May 16, 2022

Climate Change Proposal: The SEC’s Authority in the Spotlight

In my view, one of the more interesting letters submitted to date on the climate change rulemaking is a very thoughtful piece from a group of professors who examine the SEC’s authority to adopt the climate change disclosure rules. As John mentioned in this blog, the SEC’s authority will no doubt be one of the areas that future litigants may seek to challenge if and when the proposed rules are adopted. The letter notes:

The enthusiasm of many Commissioners and Staff of the Securities and Exchange Commission (the “SEC”) to participate in the global debate about climate change is understandable. After all, protecting the earth’s sustainability is perhaps the most compelling issue of our time. It’s an issue all must take seriously and everyone must do their part. But each of us, and particularly governmental authorities, must always act in accordance with law and fairness.

The undersigned, a group of professors of law and finance, are concerned that the SEC’s recent proposal to impose extensive mandatory climate-related disclosure rules on public companies (the “Proposal”) exceeds the SEC’s authority. In addition, rather than provide “investor protection,” the Proposal seems to be heavily influenced by a small but powerful cohort of environmental activists and institutional investors, mostly index funds and asset managers, promoting climate consciousness as part of their business models.

The letter goes on to discuss the concept of “investor demand” versus “investor protection,” the authority of the EPA and state corporate law, the risk of unconstitutional compelled political speech, and other statutory considerations, such as the high costs versus speculative benefits, the impact on competition and the extent to which added burdens may discourage companies from going public.

It is hard to say whether this letter will have any more impact on the SEC than the “please stop this madness” comment, but it certainly provides food for thought for those who may seek to challenge the rules down the line.

– Dave Lynn