Better Markets’ Legal Director Steve Hall took part in a Federal Society webinar – Climate Disclosure Litigation: Examining Legal Battles Against California and the SEC.
Below you can also find Steve’s opening remarks and you can learn more about Better Markets’ climate work here.
Good afternoon, everyone. My name is Stephen Hall and I’m the Legal Director and Securities Specialist for Better Markets. I think this may be the first time we’ve participated in a forum hosted by the Federalist Society, and we certainly appreciate the invitation and the opportunity to join the discussion.
Better Markets is a nonprofit, nonpartisan organization that promotes the public interest in the financial markets through comment letters on proposed rules, amicus briefs, public advocacy, and Congressional testimony.
We filed a brief in the Eighth Circuit in strong support of the SEC’s climate risk disclosure rule, and we advanced three core arguments.
First, the Rule is an appropriate exercise of the SEC’s statutory authority to require company disclosures that are “necessary or appropriate in the public interest or for the protection of investors.” The Rule will advance both goals. It will protect investors by providing them with more complete, reliable, and comparable information about the climate-related risks that companies face and how those businesses are managing such risks. This is information investors want and need to make informed investment and proxy-voting decisions. The Rule will also serve the broader public interest by promoting market efficiency, competition, and capital formation.
Contrary to petitioners’ claims, the disclosures are clearly material to investors. The Rule on its face is framed in terms of material information. Furthermore, investors of all stripes, including investment managers controlling trillions of dollars in assets, have insisted that the information is material. And a long list of other governments and third-party organizations have determined that such information is material and should be disclosed to investors as they allocate their capital and vote their proxies. Moreover, the disclosures are financially material to investors, because climate-related risks pose ever-increasing threats to the financial condition of virtually every company in every industry sector.
Our second argument is that the major questions doctrine has no application to the Rule. First of all, the Rule does not invoke a long “unheralded power” or stretch the boundaries of the SEC’s disclosure authority. Disclosure has been at the heart of the SEC’s mission since it was established over 90 years ago, and the SEC has been exercising its disclosure authority for almost a century. As a panel of the Fifth Circuit recently observed in upholding the SEC’s approval of the NASDAQ’s board diversity disclosure rule, disclosure rules are “business as usual for the SEC.” Moreover, the SEC has been specifically addressing the need for environmental and climate-related disclosures for over 50 years.
While the petitioners claim that the Rule improperly casts the SEC as an “environmental guardian,” this argument obscures the distinction between disclosure requirements, which are central to the SEC’s role, and substantive environmental regulation, which is left to other agencies such as the EPA. The SEC—in stark contrast with the EPA—is in no way attempting to regulate climate change itself or even the way companies adapt to climate change. As the SEC explained in the Rule release, it is entirely “agnostic about whether or how registrants consider or manage climate-related risks.”
Finally, the Rule carries nowhere near the economic or political significance found in genuine major questions cases. And in any event, the Rule satisfies the essential requirement of the major questions doctrine, since the SEC can point to clear congressional authorization for the SEC to require disclosure of information from public companies and to update those requirements as the markets evolve.
Our third argument is that the SEC fully complied with its duty to conduct an economic analysis in support of the Rule. The petitioners seek to impose on the SEC a duty to conduct a quantitative cost-benefit analysis where none exists. It is well-established that an agency’s obligation to assess the economic impact of its rules is first and foremost a function of what Congress has instructed the agency to do. And the reality is that in the securities laws, Congress imposed only a limited duty on the SEC to consider whether a rule will promote efficiency, competition, and capital formation. It did not require the SEC to quantify costs and benefits, and with good reason. Such an exercise is an impossible task, as the costs and benefits of financial regulation are notoriously difficult to predict and quantify. Imposing such a burden on agencies is simply a recipe for regulatory paralysis and endless litigation aimed at nullifying rules designed to protect Americans from all manner of threats to their health, safety, and financial well-being. In this instance, the SEC did all it was required to do and then some. It conducted a thorough economic analysis of the Rule by evaluating its impact on the three statutory factors, and it furthermore assessed all of the costs and benefits of the Rule, even quantifying them where possible.
In sum, the SEC has issued an important rule that will serve the interests of investors and the securities markets as a whole. It complies with the securities laws, the Administrative Procedure Act, and the Constitution, and it should be upheld by the 8th Circuit. That concludes my opening remarks and I look forward to the discussion.
