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. 22, 2019) (enjoining two cross-conditioned mergers due to disclosure inadequacies concerning special procedures used to mitigate conflict of interest). 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. Specifically, Section 7 gives the Commission unambiguous authority to specify the contents of disclosure documents used to register securities for sale to the public. Proposal on Climate-Related Disclosures Falls Within the SEC's Authority Posted by John C. Coates (Harvard Law School), on Wednesday, June 22, 2022 Comments Off Print E-Mail Tweet Climate change, ESG, Investor protection, Legal history, Materiality, SEC, SEC rulemaking, Securities regulation, Sustainability More from: John Coates That climate risks overall have been overstated by climate activists. Jones most recently served as Professor of Law and Associate Dean for Academic Affairs at Boston College Law School, where she taught courses in corporations, securities regulation, startup company governance, and financial regulation. They argue that the disclosures required by the fictional new rule would be opinions, not facts, so it would violate the First Amendment. 12711-VCS, 2018 WL 1560293 (Del.Ch. 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. Congressional ratification has been repeated and affirmativenot mere inaction. 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. [17] See Division of Corporation Finance, Disclosure Guidance: Topic No. Gain access to some of the most knowledgeable and experienced attorneys with our 2 bundle options! 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. 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. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. There remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. That does not make those rules unduly burdensome or costly. 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. The proposed rule specifies the details of disclosure, just as Congress directed the Commission to do. 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. [3] E.g., Andrew Ross Sorkin et al., What a SPAC Believer Thinks of SPAC Mania, N.Y. Times (Mar. Not a Bloomberg Law Subscriber?Subscribe Now. The legal authorities cited by the Commission in the proposing release are the conventional authorities for disclosure rules over nearly a century. 104-369, 43 (November 28, 1995) (Congress created the safe harbor provision to enhance market efficiency by encouraging companies to disclose forward-looking information.). If a U.S. public company owns facilities outside the US, as many do, they would be required to provide investors with information about those facilities. EPA was created in 1970. Don't miss the crucial news and insights you need to make informed legal decisions. . 30, 2021). Nor does the proposal purport to be authorized by a newly discovered power in the securities lawsthe power is disclosure, as it has been for nearly a century. 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. About John Coates. 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. Previously, she represented private and public companies on corporate and securities matters at Hill & Barlow law firm. 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 Apr. 2017) ([W]here defendants make mixed statements containing non-forward-looking statements as well as forward-looking statements, the non-forward-looking statements are not protected by the safe harbor of the PSLRA.).
John Coates, Former Wall Street Trader, Studies Neuroscience Behind Dec. 21, 1995) (statement of Sen. Diane Feinstein, The provisions [of the PSLRA] are only available to companies with an established track record. and I understand the safe harbor does not apply to a new company, but only applies to seasoned issuers.). For questions call 1-877-256-2472 or contact us at [emailprotected], Shearman and Hogan Lovells Call Off Merger Talks, Early Reports: 2023 Am Law 200 Financials, Beyond Excess Capacity, Pooled Services and Automation Expedite Staff Layoffs, Dozens of Law Firms Grew Their Equity Partner Tier, Even as Profits and Demand Plummeted. So, instead, like a cuckoo putting its eggs into anothers nest, critics have resorted to mischaracterizing the proposal, and inventing their own, fictional rulenot actually proposedto attack premise two, and claim the Commission lacks authority for their fictional new rule. But nothing in the 1933 Act or the 1934 Act imposes limits on the Commissions authority to refine the mode, detail, format, method, or specificity of required disclosures. [8] Participants and their advisors are used and expect to prepare and disclose projections in acquisitions, including de-SPACs. Law Offices of Gary Martin Hays & Associates Thousands more have been filed since the release was proposed, including many from self-identified individual investors. Without such confidence, Congress astutely observed: Easy liquidity of the resources in which wealth is invested is a danger rather than a prop to the stability of [the market] system. [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. Congress both expanded authorities and limited which and how specific types of companies and transactions are covered by its disclosure regime. But that, too, is uncertain at best. "The staff at the Securities and Exchange Commission are continuing to look carefully at filings and disclosures by SPACs and their private targets," John Coates, the SEC's acting director of corporate finance, said in an April 8 statement . 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. This discretion continues to be sensible, in light of the fact that: The Commissions task [is] a peculiarly difficult one, requiring it to find a path between the views of the parties to the rulemaking polarized in support of the broadest disclosure or in opposition to any disclosure, to interpret novel statutory commands, and to make decisions against the background of rapidly changing conditions . 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. To recap what is discussed above, EPAs authority is both materially broader and narrower than the Commissions, even as to the subpart of the Commissions rule addressing greenhouse gas emissions: In sum, EPA could not duplicate (or even approximate) the proposed investor-oriented rule, and the Commission could not duplicate (or even approximate) EPAs greenhouse gas disclosure rules. A company in possession of multiple sets of projections that are based on reasonable assumptions, reflecting different scenarios of how the company's future may unfold, would be on shaky ground if it only disclosed favorable projections and omitted disclosure of equally reliable but unfavorable projections, regardless of the liability framework The proposed rule would not require national banks to consider climate-risks in lending activitiesthat is for banking regulators. 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. They of course help sell the deal, but they can also be a key component for boards and other participants in negotiating and understanding the economics indeed, the fairness of the transaction. Climate-affecting companies owned by individuals, governments, families, or private equity funds would not be directly affected. Volkswagen announced $180 billion of investments in electronic vehicles. 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). As a result, it would not intrude into topics or company-investor relationships that are markedly different from other authorized and long-standing rules. 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. Site Map, Advertise| The Commission has always required information about a U.S. public companys consolidated subsidiarieswherever located. John Coates, acting director of the SEC's Division of Corporation Finance, similarly stated in a recent speech that 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," noting in particular the task of adapting existing rules and A consortium of public energy companies is raising $1 billion for emissions reductions technology. EPA is charged by Congress to have a concern for the environment, not for investors. However, it is also commonly understood that it is the de-SPAC and not the initial offering by the SPAC that is the transaction in which a private operating company itself goes public, i.e., engages in its initial public offering. He also served on the SECs Investor Advisory Committee, for which he chaired the Investor-as-Owner Subcommittee. Efforts by critics to dismiss these votes ignore the fact that most shareholder proposals fail due to well-known collective action problems affecting public company governance. [13] See, e.g., In re Quality Systems, Inc. Securities Litigation, 865 F.3d 1130, 1142, (9th Cir. Because it is an investor-focused disclosure rule, and in no plausible way advances a general policy on climate, it raises no new major question of that kind, that might theoretically justify a departure from standard methods of statutory interpretation. The Division plays an essential role in ensuring investors have the information they need to make informed investment decisions. At an athletics meet in Melbourne early this year, he ran into John Wylie, the investment banker who chairs the Australian Sports Commission. A draft of what would become the 1933 Act in the Senate included disclosure items directly in the statute, and did not contain the equivalent language later adopted in Section 7, which directs the Commission to go beyond that list (which is separate from the Commissions general rulemaking authority in Section 19).