Where do we go from here? 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. Statement (PDF) . [5] Initial investors also commonly obtain warrants to buy additional stock as at a fixed price, and sponsors of the SPAC obtain a promote greater equity than their cash contribution or commitment would otherwise imply and their promote is at risk. 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. . Voluntary, unassured disclosures are more likely to include greenwashing, impairing investors ability to assess and price risk, and undermining honest companies ability to communicate with investors and build confidence; some greenwashing rises to the level of fraud, while other disclosures or omissions may not rise to the level of actionable fraud with proof of scienter. 6LinkedIn 8 Email Updates. As a result, Congress, markets, analysts, and the SEC staff typically treat these introductions differently from other kinds of capital raising transactions. Again, this difference is in keeping with the Commissions focus on investors. 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. This legislative choicedisclosure, but not merit reviewis an important and real intelligible principle limiting the Commissions general authority, along with the specific, and limited purpose for those disclosures, that they be those appropriate for the protection of investors. These limits explain why further restrictions on the Commissions authority to specify disclosures to protect investors were not needed to constitutionally cabin Congresss delegation to the Commission under the 1933 Act. 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. Volkswagen announced $180 billion of investments in electronic vehicles. John Coates bowed out as Australian Olympic Committee president at the Darling Harbour Sofitel in Sydney. It addresses global climate risks to public companies, and not all climate risks created by domestic activities of all companies, public and private. 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. Advocates make their voices heard on mandatory climate disclosure How three decades of pain for John Coates drove Brisbane's bid for 2032 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. SPACs, IPOs and Liability Risk under the Securities Laws Many ESG-related issues are similar to ones we have faced before. 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. 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. 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. Mar. See also Rodriguez v. Gigamon Inc., 325 F. Supp. He previously worked for Goldman Sachs and ran a trading desk for Deutsche Bank in New York. In fact, its basic disclosure authorities (in Section 7 of the 1933 Act and Sections 12 and 13 of the 1934 Act) are augmented by additional specific authority to to prescribe the form or forms in which required information shall be set forth. If the Commission after fact-finding reasonably believes more detail is needed to protect investors about a concededly authorized topic, it is legally authorized to require more detail, as it has done through both rules and disclosure review since 1933. 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. 2019-0100-KSJM, 2019 WL 1313408 (Del.Ch. 3d 1041, 1049-50 (N.D. Cal. Chevron plans $2.75 billion in carbon-reduction projects, renewables and offset projects. The Hour Between Dog and Wolf by John Coates: 9780143123408 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. However, the rule does need to at least be rationally designed for investor protection to be authorized. If useful for the protection of investors, disclosure was not limited to the four corners of, or even commentary on, financial statements. They sometimes specifically point to the Private Securities Litigation Reform Act (PSLRA) safe harbor for forward-looking statements, and suggest or assert that the safe harbor applies in the context of de-SPAC transactions but not in conventional IPOs. If a given climate risk or opportunity is large for a company, then its investors need and would under the rule obtain information about that risk or opportunity, even if (when compared to the overall impact of all human activity on the environment) the risk or opportunity is not large enough to require reporting under some other regime (such as the EPAs greenhouse gas reporting regime). 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. The event, which was organized by the nonprofit consumer advocacy organization Public Citizen, also included speeches by former Harvard Law School [] 2018) (CFO's statement about corporation's large deferred service, healthy product backlog, and consistent quarterly linearity, which was a statement made with another statement as to expected earnings for an upcoming quarter, were non-forward-looking statements and were not protected by the PSLRA's safe-harbor; statement included facts regarding the present state of the corporation, not assumptions); NECA-IBEW Health & Welfare Fund v. Pitney Bowes Inc., No. John Coates Profiles | Facebook Specifically, the Commission relied upon wide-ranging and deep engagement over more than a year, gathering input from public comments, in public discussions, and meetings with and through letters from companies, investors, trade groups, climate specialists, EPA and other experts regarding corporate environmental and climate reporting, to craft its proposed rule, just as it has done in other areas. 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. 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. Congress did not direct the Commission to protect investors through disclosure only when it is politically non-controversial to do so. This statement creates no new or additional obligations for any person. . The reason is simple: the public knows nothing about this private company. Fund v. KCG Holdings, Inc., No. First, I am not pro- or anti-SPAC. Posted by John C. Coates (Harvard Law School), on, Harvard Law School Forum on Corporate Governance, on Proposal on Climate-Related Disclosures Falls Within the SECs Authority, The Illusory Promise of Stakeholder Governance, by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum, Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy A Reply to Professor Rock, Stakeholder Capitalism in the Time of COVID, Corporate Purpose and Corporate Competition, Congress created and in plain words authorized the Commission to protect investors by specifying public company disclosures of information about financial risks and. Those limits were even more acute in 1933 (or even in 1996 when the Commission was first statutorily tasked with considering efficiency in some of its rulemakings). Nor has the major questions doctrine ever been used to overturn authority unambiguously granted by the plain text of a statute. Finally, it is beyond argument that the Clean Air Act nowhere mentions the Commission much less modifies its disclosure authority. Investments are being held back in the absence of that information. Robust public disclosure has been a hallmark of effective securities regulation since the 1930s, said SEC Chair Gary Gensler. He has been the . Would it have resulted in more timely, clear and useful information for investors about asbestos manufacturers, sellers and insurance companies? EPA is charged by Congress to have a concern for the environment, not for investors. That request elicited massive amounts of public input on potential climate-related disclosure, and gave anyone skeptical about the project ample notice that it was on the Commissions agenda, and ample time to adduce evidence against it. 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. [7] This, such observers assert, is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses. Even if some may find resistance to the rule (or new regulation generally) to be appealing from a policy standpoint, doing that here has no basis whatsoever in the statutes text.. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). STAY CONNECTED 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. John CoatesActing Director, Division of Corporation Finance. If the SPAC fails to find and acquire a target within a period of two years, the promote is forfeited and the SPAC liquidates.