Some but far from all practitioners and commentators have claimed that an advantage of SPACs over traditional IPOs is lesser securities law liability exposure for targets and the public company itself. 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. That is, the rules perspective of that of investors and companiestheir strategies, risk management, governance and metricswithout regard to whether a given company independently creates a climate impact that is large or small for the overall environment, or whether it is more or less exposed than other companies to physical risks of climate change. 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. 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 cannot fairly be argued that losing production or even permanent asset impairments due to weather damage are not financial risks for companies with property, plant and equipment in flood plains or otherwise exposed to climate-related weather events. An increasing number of US public companies are making major capital expenditures to pursue climate-related strategies, raising financial risks to pursue opportunities for their investors. For years, asbestos-related risks were invisible, and information about asbestos would likely have been called non-financial. Over time, those risks went from invisible to visible to extremely clear, and clearly financial. But as some critics do ignore the plain language of the statute, it should be emphasized that they find no more support for the notion that the Commission lacks authority in the legislative history, or in generations of legislative, executive, and judicial understanding of the statutes meaning. It is not clear that claims about the application of securities law liability provisions to de-SPACs provide targets or anyone else with a reason to prefer SPACs over traditional IPOs. And now, according to Reuters , Acting Corp Fin Director John Coates remarked during a conference on climate finance that the SEC "'should help lead' the creation of a disclosure system for environmental, social and governance (ESG) issues for corporations." But how to craft the new rules? 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. Both appointments are effective June 21, 2021. Introduction. For example, they point to the broader ESG movement and claim the fictional new rule requires disclosure about ESG, or about environmental impacts not relevant to investors. The purpose of the disclosure was also to protect markets and market pricing, and improve the resulting allocation of capital. Critiques on legal grounds fall far short of what would be needed for a court to overturn the rule. But it remains true that IPOs are understood as a distinct and challenging moment for disclosure. On balance, research on the Act's net . 14, 2014) (setting forth special procedures required in mergers involving control shareholders, without which heightened entire fairness must be shown by interested fiduciaries); Olenik v. Lodzinski, 208 A.3d 704 (Del. Second, the 1933 Act makes clear that Congress expected and directed the Commission to go beyond content specified in the Act, and granted authority to go beyond what is necessary to include what the Commission concludes is appropriate for the protection of investors. Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. Laws against fraud have always been consistent with the First Amendment. P.C. These include (for example) asbestos and other sources of tort liability, contract and other kinds of commercial litigation, and cybersecurity and other kinds of technology risks. Coates, Lindsey. John Coates is the co-CEO of U.K. company Bet365, one of the world's largest online gambling businesses. In contrast, proposals to give the Commission discretion to approve or disapprove of the soundness of stock offerings was rejected by Congressthe 1933 Act in the end embraced full and fair disclosure as the method to protect investors. To be sure, some elements of the SECs regulatory regime reflect a recognition that small or new public companies may not be as able to shoulder the costs of all disclosure requirements as older, larger companies. 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. 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 C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). If markets are currently overly negative about a companys physical risks (e.g., to floods), such disclosures would facilitate a reduction in that companys cost of capital. When the only dissenting Commissioners primary basis for dissenting is that the Commission has already addressed the topic in prior rulemakings upheld by courts, courts have no basis for using one discretionary canon to apply personal policy judgments on a topic within the Commissions conventional and textually clear statutory authority. In addition to being limited and calibrated to U.S. public companies, the rule does not require disclosure related to non-investor impacts. Contrary to some critics, letters from individuals also supported climate-related disclosures and were cited several times in the proposing release. Circuit affirmatively held that the Commission had authority to do that, and, in its judgment, to potentially go further. In the Clean Air Act amendments of 1970, Congress gave EPA authority to require disclosures relating to the environment. For example, it does not call for disclosure of a companys climate-related impacts on employees or customers or communities, except to the extent those impacts result in overall financial or business risks or opportunities (which do impact investors). The Congress authorizes and directs that, to the fullest extent possible: (1) the policies, regulations, and public laws of the United States shall be interpreted and administered in accordance with the policies set forth in this chapter, and (2) all agencies of the Federal Government shall make available to States, counties, municipalities, institutions, and individuals, advice and information useful in restoring, maintaining, and enhancing the quality of the environment. Nothing in law suggests that uncertainty, however reasonable, legally forbids rulemaking. 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. John Coates Financial Services Professional at NYLIFE Securities LLC For example: Instead, the proposed rule would increase the climate-related information provided by public companies to investors. 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). Moreover, state law, such as in Delaware, may require disclosure of projections used by the boards or their advisors in these transactions. In sum, each attack succeeds only as applied to a fictional new rule. If that risk drives choices about what information to present and how, it should not in my view be different in the de-SPAC process without clear and compelling reasons for and limits and conditions on any such difference. Don't miss the crucial news and insights you need to make informed legal decisions. Nothing at stake in this proposed rule justifies such judicial lawmaking. It has never been EPAs job. All those sources here align with the 1933 Acts plain, ordinary meaning, and so confirm the above conclusions. Feedback to SSRN. A consortium of public energy companies is raising $1 billion for emissions reductions technology. John C. Coates and R. Glenn Hubbard, Competition in the . 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. Our Compliance bundles are curated by CLE Counselors and include current legal topics and challenges within the industry. 2019-0100-KSJM, 2019 WL 1313408 (Del.Ch. Nor has the major questions doctrine ever been used to overturn authority unambiguously granted by the plain text of a statute. In that section, companies are required to disclose a specified list of financial disclosure and documents set out in Schedule A, to obtain consents from any accountant, engineer, or appraiser or other professional identified in the disclosures, andin a separate sentenceto disclose such other information, and be accompanied by such other documents, as the Commission may by rules or regulations require as being necessary or appropriate for the protection of investors.. Before joining the faculty at Harvard, he was a partner at Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and financial institutions. I think it is only about 30 pages, while the British Companies Act is over 300 pages. 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.

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