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. It means thoughtful engagement by trusted specialists seeking consensus among investors and companies about useful, reliable and comparable disclosures under standards flexible enough to remain relevant. The specific reliance throughout the statutes on disclosure as an instrument. But for investors in that company, they reasonably could be, because the transition risks (in the form of higher energy costs or potential need for capital expenditures to mitigate their impacts) could be large for that company, depending on its size, capital, liquidity and financial resources. 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. After the de-SPAC, the entity carries on its operations as a public company. Finally, even if the major questions doctrine were thought relevant here, the contents of the proposal areas discussed at length above and in Annex Adirectly in keeping with the way that the Commission has functioned since inception. Private companies that combine with SPACs to enter the public markets have no more of a track record of publicly-disclosed historical information than private companies that are going through a conventional IPO. The proposed rule is reasonably designed to address these inconsistencies, give investors comparable information, and make it more reliable. My remarks here do not attempt to answer those or the multitude of other questions about ESG disclosures. SEC's Coates says agency should help create ESG disclosure system 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.. Any answer to that question should note the limits of the safe harbor in the PSLRA. SEC taking hard look at SPAC warrants, disclosures | CFO Dive Evidence regarding the clear and present financial materiality of transition risk is discussed below. Financial Disclosures | The White House 3 The sweep of regulatory change has reignited criticism for failure to base the changes . 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 requirements have included disclosures about risks and uncertainties generally, and of information both qualitative (business segments; competitive conditions; management, environmental and other litigation; and contracts) and quantitative (mineral reserve estimates, loan performance statistics, coverage ratios, material transactions, and compensation). He was in his eighties. - Wikipedia About John Coates. 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. 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. The information, including financial statements, relevant to evaluating the investment changes dramatically in the de-SPAC because the private target has operations unlike the SPAC; and initial SPAC investors commonly have the right to and do sell or have their shares redeemed. From a legal authority point of view, company- and investor-based calibration is in keeping with the Commission focusing on investors, rather than on environmental priorities. I think it is only about 30 pages, while the British Companies Act is over 300 pages. 25, 2021); Jennifer Bennett, Canoo Faces Investor Suits Over Post-SPAC Deal Focus Changes, Bloomberg Law (Apr. Companies in the defense industry report in their Commission-required filings using technical, specialized industry jargon on government procurement, budgets, military strategy, products and market dynamics about which staff at the Department of Defense have far more detailed knowledge than the Commission. What disclosures do investors need to make informed investment and voting decisions? After completing his Ph.D., Coates traded derivatives for Goldman Sachs and Merrill Lynch, and then ran a trading desk for Deutsche Bank in New York. The plain language could not be clearer in directing the Commission to do what it is proposing to do: specify the details of disclosure appropriate to protect investors, based on its fact-finding and expert judgment. Another finds that climate risks are reflected (but imperfectly) in out-of-the-money put option prices. But the proposing release goes beyond the numerous supportive investor comments in the March comment file to note at length many kinds of additional evidence showing ways in which more, more comparable, and more reliable information would protect investors by improving their ability to assess and price climate-related financial risks and opportunities, both at the time of initial stock investments and in secondary market trading. [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. Cost-Benefit Analysis of Financial Regulation: Case Studies and A SPAC Curveball | Publications | Kirkland & Ellis LLP Those important topics remain for Congress, and the proposal on its own does not raise new major questions warranting a deviation from standard statutory interpretation. At the time, companies were thought by some to be reluctant to provide forward-looking information at least in part due to the prevalence of so-called strike suits which, irrespective of the merits of the claim, were usually less costly to settle than to fight in court. 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). Read fairly and dispassionatelynon-politically, one might saydisclosures specified by the rule are not about environmental impact, or climate change, but about financial risks and opportunities related to climate change. The legal authorities cited by the Commission in the proposing release are the conventional authorities for disclosure rules over nearly a century. This is exactly how the Commission has taken on similar issues in the past, as detailed in Annex A. It does not embody a general policy to address climate change, or engage the range of social and economic issues that climate change raises. Public Statement on ESG Disclosure On March 11, 2021, the SEC published a statement by John Coates, acting director of the SEC's Division of Corporation Finance, in connection with remarks given at the 33 rd Annual Tulane Corporate Law Institute (available here ). Denise Coates, the quiet queen of online betting from Stoke | Financial Economically, and practically, the private target of a SPAC is a different organization than the SPAC itself. L. Sch. ESG Disclosure - Keeping Pace with Developments Affecting Investors 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. 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. Companies either do or do not have property, plant and equipment in flood plains. Despite this clear authority, critics argue the Commission lacks authority to move forward with the proposal. John Coates had copped further backlash for his comments towards . This is for the obvious reason that investors in the parent company face the consequences of all economic results created by that company. Don't miss the crucial news and insights you need to make informed legal decisions. Again, some may view this company-calibrated focus as distracting, because the rule is not limited (for example) to industries that have the greatest environmental impact, such as oil and gas, or energy. [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. From an environmental policy perspective, prioritizing based on environmental impact might make sense. On March 11, Acting Director of the SEC Division of Corporation Finance, John Coates, published a statement in connection with remarks he delivered at the 33rd Annual Tulane Corporate Law Institute, noting how important ESG issues have become to investors, public companies and capital markets, while at the same time acknowledging that 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. He is a former Research Fellow in Neuroscience and Finance at the University of Cambridge, and previously traded derivatives for Goldman Sachs and ran a trading desk for Deutsche Bank. First, while we should be mindful of the costs of new ESG disclosures, we must at the same time acknowledge the costs from the absence of a consensus ESG-focused disclosure system. 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. 300+ "John Coates" profiles | LinkedIn In the context of legislation that does not implicate fundamental rights or a suspect class, faithful enforcement of the Constitution requires a court to hew as closely as possible to the norm of faithful agency by enforcing the text unadulterated by judicial tweaking.. The Commissions authority, to reiterate, includes discretion to promulgate rules governing corporate disclosure. John Coates - Penguin Random House Speakers Bureau Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. Even if one has a strong belief in the value of the major questions doctrine as an important tool for enforcing the constitutional principle of separation of powers, there is no role for a clear statement principle when the text and context of a statute are as clear and consistent as the 1933 and 1934 Acts are. 3d 1041, 1049-50 (N.D. Cal. John C. Coates, IV, Lucian A. Bebchuk, John C. Coffee, Bernard S. Black, . 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. There are 300+ professionals named "John Coates", who use LinkedIn to exchange information, ideas, and opportunities. What lessons can we learn from earlier examples of evolving risks? 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. [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]. 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. It is not a rule requiring or limiting opinions or controversial speech, and raises no First Amendment concerns. It requires no disclosure from privately held unlisted companies. 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. As a result, depending on current capital market pricing, the rule could increase climate-impacting activities. 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. Congress, having made a fundamental policy judgment to require full and fair disclosure to protect investors, directed the Commission to make ongoing subsidiary choices of precisely what details of disclosure to require and when, after engaging in fact-finding and analysis that Congress chose not to try to do itself. John Coates remains as AOC president, beating challenger Danni Roche At the end of 2018, the US SIF Foundation identified $11.6 trillion in US-domiciled sustainable, responsible, and impact investment strategy assets, of which $8.6 trillion were managed on behalf of institutional investors and $3.0 trillion were managed on behalf of individual investors. To do so would turn the doctrines purpose against itself, turn courts into unelected mini-legislatures, and subvert rather than reinforce the separation of powers. John C. Coates is the Acting Director of the SECs Division of Corporation Finance. Business Law Today (June 25, 2020); Ellison Ward Merkel et al., Litigation Risk in the SPAC World, Quinn Emanuel Trial Laws. The employee's supervisor, with his ethics official, should decide on the remedy. I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions. 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.. It is the first time that public investors see the business and financial information about a company. 6LinkedIn 8 Email Updates, Accounting and Financial Reporting Guidance, Compliance and Disclosure Interpretations, No-Action, Interpretive and Exemptive Letters, Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (SPACs), SPACs, IPOs and Liability Risk under the Securities Laws, ESG Disclosure Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets. He joined his billionaire sister and co-CEO, Denise, in 2001 to launch Bet365 after she . However, the rule does need to at least be rationally designed for investor protection to be authorized. EPA is charged by Congress to have a concern for the environment, not for investors. Many ESG-related issues are similar to ones we have faced before. John Coates, Former Wall Street Trader, Studies Neuroscience Behind Although courts have increasingly applied the First Amendment to disclosure obligations over time, critics are able to cite no case law supporting the notion that simply because facts may inform or be relevant to a political debate, requirements calling for disclosure of those facts are subject to heightened scrutiny, much less violate the First Amendment. The Commission has always required information about a U.S. public companys consolidated subsidiarieswherever located. Fund v. KCG Holdings, Inc., No. The subject of a disclosure is new, when the nature of business and investment is dynamic. 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. One need not believe any of these studies is the final word on the subject to believe that collectively, they provide sufficient evidence to believe, reasonably, that verified, consistent climate-related financial disclosures would be useful to protect investors. Among them were Alliance-Bernstein, Neuberger-Berman, Schroder and Wellington, as well as BlackRock and State Street. On balance, research on the Act's net . SEC is scrutinizing SPAC projections, seeks clearer disclosures - CNBC from Harvard University. John Coates has few regrets on his way out the AOC door 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. Copyright 2023 ALM Global, LLC. If the Commission or staff pursue that route, however, it would be important to keep the practicalities of SPACs in mind, in addition to other aspects of SPAC structures, relative to conventional IPOs as well as to other forms of achieving dispersed ownership, such as direct listings. As a result, Congress, markets, analysts, and the SEC staff typically treat these introductions differently from other kinds of capital raising transactions. EPA only has authority over US emission sources. But we do have a provision that permits the Commission to set up rules and regulations which will have the effect of law. 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. John C. Coates and R. Glenn Hubbard, Competition in the . Striking down regulations adopted pursuant to clear and limited delegated authority would turn the doctrines purpose against itself, prevent Congress from assigning traditional fact-finding and implementation roles to agencies, turn courts into unelected mini-legislatures, and subvert rather than reinforce the separation of powers. Congress expected the Commission to use expert judgment to update disclosure over time, as new or newly identified risks emerge. The proposed rule would not require national banks to consider climate-risks in lending activitiesthat is for banking regulators. 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. If these facts about economic and information substance drive our understanding of what an IPO is, they point toward a conclusion that the PSLRA safe harbor should not be available for any unknown private company introducing itself to the public markets. E.g., In re Tesla Motors, Inc. 1 Twitter 2 Facebook 3RSS 4YouTube John Coates - Keynote Speaker | London Speaker Bureau Annex A contains just a samplingmany more additions and refinements have been adopted in the decades since 1933. Multiple paths to dispersed ownership now exist, including not only SPACs, but also direct listings and dual-track IPO/M&A processes. US public companies (e.g., the S&P 500) derive 40% of their revenues on average from non-US operations, and many have larger shares of their activities located offshore. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargainby Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forumhere); Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy A Reply to Professor Rock by Lucian A. Bebchuk, Alma Cohen, and Charles C. Y. Wang (discussed on the Forum here); Stakeholder Capitalism in the Time of COVID, by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Corporate Purpose and Corporate Competition by Mark J. Roe (discussed on the Forumhere). Empirical studies of financial markets and regulation have always had strong and inherent methodological limits, well-known and not seriously disputed, as well as data limitations. I will work tirelessly to execute our rules and make sound recommendations that will help the SEC realize its mission.. John Coates holds court at last AOC farewell - Australian Financial Review 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. View the profiles of people named John Coates. Circuit concluded in 1979 that based on the record before it at that time, the Commission was not required to adopt environmental disclosure obligations beyond what it had already adopted, the Court also concluded that it was authorized to and could do so, if the Commission itself came to an expert judgment that doing so was in service of its statutory missions of protecting investors and promoting the public interest. Appropriate liability should attach to whatever claims it is making, or others are making on its behalf.
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