John Coates, acting director of the SEC’s Division of Corporation Finance (CorpFin), has a few tips about writing comment letters.
His views on comment letters come as the SEC currently has a few rulemaking files open for comment, including a request for comment on climate disclosure that was issued in mid-March. (See SEC Seeks Input on Climate Change Disclosures in the March 16, 2021, edition of Accounting & Compliance Alert .)
Comments on that preliminary rulemaking document are due by June, and Coates encouraged would-be commenters to submit letters sooner rather than later. The vast majority of comment letters have historically been submitted a day before or at deadline.
While the staff reads all comment letters, “if it comes on a day when it’s relatively thin, we are likely to pay closer attention to that particular” letter, Coates said during the American Bar Association’s (ABA) Business Law Section meeting held virtually on April 21, 2021.
In addition to writing early, Coates prefers a more balanced letter.
“When comments come in from organizations like the ABA or many of your subcommittees, over the years, I particularly admired both when I was in private practice, when I was teaching, and now I am at the SEC, comments that are balanced… recognizing that we have a three-party mission to protect investors, forming capital, overseeing fair, efficient, and stable markets.”
“There are usually trade-offs involved in anything complicated,” he said. “Comments that recognize some of those trade-offs rather than focusing on one point only, to me, come across as more credible.”
His remarks also come as the SEC’s updated rulemaking agenda will be published soon.
“I don’t have a precise date this year. It’s not going to be [too] long from now, and I expect it will reflect to some degree the new chair’s input,” Coates said, referring to Chair Gary Gensler who was seated a week ago.
CorpFin has so far prioritized disclosures related to environmental, social, and governance (ESG) matters and Special Purpose Acquisition Companies (SPACs).
But “keep an eye on that—a sign of what we all may be doing,” he said.
He was referring to the so-called “Reg Flex” agenda, which is published by the Office of Management and Budget (OMB) twice a year on reginfo.gov.
Currently, it shows Fall 2020 rulemakings that were set by then-SEC Chairman Jay Clayton. He put rules that he felt the agency could finish within the next 12 months on the near-term agenda. There is also a long-term agenda. Rules on that list tend to be issues the chair does not want to tackle because either they are too controversial or will take too long. The chair also may not believe a particular rulemaking item is warranted.
When pressed about what the Spring 2021 rulemaking agenda might include, Coates said it was “hard to say” but said that under Clayton, there was an “expansion” last year.
“I think that itself may reflect the chair’s input,” he added. “There’s always a tension between being realistic and on the other hand providing fair warning to things we might get to. So, how long it will be will depend on how ambitious we all feel in light of our resources.”
The commission had a frenetic pace of rulemaking just before Clayton stepped down in December—most of them largely focused on the capital formation aspect of the SEC’s mission.
Review of Climate Change Disclosure
In the meantime, Coates said CorpFin staff’s effort to review companies’ disclosure against the SEC’s 2010 disclosure guidance on climate change is well underway.
Then-Acting Chair Allison Herren Lee also asked CorpFin to evaluate “that guidance and the rest of our rules and guidance with an eye towards testing whether we have an updated, consistent, comparable, and reliable for climate disclosures,” Coates said.
He added that the United States has a little bit of catching up to do compared to Europe, which has been long ahead on sustainability reporting.
The European Commission (EC), for example, on April 21 adopted a comprehensive package of measures that would channel money towards sustainable activities. The package includes a proposal for a corporate sustainability reporting directive (CSRD), which aims to improve the flow of sustainability information in companies.
“It will make sustainability reporting by companies more consistent, so that financial firms, investors and the broader public can use comparable and reliable sustainability information,” the EC said.
The European Financial Reporting Advisory Group (EFRAG) will write the proposed standards that reflect European policies. The draft standards would also build on and contribute to international standardization initiatives, EFRAG said.
“Depending on how they implement some of their proposals…, there are going to be effects coming our way that I think we are going to need to sort of align with and keep up with,” Coates said.