Michael Littenberg is partner, Marc Rotter is counsel, and Hannah Shapiro is a law clerk at Ropes & Gray LLP. This post is based on their Ropes & Gray memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here); Stakeholder Capitalism in the Time of COVID by Lucian Bebchuk, Kobi Kastiel and Roberto Tallarita (discussed on the Forum here); Corporate Purpose and Corporate Competition by Mark Roe (discussed on the Forum here).
Last month, the Securities and Exchange Commission proposed long-awaited rules that would mandate enhanced climate-related disclosures by public companies. In this post, we provide an overview of this significant, and controversial, rulemaking proposal. We also provide our views on where the rules fit into governance, compliance and disclosure more broadly.
A Bit of Background and the Broader Context
Enhanced environmental disclosure has been a topic of discussion within the SEC since the 1970s. More recently, with the January 2021 change-over in administration and the resulting shift in rulemaking philosophy, climate disclosure has been an area of increasing SEC focus. Among other actions, during February 2021, shortly after taking office, then-Acting Chair Allison Herren Lee issued a statement directing the SEC’s Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings.
In March 2021, the SEC launched a public consultation requesting input from investors, registrants and other market participants about whether current disclosures adequately inform investors about climate change. Approximately 600 unique comment letters were submitted to the SEC by leading issuers, institutional investors, trade associations, NGOs and others (Ropes & Gray advised several clients on their comment letters). Many of the more significant letters are cited in the SEC’s Proposing Release for the new climate disclosure rules.
Remarks by Commissioner Crenshaw at Virtual Roundtable on the Future of Going Public and Expanding Investor Opportunities
More from: Caroline Crenshaw, U.S. Securities and Exchange Commission
Caroline A. Crenshaw is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent remarks at a Virtual Roundtable on the Future of Going Public and Expanding Investor Opportunities. The views expressed in the post are those of Commissioner Crenshaw, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.
Thank you Hal [Scott] for that kind introduction and for inviting me to speak today. I am honored to precede such an esteemed panel of practitioners and academics. As always, I must give my standard disclaimer that my remarks are my own and do not necessarily represent the views of the Commission or its staff.
I cannot emphasize enough how important discussions such as today’s are—thinking through some of the most pressing questions in our markets. And, one of those areas is Special Purpose Acquisition Companies, or SPACs. Now, of course, this was an issue that we were paying attention to well before the notice and comment period for the SPAC rulemaking proposal. But nothing takes place in a vacuum, and the meteoric rise in SPACs and the Commission’s proposed rulemaking must be considered in the context of changes in both the public and private markets. So today’s topic is particularly apt. I hope the roundtable will be one of many, and that such discussions will lead to academic work, public input, and engagement from all stakeholders and interested parties.
As you are all aware, the U.S. public markets provide many benefits, including disclosures and safeguards at the offering stage followed by periodic reporting, public trading venues that offer high degrees of liquidity, and an ecosystem of laws and regulations that provide investors with protections and remedies when needed. In 2020, 165 operating companies went public via a traditional initial public offering (IPO). [1] There were a total of 248 SPAC IPOs that same year, [2] meaning roughly 60% of all IPOs were conducted through SPACs. While that level of SPAC activity may not be sustained over the long-term, it is clear SPACs provide an alternative to the traditional IPO model, and may offer some competitive challenges. That’s a good thing. But, perhaps, we need to be careful not facilitate a race to the bottom in terms of public market protections. And since the boom, the Commission and its staff identified several areas of concern with SPACs. Such concerns include misaligned incentives, several points of dilution that may disproportionately impact retail investors, and a lack of liability that may be creating an unjustified advantage in this path to the public markets over the traditional IPO. [3] The questions and challenges of how to adequately address these concerns in a balanced way remain. And I, of course, look forward to your thoughts and engagement on the SPACs proposed rulemaking.
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