The proposed disclosures, including emission data, will help investors assess and price these risks and opportunities. The question of whether the proposed disclosures would in fact be an all-in good idea, cost-justified, appropriately considering efficiency, competition and capital formation is not a legal question. The 1933 Act does not limit additional disclosures to those that are related or similar to the items in Schedule A, or material, or financial, despite the fact that Congress frequently used those very qualifiers elsewhere in the statute. If the person charged with reviewing an employee's report finds a conflict, he should impose a remedy immediately. The Biden administrations new acting head of a key component of the U.S. Securities and Exchange Commission reported earning more than $2.5 million in law school income and consulting fees paid by financial firms and major U.S. companies, according to a newly released financial statement. Those involved should be accountable to relevant constituencies, including investors and companies. Other agencies will need to tackle the many tasks those greater ambitions involve. Introduction. The Division plays an essential role in ensuring investors have the information they need to make informed investment decisions. 1 Twitter 2 Facebook 3RSS 4YouTube Despite this clear authority, critics argue the Commission lacks authority to move forward with the proposal. 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. It does not even address new topics for purposes of disclosure, but instead (as discussed above) changes the specificity and mode of disclosure about long-regulated topics. He chairs the faculty committee on executive education and teaches contracts, corporations, corporate governance and financial regulations. The major questions doctrine has no role to change the plain text of the 1933 and 1934 Acts. The Commission has neither approved nor disapproved its content. The creation of an entire new agency (the Commission) to implement and enforce the laws. 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. Congress also created the Commission as an agency that could thoughtfully address problems too politically charged to be easily resolved on Capitol Hill. Investors should have access to that information and then be allowed to make their own decisions about how to invest or vote. It is against this backdrop that I think about the regulation of ESG disclosures. They argue that the disclosures required by the fictional new rule would be opinions, not facts, so it would violate the First Amendment. The financial effects of physical risks are large and growing. Regulation -- the Investment Company Act is one of the most successful disclosure laws . Some may view these limits as creating incentives for public companies to go private, or for private companies to not go public. 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. John C. Coates and R. Glenn Hubbard, Competition in the . But the Commissions authorities go further, precisely because Congress recognized that investors need information beyond the moment of initial offer and sale, which are addressed by the 1933 Act. 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. One study worth highlighting, now published in a leading finance journal, finds that climate disclosures are already actively if imperfectly priced in the capital markets, effects confirmed in other published articles. Although the content and nature of the disclosure have long been covered by Commission rules, the proposed rules add specificity, detail, and consistency (and require assurance) in ways that existing rules do not. I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions. Nor has the major questions doctrine ever been used to overturn authority unambiguously granted by the plain text of a statute. 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. The case for the Commissions authority to adopt the proposed rule is a simple, two-premise syllogism: Hence the rule is authorized. These claims raise significant investor protection questions. In addition to being limited and calibrated to U.S. public companies, the rule does not require disclosure related to non-investor impacts. Terms of Service. 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. It requires no disclosure from privately held unlisted companies. In sum, each attack succeeds only as applied to a fictional new rule. 3d 1041, 1049-50 (N.D. Cal. Executive compensation is its own, complex and specialized area of management and finance, leading companies to hire expert advisors to develop compensation plans. It does not regulate climate activity itself (e.g., greenhouse gas emissions) and would have modest effects on the economy as a whole. Citing to a 1975 release, the Commission in 2016 noted, non-controversially, that In [the 1975] release, the Commission concluded that, although it is generally not authorized to consider the promotion of social goals unrelated to the objectives of the federal securities laws, it is authorized and required by NEPA [the National Environmental Policy Act] to consider promotion of environmental protection as a factor in exercising its rulemaking authority. This statement denies authority only if disclosure is unrelated to investor protection, protection of market integrity, or the public interest more generally. [12] Cede & Co. v. Technicolor Inc., 634 A.2d 345, 361 (Del. 1 The housing and financial crises of 2008 led to the Dodd-Frank Act, 2 which restructured the financial regulatory agencies, mandated more than 200 new rules, and required changes to many older rules. That information may play a role in affecting the kinds of opportunities and risks that public companies can pursue with other peoples (investors) money, and how investors price those opportunities and risks, and use whatever governance or liquidity rights they have to respond to corporate behavior. The complete publication, including footnotes and annex, is available here. Washington D.C., June 14, 2021 . 6LinkedIn 8 Email Updates. Nor did Congress trim back the Commissions authority whenafter the Commission published climate-related disclosure guidance in February 2010Congress adopted the Dodd-Frank Act four months later, with numerous additions (not subtractions) to the Commissions disclosure authorities. Of course, as Commissioner Peirce does not do much to dispute, and as the proposing release makes clear, existing disclosures are spotty, inconsistent, incomplete and unverified under existing Commission rules. L. Sch. 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. The long-recognized fact the statutes were remedial laws following the Crash of 29. He had been serving as the independent monitor for the U.S. Justice Department in the prosecution of Boston-based State Street Corp. The economic essence of an initial public offering is the introduction of a new company to the public. These data, again, are thus directly relevant to financial risks and opportunities for public companies. That is because it is true that the Commissions authority does not run so far as to require disclosures for any reason, or for reasons not specified in its organic statutes. So, too, for mining companies, asset-backed issuers, and other sectors, as also detailed in Annex A. Donilon - 278.pdf Robert Downing - 278.pdf Travis Dredd - 278.pdf Anita Dunn - 278.pdf Stacy Eichner - 278.pdf John Elias . 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. 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 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. Second, there may be advantages to providing greater clarity on the scope of the safe harbor in the PSLRA. What is the right balance between principles and metrics? (forthcoming 2021); Minmo Gahng, Jay R. Ritter and Donghang Zhang, SPACs, Working Paper (Mar. The fact that those areas are themselves specialized, with their own experts with far more knowledge than exists at the Commission, does not mean the Commission cannot adequately apply its disclosure regime to those risks. A process to create such standards is not likely to be simple, quick or easy. The disclosures would consist of facts, not opinions, and raise no First Amendment concern. Australian Olympic Committee president John Coates received a $40,000 pay rise last year, part of $300,000 in extra remuneration for senior AOC figures. Because (they claim) the fictional new rule reflects climate change policy, and because climate change is new and important, the plain text of the Commissions statutory authority cannot really mean what it says. The proposed rule specifies the details of disclosure, just as Congress directed the Commission to do. This statement does not alter or amend applicable law and has no legal force or effect. ESG issues are global issues. Anyone who argues that the Commission should leave the job of climate disclosure to the EPA has to have an answer to how the EPA could possibly protect US investors with information about the large amount of activities of US public companies that are located beyond the reach of the EPAs jurisdiction. Financial Disclosures - Other White House Officials . 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. Here, the proposal frames difficult, subsidiary choices, which divide reasonable observers. E.g., In re Tesla Motors, Inc. 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. 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. Among them were Alliance-Bernstein, Neuberger-Berman, Schroder and Wellington, as well as BlackRock and State Street. The rule as proposed would provide a framework for companies to inform investors about all of the effectsprofitable and loss-causingthat climate risks may have on a company. Surveys of individual investors by firms such as Morgan Stanley confirm this evidence. . 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. Would it have resulted in more timely, clear and useful information for investors about asbestos manufacturers, sellers and insurance companies? 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. [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. [15] The PSLRAs exclusion for blank check companies overlaps the exclusion for penny stock issuers. As a result: As a result of these limits, climate advocates appropriately view the rule as incomplete, and from the point of view of environmental protection, the rule could not reasonably be viewed as complete or effective at addressing climate change. This is for the obvious reason that investors in the parent company face the consequences of all economic results created by that company. (IOC) (AOC) 2020IOC ICAS . The new law creates a process for immediate disclosure for death or serious bodily injury. The D.C. Although the rule is more limited than what an impact advocate would want, it is in one important way broader than anything EPA has adopted or is likely to have to power to implement: its geographic reach. Companies either do or do not have property, plant and equipment in flood plains. There are 300+ professionals named "John Coates", who use LinkedIn to exchange information, ideas, and opportunities. Your article was successfully shared with the contacts you provided. Funding, governance and public accountability are all critical elements of a reliable, trusted disclosure system. 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). "He has spent the last three decades deeply engaged with our capital markets as a scholar, practitioner, and member of the SEC's Investor Advisory Committee. 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. As such, there is no one set of metrics that properly covers all ESG issues for all companies. John CoatesActing Director, Division of Corporation Finance. It proceeds in two stages. Three of those exclusions are of note: those made in connection with an offering of securities by a blank check company, those made by a penny stock issuer, and those made in connection with an initial public offering. MD&A: The 12-month period ended June 30, 2022, represents the first period in which companies were required to comply with the amended MD&A disclosure requirements adopted by the SEC in November 2020. Coates was angry because he believed Wylie was behind moves to unseat him at the then upcoming AOC election - an allegation Wylie denied. He also served on the SECs Investor Advisory Committee, for which he chaired the Investor-as-Owner Subcommittee. The United States Securities and Exchange Commission has focused increasingly on SPACs in recent months, and is particularly concerned with conflicts of interest that incentivize a SPAC's sponsors, directors, officers, and affiliates to close a de-SPAC transaction even when doing so is not in the best interests of SPAC shareholders, and whether 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. In other words, public companies disclosures were expected to go beyond basic financial statements. Letter to the Stakeholders of the Olympic Movement - Olympic News 2 years ago | By John Coates | Olympics.com 2021 Financial Disclosure Statements. 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. I will work tirelessly to execute our rules and make sound recommendations that will help the SEC realize its mission.. Join National Law Journal now! 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 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 ). 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).
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