THE U.S. SECURITIES AND EXCHANGE COMMISSION’S PROPOSAL FOR CORPORATE DISCLOSURE OF INFORMATION ON CLIMATE-RELATED FINANCIAL RISKS FACES LEGAL OPPOSITION

Abstract

Humanity faces unique challenges due to climate change. The U.S. Securities and Exchange Commission
(SEC) is recognized as the highest regulatory body in the United States with the authority to develop, adopt and
promulgate legal rules relevant to the Institution’s core mission of protecting the broad-based interests of investors,
promoting market efficiency and competition, and fostering capital formation. On 21 March 2022, the Commission
(SEC) proposed comprehensive and far-reaching guidelines for disclosure requirements for public companies
regarding climate change and climate-related risks, both actual and potential. Based on many years of volunteer
work by dedicated Commissioners, the SEC’s Proposal affects both U.S. public companies and foreign private
issuers. The Proposal, which is over 500 pages long, would require if adopted, covered public companies to disclose
information about their greenhouse gas emissions and many other related issues. The purpose of this article is to
review, analyze and discuss the challenges and strong legal opposition to the SEC’s Proposal for mandatory
corporate disclosure of climate-related risk information. The Proposal has generated discussion, heated debate, and
disagreement, and opponents have raised valid arguments and considerations. Long before the Proposal was
released, the debate over the SEC’s authority (power, competence, and jurisdiction) was ignited, particularly from a
legal perspective. This, in turn, cast a cloud over the newly proposed rules on climate-related issues. Moreover, in a
letter to the SEC, professors, led by Lawrence A. Cunningham of George Washington University, expressed concern
about the release and content of the Proposal, stating, “the passions of this topic [issue] have led the SEC to
overzealous rulemaking that exceeds its authority”. The methods employed by the author include a thorough
examination of relevant literary sources, analysis and synthesis, induction and deduction, descriptive approach,
observation, comparison, analogy, and others. The SEC’s Proposal to establish rules for the disclosure of climate
change risks has been the subject of extensive public comment, questioning, and deliberation. The SEC’s asserted
authority to regulate the emerging new area of climate change – a subject that some critics believe may be outside
the scope of the SEC’s mission and mandate – without additional Congressional authorization, has been the focus of
considerable interest and exploration, criticism, analysis, and scrutiny. The SEC should consider and respond to any
substantive arguments or information provided by public commenters in accordance with the general administrative
law rules and procedures. The Agency may modify the provisions of the Proposal, under adoption, in response to
comments, but it may not, without additional notice and discussion, make changes to the Proposal that are so
significant that the public would not have had a reasonable opportunity to comment on the final rules. Significant
legal challenges and litigation were expected to follow if the Proposal was adopted in its original, initial form, or any
other form without substantial revision. Any legal challenge (objection) could take years to resolve in the federal
courts. Even then, the conflict could persist and continue as long as defendants in SEC enforcement actions raise “as
applied” arguments against the new rules. The SEC has extended the comment period to 17 June 2022 in light of
“significant interest”, particularly from the communities of investors, corporate officials, and issuers. However, due
to a technical glitch, the SEC reopened the comment period in October 2022. In line with longstanding tradition and
practice, the SEC was expected to analyze the comments before releasing the final guidelines for adoption. Despite
the ongoing dynamic debate, in November 2022, the Commission published a new, updated Proposal to improve and
standardize the rules on climate-related disclosures to investors. The Proposal of November 2022, if adopted, would,
for the first time, require public companies to disclose their greenhouse gas emissions and, in some cases, to share
this information with the reporting companies’ suppliers and customers. Some public companies would be required
to disclose additional information in their SEC filings about their long-term climate change strategies and ongoing
initiatives to manage likely climate-related risks.