On April 25, 2022, a group of 22 professors of law and finance submitted a comment letter to the US Securities and Exchange Commission (SEC) raising concerns about the SEC's recent proposal on climate-related disclosures (the "Proposal") and urging the SEC to withdraw the Proposal. In the letter, the professors argue that imposing extensive mandatory climate-related disclosure rules on public companies exceeds the authority of a federal financial regulator. As we concluded in our April 21 Legal Update, the professors likewise anticipate that, if adopted, the Proposal may face challenges in federal courts.
Concerns They Raise
"Rather than provide 'investor protection,'" the academics assert that "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 notes that "investor demand" is a credible rationale for SEC regulation "[w]hen a substantial portion of investors across all segments of the investment industry and across the investing public concur in the appropriateness and/or necessity of SEC intervention." However, the professors contend that such a consensus on climate change is "elusive" and, accordingly, "asserting 'investor demand' from the most vocal segment of the investment industry provides a dubious basis for the SEC to claim exercise of its statutory authority in the name of 'investor protection.'"
The professors also conclude that grounding authority in the "public interest" prong of the SEC's statutory power is "even more problematic." "[T]he SEC's mission does not include adopting positions intended to promote particular conceptions of acceptable corporate behavior," particularly when investors have "little, if any, economic stake" in such behavior. As SEC Commissioner Hester Peirce and many others have similarly noted, the professors comment that the Proposal dispenses with longstanding principles and instead "appears to be informed by a different vision, one in which a subset of shareholders dictate corporate policy" and "corporate mission is geared to all stakeholders [and] not primarily shareholders."
The letter respectfully urges the SEC to withdraw the Proposal and "start over with a fresh approach." The advocates state, "At a minimum, the Proposal's scope, novelty, and highly politicized subject matter warrants far greater attention to this question than the SEC has given it."
Takeaways for Companies
As the letter makes clear, the Proposal, if implemented, would represent an important rulemaking action by the SEC with respect to climate risk disclosures. Companies and advisers should carefully review the proposal; track related developments; examine existing policies, procedures and practices; consider filing comments, which may be submitted through May 20, 2022; and explore other opportunities to voice their views on the Proposal, including in cooperation with peer companies or industry organizations.
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