ESG Disclosure - Keeping Pace with Developments Affecting Investors Financial Disclosures - Other White House Officials . 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 All Rights Reserved. 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. [8] Participants and their advisors are used and expect to prepare and disclose projections in acquisitions, including de-SPACs. From an environmental policy perspective, prioritizing based on environmental impact might make sense. Sixty percent of the Fortune 500 have announced climate targets, typically stated with reference to emissions data, including 17% with net-zero targets, yet 72% of investors lack confidence companies are serious about these targets. With Such Low Win Rates, Should Law Firms Respond to So Many RFPs? As we address these questions, we should keep in mind some additional points. 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. But critics claim that EPA authority repealed the Commissions authority is even more basically addressed by noting the significant differences in the two agencies organic statutes as applied to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. It also illustrates the pace of ESG developments. Mar. To be clear, in the initial offering by a SPAC, when the shell company is first raising funds to finance all (or more commonly a portion) of its hoped-for acquisition of the yet-to-be-named target, disclosures clearly have a role to play under the federal securities laws. This statement creates no new or additional obligations for any person. If a major shift in owners is in fact occurring in most or all SPACs as they progress through a de-SPAC, it is the de-SPAC as much as any other element of the process on which we should focus the full panoply of federal securities law protections including those that apply to traditional IPOs. John Coates is author of the financial bestseller The Hour Between Dog and Wolf: How Risk-Taking Transforms Us, Body and Mind. 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. 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. If the public wants comprehensive disclosures of climate impact that extend beyond impacts on investors, legal authorities other than those used here may need to be usedperhaps by other agencies or Congress itself. EPA is charged by Congress to have a concern for the environment, not for investors. Robust public disclosure has been a hallmark of effective securities regulation since the 1930s, said SEC Chair Gary Gensler. 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. 6, 2021). Regulation -- the Investment Company Act is one of the most successful disclosure laws . Financial disclosures released by former Secretary of State John Kerry indicate that until March of this year he held hundreds of thousands of dollars of investments in energy-related companies . 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. As discussed in Point II, each attack is mistaken and misleading because the proposed rule is not the critics fictional new rule. As a result, the rule will minimize costs and maximize benefits of compliance. But as some critics do ignore the plain language of the statute, it should be emphasized that they find no more support for the notion that the Commission lacks authority in the legislative history, or in generations of legislative, executive, and judicial understanding of the statutes meaning. These data, again, are thus directly relevant to financial risks and opportunities for public companies. 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. Companies could comply with the rule and say: No debate over the level of risk created by climate change is predetermined or purported to be resolved by the rule. The statute refers to the Commissions rules defining blank check company and to the Exchange Acts definition of penny stock.[15], By contrast, however, the PSLRAs exclusion for initial public offering does not refer to any definition of initial public offering. No definition can be found in the PSLRA, nor (for purposes of the PSLRA) in any SEC rule. 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. Disclosures - FEDERAL RESERVE BANK of NEW YORK 5 C.F.R. Congress also recognized that full and fair disclosure would enhance investor confidence. Apr. Join Facebook to connect with John Coates and others you may know. Chevron plans $2.75 billion in carbon-reduction projects, renewables and offset projects. SEC is scrutinizing SPAC projections, seeks clearer disclosures - CNBC Among them were Alliance-Bernstein, Neuberger-Berman, Schroder and Wellington, as well as BlackRock and State Street. 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. 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 . [13] Nor is the safe harbor available unless forward-looking statements are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. Economic analysis and expert fact-finding and assessments may inform choices about how detailed and what the details should be, and the Commission needs to follow its own economic analysis guidance in arriving at its conclusions, as well as comply with administrative law. The case for the Commissions authority to adopt the proposed rule is a simple, two-premise syllogism: Hence the rule is authorized. 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. More than thirty years later, EPA had not applied its authority to require emissions disclosures to greenhouse gas emissions. E.g., Jeff Montgomery, SPAC Investor Sues in Chancery Over MultiPlans Stock Drop, Law360 (Mar. [12] Cede & Co. v. Technicolor Inc., 634 A.2d 345, 361 (Del. It does not regulate climate activity itself (e.g., greenhouse gas emissions) and would have modest effects on the economy as a whole. 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. But forward-looking information can also be untested, speculative, misleading or even fraudulent, as reflected in the limitations on the PSLRAs liability protections, even when the safe harbor applies. Coates, recently finished work on a follow-up to the 1982 film to celebrate its . 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. Most companies now includeand sometimes are required to include industry- or firm-specific key performance indicators in their Commission filings, which require industry- or firm-specialized knowledge to understand and evaluate. How three decades of pain for John Coates drove Brisbane's bid for 2032 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. In truth, as this Point will detail, the actual proposed rule best fits with what investors need and want, and not what climate activists seeking to reduce climate impacts of business would seek, or even a rule they might write to elicit reporting about those impacts. [2] Item 407(c)(2)(vi) of Regulation S-K. (Disclosure required of whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director and if the nominating committee (or board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how the policy is implemented, as well as how the nominating committee (or the board) assess the effectiveness of its policy.), STAY CONNECTED Access to additional free ALM publications, 1 free article* across the ALM subscription network every 30 days, Exclusive discounts on ALM events and publications. Although climate change overall indisputably raises important policy questions, those remain for Congress. 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. Duke Energy is investing $52 billion in transitioning to lower carbon resources. "John is widely recognized as an expert on corporate governance, corporate transactions, and compliance and disclosure processes," Lee said in a statement. The creation of an entire new agency (the Commission) to implement and enforce the laws. But beyond academic research, hardest for any neutral observer to challenge as evidence of the financial risks related to climateand the reasonableness of climate-related financial disclosures to protect investorscomes from public companies themselves. The long-recognized fact the statutes were remedial laws following the Crash of 29. When Congress passed the PSLRA, the path to becoming a public company was fairly simple and standardized. Congressional ratification has been repeated and affirmativenot mere inaction. If those emissions targets are serious, they will matter to investors by leading to major changes in corporate strategy and investment policy, and in the financial risks and returns companies will generate for investors. Some but far from all practitioners and commentators have claimed that an advantage of SPACs over traditional IPOs is lesser securities law liability exposure for targets and the public company itself. See also Rodriguez v. Gigamon Inc., 325 F. Supp. It does not impose a carbon tax or create a cap-and-trade regime. The legislative history includes statements that the safe harbor was meant for seasoned issuers with an established track-record.[16]. Finally, companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. John M Coates Mark Gurnell Zoltan Sarnyai Little is known about the role of the endocrine system in financial decision-making. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. These higher costs can be particularly burdensome for smaller and more capital constrained companies, and yet if these companies do not provide ESG disclosures, they risk higher costs of capital. [11] Any material misstatement or omission in connection with a tender offer is subject to liability under Exchange Act Section 14(e). Over the past six months, the U.S. securities markets have seen an unprecedented surge in the use and popularity of Special Purpose Acquisition Companies (or SPACs). If comprehensive, economy-wide disclosure of climate impacts of all types of business is to be required by regulation, doing so will require more than the Commissions authority. The Commission has not substantively amended the definition of blank check company since the passage of the PSLRA, but of course, it could consider doing so in the future. 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. About 1,020 U.S. companies voluntarily disclosed their Scope 3 emissions last year.. (IOC) (AOC) 2020IOC ICAS . 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. The only limit on companies ability to speak about climate is a long-standing limitnot created by the proposed rulethat they not lie or deceptively omit material information in doing so. As companies continue to disclose more in sustainability reports, they should already be evaluating those disclosures in light of existing anti-fraud obligations. 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. The context of this authorizing language reinforces these conclusions. 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. In only two months, Ive come to rely upon Johns deep expertise and judgment, traits that are essential in the role of General Counsel, said Chair Gensler. Simply put, any such asserted difference seems uncertain at best. Moreover, the landscape is changing rapidly so issues that yesterday were only peripheral today are taking on greater importance. Although Congress gave the Commission power to conduct temporary testing programs to evaluate the effectiveness of disclosures in the Dodd-Frank Act, in neither that statute nor the original 1933 and 1934 Acts did it suggest the Commission use polling or surveys to establish the content of disclosures appropriate to protect investors. President Thomas Bach. Women, Influence & Power in Law UK Awards honors women lawyers who have made a remarkable difference in the legal profession. (forthcoming 2021); Minmo Gahng, Jay R. Ritter and Donghang Zhang, SPACs, Working Paper (Mar. [3] E.g., Andrew Ross Sorkin et al., What a SPAC Believer Thinks of SPAC Mania, N.Y. Times (Mar. To be sure, projections are woven into the fabric of business combinations. The specific reliance throughout the statutes on disclosure as an instrument. Supporting statements were also overwhelmingly filed directly by investors of all kinds (not just or even primarily from socially activist or impact investors). Reflected in the PSLRAs clear exclusion of initial public offerings from its safe harbor is a sensible difference in how liability rules created by Congress differentiate between offering contexts. Nothing at stake in this proposed rule justifies such judicial lawmaking. Our regime contains comply or explain requirements (e.g., if a company does not have an audit committee financial expert, it can explain why),[3] where the ability to explain makes the requirement less than rigidly mandatory and for some companies potentially more informative. A consortium of public energy companies is raising $1 billion for emissions reductions technology. Recognizing innovation in the legal technology sector for working on precedent-setting, game-changing projects and initiatives. 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. But Congress has never cut back on the Commissions general obligation to specify the contents of its disclosure regime, such as by editing or reversing prior disclosure specifications. E.g., In re Tesla Motors, Inc. 1993) (To rebut the [business judgment] rule [presumption], a shareholder plaintiff assumes the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary dutygood faith, loyalty or due care.); In re Transkaryotic Therapies, Inc., 954 A.2d 346, 357-63 (Del.Ch.
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