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US Securities and Exchange Commission

SEC Signals ESG Initiatives with Two Picks for Senior Positions

Soyoung Ho  Editor, Accounting and Compliance Alert

Soyoung Ho  Editor, Accounting and Compliance Alert

In a signal that the SEC—at least for the time being—is intent to be very friendly to investor advocates, Acting Chair Allison Herren Lee named Harvard University law professor John Coates as acting director of the Division of Corporation Finance (CorpFin) on February 1, 2021.

Coates was a member of the SEC’s Investor Advisory Committee (IAC) for four years from 2016 to 2020, often drafting disclosure rule recommendations for the SEC to consider. For example, he believes a standardized disclosure rule on environmental, social, and governance (ESG) matters should be written by the SEC. Among other recommendations, he also pressed the SEC to withdraw a proposal that streamlines management’s discussion and analysis (MD&A) and selected financial data.

However, the advisory panel’s recommendations were mostly ignored during the time Coates served when Jay Clayton chaired the commission from 2017 to 2020. Clayton largely pursued a deregulatory agenda and put in place rules that cut back requirements. The SEC went ahead with its MD&A rules and did not write a specific disclosure requirement centered on ESG. Business groups are opposed to specific requirements, saying disclosure rules should be based on materiality and principles-based. This means companies themselves will determine what they think are important to disclose to investors.

CorpFin is responsible for writing up much of the SEC’s disclosure rules for public operating companies. Division staff also reviews company filings to make sure that they are adequate and not misleading.

“John is widely recognized as an expert on corporate governance, corporate transactions, and compliance and disclosure processes,” Lee said in a statement. “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. I am confident that the SEC and all the market participants we serve will benefit greatly from his expertise.”

Before joining the faculty of Harvard Law School, Coates was a partner at Wachtell, Lipton, Rosen & Katz LLP, specializing in mergers and acquisitions (M&As) and financial institutions.

The SEC said he recently served as an independent monitor appointed by the Department of Justice for a large, systemically important financial institution, and served as an independent consultant to the SEC in its first Fair Fund distribution.

In the meantime, Lee, as a commissioner, has been vocal about the need for ESG reporting, especially climate change risk disclosures. She will serve in acting capacity until President Joseph Biden’s pick to head the SEC, former Commodity Futures Trading Commission (CFTC) chairman Gary Gensler, is confirmed by the Senate.

It is unclear whether Gensler will promote Coates to head up CorpFin since permanent SEC chairs name their own division directors. Whatever the case, Gensler will likely focus on ESG as President Biden has put climate change policies front and center of his administration.

ESG Senior Policy Advisor Named

Separately, on February 1, Lee also named Satyam Khanna as Senior Policy Advisor for Climate and ESG in her office. This is a new role, and he will advise the agency on ESG matters and “advance related new initiatives.”

He was most recently a resident fellow at New York University School of Law’s Institute for Corporate Governance and Finance and served on the Biden-Harris Presidential Transition’s Federal Reserve, Banking, and Securities Regulators Agency Review Team.

He was also previously a member of the SEC’s IAC. Before that, he served as counsel to former SEC commissioner Robert Jackson, who returned to teaching last year at NYU.

“I am thrilled that Satyam is returning to the SEC to oversee and coordinate the agency’s efforts related to climate risk and other ESG developments, issues of great significance to investors and the capital markets,” Lee stated. “Having a dedicated advisor on these issues will allow us to look broadly at how they intersect with our regulatory framework across our offices and divisions. Satyam’s experience, insight, and resourcefulness will help ensure our efforts in this space are thoughtful and effective.”

 

This article originally appeared in the February 2, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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