Comment Letter to the SEC on Climate Change Disclosures

Abstract

In March of 2021, Allison Herrin Lee, then Acting Chair of the Securities and Exchange Commission (SEC), requested public input on expanding climate change disclosures. In May, Commissioner Lee argued that the SEC had broad authority to require such disclosures, even if the disclosures are “not material” to a reasonable investor. She based this argument on wording found in the federal securities law that repeatedly states that the SEC has authority to require disclosures as long as they are “in the public interest” and/or “for the protection of investors.” As she correctly points out, this wording is not qualified by any standard of materiality. Therefore, it is highly likely that the SEC will adopt this approach in arguing the legality of whatever new climate change disclosures are to be found in a proposed rule that you expect to be published by year end. If the SEC is not limited by materiality, then what are the statutory parameters or boundaries that it still must abide by in promulgating mandatory climate change disclosures? That is, how far beyond the SEC’s 2010 interpretative release on climate change disclosures, which focused on the disclosure of climate change risk factors “that make an investment in the registrant speculative or risky” or “are reasonably likely to have a material effect on a public company’s financial condition or operating performance,” can the SEC go in creating a mandatory climate change disclosure regime? In this comment letter, I argue that its statutory authority does not allow the SEC to stray far from its 2010 approach. In addition, I provide a non-inclusive list of potential costs that the SEC must address and quantify when doing its cost-benefit analysis under Business Roundtable.