Air Act and in the same year EPA was created (1970), Congress directed the Commission (along with all other agencies of the federal government) to consider environmental protection in its rulemakings. 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. 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? 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. 5 C.F.R. 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. It also cut back on liability of disclosure. We will also need to be open to and supportive of innovation in both institutions and policies on the content, format and process for developing ESG disclosures. They believe climate change is not primarily caused by human activity. 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. In the nature of corporate investment, investors in multinational US public companies bear climate-related financial risks and have opportunities to profit from their global activities. 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. Important and challenging questions must be addressed, such as: These are questions that the SEC should be a key part of answering. Traditionally, and as it has been used by the Supreme Court to date, the major questions doctrine is one of many canons that courtsas faithful agents of the Constitution and the Congressuse to interpret statutes, not rewrite them. Finally, it is beyond argument that the Clean Air Act nowhere mentions the Commission much less modifies its disclosure authority. John Coates remains as AOC president, beating challenger Danni Roche 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. First, I am not pro- or anti-SPAC. 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. Some claim the Commission has acknowledged or adopted limits on its disclosure authorities, beyond limits in the text of the statutes. 2007) (enjoining a merger because the proxy statement omitted the projections used to render the fairness opinion). 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. 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. 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. About ten percent of SPACs have liquidated between 2009 and now.[6]. This statement creates no new or additional obligations for any person. But it remains true that IPOs are understood as a distinct and challenging moment for disclosure. The Division plays an essential role in ensuring investors have the information they need to make informed investment decisions. Getting The Talent Balance Right: From Layoffs to Laterals to Mergers, How Can Firms Staff for Success? We'll send you a myFT Daily Digest email rounding up the latest Denise Coates news every morning. It would not affect the way that property insurers underwrite, pool or reserve against climate risksthat is for insurance regulators. 2634.101-805 (see Subparts A-H) Financial disclosure reports are used to identify potential or actual conflicts of interest. 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. Currently, EPA does not purport to require disclosures about greenhouse gas emissions from facilities located outside the US, even if they are owned by US companies. The multiple places the statutes give the Commission authority to go beyond its text (to create exemptions, tailor its requirements, and add to them). That does not make those rules unduly burdensome or costly. For EPA, those emissions may not be a priority. How might a different disclosure regime have elicited different disclosures? Specifically, Section 7 gives the Commission unambiguous authority to specify the contents of disclosure documents used to register securities for sale to the public. SEC.gov | John Coates Named Acting Director of the Division of 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. [17] But it also is clear that investors at the time of the initial SPAC filing cannot understand all aspects of the long-term value proposition of the offering, precisely because a SPAC does not have operations or a business plan beyond a search for a target. Graphic Packaging is spending $600 million on the first paperboard line in the U.S. in decades, in part to lower carbon emissions. 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. If an officeholder has filed their annual financial disclosure statement, then a pdf of the filing will be posted. Second, there may be advantages to providing greater clarity on the scope of the safe harbor in the PSLRA. John Coates - Keynote Speaker | London Speaker Bureau 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 Hour Between Dog and Wolf by John Coates: 9780143123408 SEC Focuses on Potential Updates to U.S. Climate Change Disclosure 28, 2018) (refusing to dismiss claim that Musk controlled Tesla despite owning only 22% of the voting power due to actual domination and control). Donilon - 278.pdf Robert Downing - 278.pdf Travis Dredd - 278.pdf Anita Dunn - 278.pdf Stacy Eichner - 278.pdf John Elias . John Coates, the vice-president of the International Olympic Committee and outgoing president of the Australian National Olympic Committee, said "to a large extent" that Sydney was awarded the. Access to additional free ALM publications, 1 free article* across the ALM subscription network every 30 days, Exclusive discounts on ALM events and publications. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. Join National Law Journal now! SPAC use and popularity have soared over the past six months, John Coates, acting director of the Securities and Exchange Commission's Division of Corporation Finance, said in a note Thursday.. A company in possession of multiple sets of projections that are based on reasonable assumptions, reflecting different scenarios of how the companys 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 later used by courts to assess the disclosures. Fund v. KCG Holdings, Inc., No. The fact-finding for this rule, and the financial and accounting expertise on which it is based, is in keeping with the long tradition in which the Commission and its staff have applied expert knowledge about general risk/return, accrual and related concepts to an array of different source of risk and potential liability. 11, Special Purpose Acquisition Companies (December 22, 2020). 2021; 2020; 2019; 2018; 2017; 2016; 2015; 2014; 2013; ESG Disclosure - Keeping Pace with Developments Affecting Investors Third and finally, one of the more interesting and challenging aspects of recent SPAC transactions is that the investors in the SPACs first public capital raise often redeem or sell their shares around the time of the business combination. 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. Indeed, the texts are so clear thatin contrast to the many times the Commission has been challenged on anti-fraud rulemakings, where authority has been interpreted as limited by common law anti-fraud principlesfew attempts have been made to challenge the Commissions use of its basic disclosure authorities to require disclosure. Funding needs to be reliable and adequate, both now and over a reasonable time period into the future, and should not detract from other essential elements of the system for public company disclosures. Equally clear is that any material misstatement or omission in connection with a proxy solicitation is subject to liability under Exchange Act Section 14(a) and Rule 14a-9, under which courts and the Commission have generally applied a negligence standard. Again, this language is not limited to what is necessary to protect investors, but gives the Commission discretion to specify what information is appropriate to protect investors and markets, based on its fact-finding and expert application of the statutes goals to evolving investor needs. He also served on the SECs Investor Advisory Committee, for which he chaired the Investor-as-Owner Subcommittee. To make their case, they distort the proposed rule beyond any fair reading, into a new, fictional rule that addresses environmental concerns rather than investor concerns. 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 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. Disclosures - FEDERAL RESERVE BANK of NEW YORK I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions. The release cites a number of studies to this effect. 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. [6] SPAC Status by Year of IPO, SPACInsider (last visited Apr. John C. Coates, IV, Lucian A. Bebchuk, John C. Coffee, Bernard S. Black, . No case is the contrary, and critics of the Commissions proposed rule cite none. John Coates, Former Wall Street Trader, Studies Neuroscience Behind Efforts by critics to dismiss these votes ignore the fact that most shareholder proposals fail due to well-known collective action problems affecting public company governance. John Coates Coates has served as the SEC's Acting Director of the Division of Corporation Finance since February 2021. Annex A contains just a samplingmany more additions and refinements have been adopted in the decades since 1933. Such a conclusion should hold regardless of what structure or method it used to do so. 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. John Coates, the John F. Cogan, Jr., Professor of Law and Economics at Harvard Law School, has joined the American College of Governance Counsel as a Fellow. 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. Financial Disclosure - United States Department of Justice LexisNexis and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information. John Coates bowed out as Australian Olympic Committee president at the Darling Harbour Sofitel in Sydney. It only specifies disclosures, and does not regulate climate change, or regulate climate emissions. 5-min read. This blog answers some questions about the changes. But to develop and apply a disclosure rule of the kind proposed here does not require the same level of climate expertise as held by EPA (or, for climate changes impact on weather, the National Oceanic and Atmospheric Administration), and those agencies lack the expertise in finance, accounting and investment that is also necessary for any investor-oriented disclosure rule that addresses climate-related financial risk. The Commission has neither approved nor disapproved its content. At an athletics meet in Melbourne early this year, he ran into John Wylie, the investment banker who chairs the Australian Sports Commission. 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 Nothing in law suggests that uncertainty, however reasonable, legally forbids rulemaking. About Us| The employee's supervisor, with his ethics official, should decide on the remedy. They point to a footnote in a 2016 Concept release to support this claim. The Commissions authority, to reiterate, includes discretion to promulgate rules governing corporate disclosure. The Commissions authority to adopt the actual proposed rule remains intact, and clear. Companies either do or do not engage in activities that result in the emission of greenhouse gases. As a result, depending on current capital market pricing, the rule could increase climate-impacting activities. So, my background is, my introduction alluded to it, is the corporate and financial market side and I was blissfully ignorant of and happy to ignore everything that By seeking to address those considerations adequately and transparently, the SEC can and should play a leading role in the development of a baseline global framework that each jurisdiction can build upon to address its individual needs. As companies continue to disclose more in sustainability reports, they should already be evaluating those disclosures in light of existing anti-fraud obligations. The Securities and Exchange Commission today announced that Renee Jones has been appointed Director of the Division of Corporation Finance. Reporting requirements regarding emissions of all kinds were a subsidiary authority given to EPA to supplement the more direct, substantive power to regulate the amount and type of emissions. And earlier this month, Bloomberg reported that John Coates, the SEC's Acting Director of the Division of Corporation Finance, indicated that new disclosure requirements would focus on three areas: diversity, equity and inclusion; climate change; and human capital management. Before joining the SEC, he served as the John F. Cogan Professor of Law and Economics at Harvard University, where he also was Vice Dean for Finance and Strategic Initiatives. It addresses global climate risks to public companies, and not all climate risks created by domestic activities of all companies, public and private. Many ESG-related issues are similar to ones we have faced before. It would not itself force any company to shut down greenhouse-gas-emitting factories. Moreover, is it appropriate that the choice of how to go public may determine or be determined by liability rules? Far from calling for lengthy or complex sustainability reports of the kind most S&P 500 companies already publish, these requirements could be met with relatively succinct disclosure for companies with minimal climate-related risks. . 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. John Coates - Penguin Random House Speakers Bureau First, the 1933 Act itself required disclosure not only of specified financial items, but also qualitative, open-ended information, such as the general character of the companys business, compensation, and material contracts, and reinforced its breadth by referring not only to opinions of accountants and appraisers but also engineers and other professionals, such as lawyers oras under the present proposalexperts on greenhouse gas accounting. He previously worked for Goldman Sachs and ran a trading desk for Deutsche Bank in New York. An extended comment on the 1933 Act published in the Michigan Law Review in March 1934 echoes these points, summarizing the law as having two purposes: (1) that there shall be filed with the Federal Trade Commission a full, accurate and complete statement of all pertinent facts concerning issues of the securities and (2) that instruments of transportation or communication in interstate commerce and the mails shall not be used directly or indirectly to effectuate fraudulent sales. If those targets are simply greenwashing, the proposed rules will reduce their potential to harm investors caused by fraud or misleading disclosure short of fraud. Numerous other disclosure requirements adopted by the Commission over the years are similar in applying to specialized areas of expertise primarily existing outside the agency. It also illustrates the pace of ESG developments. The proposal is both narrower and broader than the critics fictional rule because it calls for and is limited to investor-focused information from public companiestraditional and long-standing hallmarks of U.S. securities laws and regulations. Delaware corporate law, in particular, conventionally applies both a duty of candor and fiduciary duties more strictly in conflict of interest settings, absent special procedural steps, which themselves may be a source of liability risk. 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. 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. [16] Debate in Senate to Override President's Veto, 141 Cong. Shareholders stunned virtually everyone, including ExxonMobils management, when they elected dissident directors pledged to change the companys climate policy with 62% of the vote, while shareholders voted for emissions disclosure proposals at ConocoPhillips and Chevron. 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. 6LinkedIn 8 Email Updates. Only at that time did EPA take the position its 1970 authority over air pollution gave it authority to require climate-related disclosures. 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. Professor of Law and Economics at Harvard Law School. 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