Those choices I do not here address. John, Joel. From an environmental policy perspective, prioritizing based on environmental impact might make sense. Financial risks importantly include physical risks, such as those arising from severe weather events, such as floods, hurricanes, and wildfires. Professor Coates served as General Counsel and as Acting Director for the Division of Corporation Finance for the SEC. As a result, depending on current capital market pricing, the rule could increase climate-impacting activities. 1 Twitter 2 Facebook 3RSS 4YouTube 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. 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 . After the de-SPAC, the entity carries on its operations as a public company. In part, that is because of one of the key limits on the Commissions authorityit is delegated the job of specifying information for disclosure, not the job of merits review, which would require it to have far more substantive expertise in those specialized areas. Law.com Compass includes access to our exclusive industry reports, combining the unmatched expertise of our analyst team with ALMs deep bench of proprietary information to provide insights that cant be found anywhere else. He received his law degree from New York University Law School and his Bachelor of Arts with highest distinction from the University of Virginia. Finally, companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. Duke Energy is investing $52 billion in transitioning to lower carbon resources. 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. But critics claim that EPA authority repealed the Commissions authority is even more basically addressed by noting the significant differences in the two agencies organic statutes as applied to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. EPA, for example, exempts from reporting emission sources below source-specific thresholds. Implied repeals occur only when two statutes are in irreconcilable conflict or when a later act covers the whole subject of the earlier one and is clearly intended as a substitute. In either case, the intention of the legislature to repeal must be clear and manifest. Nothing about the Clean Air Act is in irreconcilable conflict with the securities laws, and as just discussed, the Clean Air Act and subsequent EPA rulemaking address and could address only a part of what the proposed rule would address, even focusing narrowly on greenhouse gas emissions disclosure alone. It proceeds in two stages. . How much standardization can be achieved across industries? That possibility further calls into question any sweeping claims about liability risk being more favorable for SPACs than for conventional IPOs. The rule is limited to companies from which the Commission has traditionally required full disclosure. The proposed rule is reasonably designed to address these inconsistencies, give investors comparable information, and make it more reliable. 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. 6, 2021). He observed first-hand the powerful emotions driving traders. Second, forward-looking information can of course be valuable. Coates was angry because he believed Wylie was behind moves to unseat him at the then upcoming AOC election - an allegation Wylie denied. 28, 2018) (refusing to dismiss claim that Musk controlled Tesla despite owning only 22% of the voting power due to actual domination and control). The ways investors may use the information are not predetermined by the rule, nor would the rule itself limit how companies speak about whether (for example) climate risks are currently being overestimated or producing excessive disinvestment. 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. An IPO is where the protections of the federal securities laws are typically most needed to overcome the information asymmetries between a new investment opportunity and investors in the newly public company. The president's financial disclosure reports are extensively reviewed for potential or actual conflicts of interest and compliance with applicable laws and policies by the Chief Compliance and Ethics Officer of the Bank, and the Chairman of the Bank's board of directors. 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. Congress created the Commission as an expert agency with the capacity to address significant problems affecting the nations securities markets. 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. Because the rule is an investor-oriented disclosure rule, it is within the Commissions expertise. Regardless, as long as the disclosures are fairly designed for the protection of investors, a factual assessment of the kind commonly delegated by Congress to regulatory agencies, they would fall within the clear limiting principle of that law. 5 C.F.R. [2] It permits significant differences in how companies respond to a variety of mandatory requirements, including in many cases disclosing items if and only if they are material. What is the right balance between principles and metrics? In those rules and regulations we expected them, in drafting their forms, to go more into detail with regard to requirements. Any answer to that question should note the limits of the safe harbor in the PSLRA. 1, 2005) (Where the failure to make such disclosure is negligent, an issuer would violate Section 14(a) of the Exchange Act and Rule 14a-9 thereunder). More than thirty years later, EPA had not applied its authority to require emissions disclosures to greenhouse gas emissions. John Coates is a senior research fellow in neuroscience and finance at the University of Cambridge. Donilon - 278.pdf Robert Downing - 278.pdf Travis Dredd - 278.pdf Anita Dunn - 278.pdf Stacy Eichner - 278.pdf John Elias . Litig., 238 F. Supp. 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. John Coates Coates has served as the SEC's Acting Director of the Division of Corporation Finance since February 2021. The proposed rule would not require national banks to consider climate-risks in lending activitiesthat is for banking regulators. Many contain materiality qualifiers, but many do not. About John Coates. It is the first time that public investors see the business and financial information about a company. 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. As stressed by Justice Alito, when he was a Judge on the Third Circuit: Because the materiality standards for Rule 10b-5 [the Commissions primary anti-fraud rule] and SK-303 [an affirmative disclosure requirement for known trends and uncertainties, among other things] differ significantly, the demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b-5.. [11] Any material misstatement or omission in connection with a tender offer is subject to liability under Exchange Act Section 14(e). The focus of the actual rule is the impact of climate change on companies, and not vice versa. To the extent that those who disfavor consideration of legislative history truly give primacy to legislative text and structure, there is no plausible basis on which to argue the Commission lacks authority to adopt the proposed rule. Said plainly, many investors in the SPACs own initial offering are not the investors in the ultimate public companys ongoing business operations. John CoatesActing Director, Division of Corporation Finance. About 1,020 U.S. companies voluntarily disclosed their Scope 3 emissions last year.. 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. [2] See Ben Scent, Wall Streets $100 Billion SPAC Boom Upends the League Table, Bloomberg Law (Apr. [9] Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.[10]. Few of the requirements in Annex A directly involved current or even near-term financial cash flows of the kind required to be reflected in financial statements, such as reserves for contingent liabilities or non-cash commitments to invest in the future. 6LinkedIn 8 Email Updates, What a SPAC Believer Thinks of SPAC Mania. Over that time, as noted above, the SEC proposed and adopted rules requiring environmental disclosures, in part to satisfy its obligations under NEPA. https://www.law.com/nationallawjournal/2021/03/25/harvard-laws-john-coates-now-at-sec-reveals-consulting-income-clients/. EPA was created in 1970. My remarks here do not attempt to answer those or the multitude of other questions about ESG disclosures. Rather, as long as the Commission considers that question in good faith and follows appropriate process, Congress has directed that the Commission make that decision, not the courts. Congress provided a safe harbor for forward-looking statements made by established, publicly traded, reporting companies. John Coates is a senior research fellow at the University of Cambridge. It does not suggest any limit other than what is in the statutes themselves, including NEPA. It does not say, for example, annual financial reports, but simply annual reports. As with the 1933 Act, the authority is not unboundedit is limited by the phrase appropriate for the proper protection of investors, with the gloss that the rules also be appropriate to insure fair dealing in the security, a reflection of the fact that the 1934 Act was designed to govern securities that were already trading on securities markets. Congress repeatedly amended and expanded the Commissions disclosure regime, including by adding to the authorities relied upon for the present proposed rule. 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.