CLS Blue Sky Blog

Shadow SEC Statement No. 10: The SEC’s Proposed Climate “Do-Over”—Prejudged, Internally Inconsistent, and Partisan

  • John Coates, John C. Coffee, Jr., James D. Cox, Merritt B. Fox and Joel Seligman

    • More than two years after the SEC adopted final climate disclosure rules, the SEC has now proposed not to modify, improve, or trim them, but to rescind them entirely.  This proposed action is at odds with the fact that more than 80% of large, listed operating companies already engage in climate disclosures—a fact that provides a strong basis for modest, low-cost, high-benefit improvements in the comparability, timeliness, and reliability of climate risk disclosures that would be decision-useful for the majority of investors, and in so doing reduce the cost of capital for companies.  We do not believe the SEC has come close to explaining why it believes climate change creates no meaningful and distinctive financial risks and opportunities for nearly all large, listed companies, or why it wishes to revert to outdated climate guidance from 2010.  Instead, its decision to disengage from this area is premised on a set of internally inconsistent and conclusory rationalizations for a politically motivated and prejudged proposal.[1]

    Instead of arbitrarily wiping climate disclosure rules out completely, the SEC should take the time to identify and remedy specific problems with the rules on the books and develop and propose better line items to structure how existing climate disclosures are created and assured. Foremost among the steps it should take is assuring comparability, timeliness, and reliability of climate risk disclosures. That approach would benefit investors, in part by reducing the cost of comparing and benchmarking companies’ exposures and responses with climate risks and opportunities on a timely basis. It would also benefit companies by making it easier to spot and discipline “greenwashing” and other forms of investor-harming fraud and so reduce the cost of capital for non-fraudulent firms. The SEC should bring all large, listed operating companies into line with the now well-established set of disclosures offered by the great majority of their peers, or else present a rational basis for believing some companies do not face climate risks and opportunities.

    In its proposing release, the SEC’s primary justification for its sweeping approach is unusual: Its own rules, it now says, are illegal and unauthorized.  While the SEC does include a secondary section on policy reasons for its proposal to rescind the rules completely, which we address below, the bulk of its justification (29 of 51 pages) is about legal authority.  We begin with that unprecedented, mistaken, and revealing choice.

    The SEC’s Legal Arguments Are Without Merit

    We begin with basic observation that it is Congress, and not the SEC, that determines the authority of the SEC.  The courts enjoy the power to review independently any decision by the SEC that is premised on an interpretation of what authority Congress has given the SEC, such as the SEC’s rescission decision. This is even more true today than in the past. Shortly after the SEC adopted its climate change rules (in March 2024), the U.S. Supreme Court held in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024) that it is for the courts and not the SEC to interpret the extent and limits of its statutory authority.

    The only deference due to the SEC on legal matters requires the SEC to have and rely on its expertise, which the current proposal fails to do.[2]  The SEC deserves no deference in rescinding the March 2024 rules.  As discussed more below, the SEC’s policy “analysis” is so casual and thin as to reflect its secondary place in its release.  Its legal investigation and reasoning are even less serious.  Nothing in its governing statutes or relevant case law or legislative history has changed between March 2024 and June 2026.  It cites no judicial decision upholding its novel interpretations of the securities laws and ignores cases that have directly interpreted the SEC’s organic statutes in the context of environmental risks.[3]  Its 180-degree reversal is the very opposite of consistent interpretation over time.  It slights and minimizes unpersuasively its own long-standing and repeated rulemakings and guidance that were designed to and did elicit environmental and climate disclosures, which we summarize below.

    Worse, the SEC’s legal conclusion—that it lacks authority—is flatly contradicted by its own separate policy argument.[4] In the very same proposing release it states that the March 2024 rules were unnecessary because prior rules, supplemented by the 2010 climate guidance,[5] already required the most important climate disclosures.  This is obviously illogical: Something cannot be both unauthorized, on the one hand, and unnecessary because duplicative of prior and authorized requirements, on the other hand.  This illogic confirms that the SEC is being inconsistent over time; it presently asserts it lacks authority to do what it now (in 2026) also says it had already done (in 2010).  Not only should the SEC get no deference for reversing itself on a ground that it itself rejects in the very same release, but that internal contradiction is a clear example of agency irrationality and arbitrariness that is inconsistent with the Administrative Procedure Act (APA).

    The SEC’s assertion that the March 2024 rules are unauthorized is also legally mistaken.  Particularly problematic are its assertions that Congress narrowly restricted disclosures the SEC could require, that the rules run afoul of the major questions doctrine, and that the rules intrude into the state domain of corporate affairs.

    The SEC acknowledges, as it must, that Section 7(a)(1) of the Securities Act of 1933  (“1933 Act”) authorizes the SEC to require registration statements to contain “such other information” as the SEC deems “necessary or appropriate in the public interest or for the protection of investors.”[6]   The SEC’s proposing release (at 22) misleadingly attempts to mischaracterize this grant of authority by saying that “Congress restricted the information an issuer or reporting company must disclose to items central to an understanding of the company’s business or financial characteristics.”  This argument fails on two fronts: First, it mischaracterizes the SEC’s authority as confined solely to business-related disclosures, and second, even if its authority were that narrow, the March 2024 rules are sufficiently related to companies’ financial characteristics to fall within it.[7]  Neither assertion is supported in the text, structure, or case law under the 1933 Act, and the SEC does not reconcile its sweeping attempt to invent a restriction on its authority with how it has exercised its regulatory authority over the past century.  Its authority under the acts it administers has never been limited to requiring solely disclosures that are “financial,” “material,” or “central” to information listed in Schedule A to the 1933 Act.[8]  The 1933 Act explicitly references the need for investors to be given information by companies from professionals such as engineers.  The SEC’s operative rules and guides are supported by and consistent with legislative history showing that Congress deliberately broadened the final 1933 Act from prior bills to allow the SEC to flesh out and update disclosure requirements over time rather than freezing a detailed list in the statute.

    Instead of offering authorities establishing limits on its own authority, which do not exist, the SEC now cites, oddly, to dicta from decisions regarding Federal Communications Commission rules and the statutory text of the Federal Arbitration Act.  Even those authorities stand only for the anodyne proposition that an open-ended general authority should be understood by reference to specific authority to which it is attached. No one would dispute that, but the SEC nowhere cites any authority for glossing Section 7 or the 1933 Act more broadly with limits implied by Schedule A, much less by limits requiring disclosure requirements to be limited to information that is “material” or “financial” or “central.”[9] Those limits are particularly implausible because Section 7 does not use those terms, even as other parts of the of the 1933 Act (and the equivalent authorities in other securities laws) do qualify other aspects of the same statute with those same words.[10]

    Likewise, together, Sections 12 and 13 of the Securities Exchange Act of 1934 (the “1934 Act”) authorize the SEC to require periodic and continuous reports from exchange‑listed companies, again in such form and detail as the SEC deems “necessary or appropriate” for investor protection and fair dealing.[11]  As with the 1933 Act, this 1934 Act authority is not limited to “financial statements” or “financial” information narrowly understood.  It has even more generous subject‑matter breadth than under the Securities Act of 1933, albeit still bounded by clear limiting principles and purposes—disclosure (not substantive or “merits” regulation), investor protection, and fair markets.[12]  It clearly encompasses non-financial disclosure items, such as the identity, background, and interests of corporate directors and officers.

    The SEC concedes, as it must, that “fraud” against investors is a core concern of the securities laws,[13] that it was given ample authority to require disclosures to combat fraud, and that a supermajority of large companies already make climate disclosures.  As a result, the frequency of such disclosures creates the risk of climate-related fraud.  This fact would itself justify rules specifying the details of how the 80% of companies that make such disclosures do so.  As with the 1933 Act, the history of the development of the 1934 Act, too, shows that Congress gave the SEC the regulatory authority (a) to require disclosure to ensure market prices reflect “real value,” which means adjusting nominal results by risks, such as transition and physical risks of climate change, (b) to enhance investor confidence so that markets remain stable and liquid, which means taking into account the kinds of information investors and other market participants (not politicians or politically appointed agency heads) believe to be important to their assessment of a company, its management, and its strategy, and (c) enabling regulatory flexibility so that the SEC could and would adjust and update disclosure content as markets, risks, and business practices evolved.[14]

    In contrast, the SEC now attempts, unpersuasively, to dismiss investor interest in climate disclosures on the ground that not everything that any investor may view as useful or desirable to know is within the SEC’s authority to require to be disclosed.  To support this argument, the SEC cites no case law involving the securities laws. Instead, it plucks (at 25) dicta out of context from a decision involving OSHA to the effect that an agency is not a “roving commission” to correct all “evils.”[15]  If that were even remotely how the SEC in fact was acting in adopting the March 2024 rules, the SEC in its new release rejecting climate disclosures does not explain how or provide support for believing that to be true.  In fact, the March 2024 rules cut back significantly on climate disclosure requirements originally proposed by the SEC, and the adopting release is full of specific evidence that climate disclosures are not simply “important” to one or two investors at one or two companies but supports the opposite conclusion, that the disclosures would provide currently decision-useful information to the majority of investors in nearly all large, listed operating companies.[16]

    Indeed, the SEC has had a longstanding practice of requiring disclosure of or related to environmental risks, the very subject of the March 2024 release.  Since the Nixon Administration in the early 1970s, the SEC has repeatedly used this authority to require environmental disclosures.  In 1971, it published a release highlighting that existing disclosure requirements covered material environmental and civil‑rights matters, and stating that staff would press issuers that omitted such information.

    i. 1973–76 rulemakings: After extensive hearings and a 10,000‑page record, the SEC:

    a. Recognized the National Environmental Policy Act (NEPA) as one factor it could consider.

    b. Required disclosure of environmental proceedings involving government parties, even when individual amounts were not financially material, to reflect national environmental policy and the significance of environmental law violations.

    c. Clarified it had broad discretion to expand or contract disclosure rules as investor needs and business conditions change.

    ii. 1980s: The SEC refined environmental‑proceeding thresholds (e.g., minimum dollar amounts) based on staff experience, illustrating ongoing calibration.

    iii. 2010 climate guidance: The SEC issued guidance explaining when climate‑related matters (regulatory, physical, and business‑trend impacts) must be disclosed under existing rules.

    a. Even commissioners and members of Congress who opposed the 2010 guidance on policy grounds did not question the SEC’s legal authority to require environmental or climate‑related disclosure.

    b. Major law firms that advised issuers about climate‑related disclosure obligations under the securities laws never suggested that the SEC lacked authority to adopt the 2010 guidance.

    Even if one were to overlook the SEC’s history of regulating environmental disclosures and grant its unprecedented and narrow view of its authority, the March 2024 rules would be authorized, because they are in fact “channeled” and limited by conventional business and financial characteristics, about which even the current SEC believes to be within its authority to require disclosures.  Specifically, for the largest companies, the 2024 rules require three types of specific disclosures:

    i. Qualitative disclosures about financial risks, trends, and governance of the same kind already in principle required in risk factors, MD&A, the proxy rules, and other line items in Regulation S-K, and which (as noted above and supported extensively in the March 2024 rule release), many companies already provide, but not in a consistent or comparable way,

    ii. Scope 1 and Scope 2 emissions data (and if material or the subject of a target the company has chosen to disclose, Scope 3 emissions), equivalent to key performance indicators of the kind required to be disclosed in MD&A,[17] and

    iii. Financial statement footnote breakouts, where climate affects an item by 1% or more.

    Of these, the first and third are inarguably about financial risks and opportunities related to climate change; it cannot fairly be argued that losing production or permanent asset impairments due to weather damage are not financial risks for companies with property, plant, and equipment in flood plains or otherwise exposed to climate-related weather events.  The second—emissions data—are decision-useful indicators of transition risk (the risk that energy costs and policy responses by other lawmaking bodies will force companies to expend money to reduce their emissions or mitigate their impacts).  These data, again, are directly relevant to financial risks and opportunities for public companies.

    The SEC’s new release offers a counterexample that actually supports the 2024 rules’ permissibility under the SEC’s newly announced “channeling” view of its authority. The SEC cites Item 507 of Regulation S-K as legitimate “channeling.” Item 507 requires companies to disclose details about their selling shareholders, even though the Securities Act does not explicitly require disclosures about selling shareholders.[18]Nonetheless, the SEC argues that Item 507 is “channeled” by other requirements, such as disclosures about shareholders’ intention to purchase securities.[19]  Authority for disclosures related to buying securities, the SEC agrees, justify disclosure requirements relating to selling securities.

    But the SEC offers no reason to think that the relationship between statutorily specified disclosures and the broader authority it agrees it has is limited to reversing the sign on a particular transaction.  The SEC’s long list of long-standing mandated line-item disclosures in Regulation S-K goes well beyond anything specifically identified in the 1933 and 1934 Acts, not to mention the extensive disclosures derived from generally accepted accounting principles developed over time by the quasi-governmental Financial Accounting Standards Board, which the SEC then imposes on companies. Financial statement footnotes have long required qualitative disclosures bearing on risks, uncertainties, and events with as-yet unknown impacts on financial results.[20]  These disclosures include, for example, disclosure about risks arising from the “concentrations,” such as those arising from the location of its operations,[21] as well as disclosures about damage from fire, flood, or other casualty after the balance sheet date, even when the financial impact of those events cannot be estimated at the time of disclosure.[22]  The March 2024 rules’ climate disclosures, which connect directly to business and financial characteristics addressed by statutorily identified items, are “channeled” at least as well as these and other long-standing examples.  Even if the SEC’s newly self-proclaimed narrow legal authority were valid, the March 2024 rules easily satisfy it.

    In sum, climate‑related disclosures such as those required by the March 2024 rules do not set forth a novel expansion of SEC power; they are a continuation of long‑standing disclosure practice under the same statutory provisions.  Courts have frequently upheld agency actions that went “further than before” but were still squarely within the agencies’ traditional missions (here, mandating disclosures that matter to investors and markets).

    The SEC also argues that the 2024 rules are invalid under the major questions doctrine, a court-developed canon of statutory instruction about which the SEC has no expertise.  It alleges that the March 2024 rules “transgressed the limits of its statutory authority under the major questions doctrine,” amounting to “a new and expansive regulation of a substantial policy area” without clear congressional authorization.[23]  The argument that the SEC is exercising transformative and “unheralded power” is unfounded and should be understood as an unpersuasive makeweight argument.[24]

    The indicia of major-ness that the SEC cites in its new release—that climate change has vast economic and political significance and is contentious,[25] that Congress has failed to legislate on the issue, or that the rules intrude into the state domain of corporate governance—simply do not apply to the March 2024 rules.[26]  The March 2024 rules do not dictate how companies should respond to climate change. Far from embodying “climate change” policy generally, the rules narrowly call for a subset of climate-related disclosures solely from SEC-registered companies—a subset of companies that affect climate change. The rules adopted deal directly with the core mission of financial reporting: enabling financial statement users to interpret the firm’s financial performance and position in light of operating conditions.

    Indeed, the actual rules at issue call for specific disclosures that investors need to evaluate and price climate-related financial risks and opportunities.  Precedent confirms that simply because disclosures relate to an overall topic of significance to society does not transform those disclosures into a broader policy addressing it; the SEC is not aiming to address climate change now any more than it was trying to solve a geopolitical or global health crisis when it required public companies, for the benefit of investors and markets, to disclose the risks and financial impacts of asbestos, the war in Ukraine, or the pandemic.[27]  In 2008 the world endured a financial crisis; ensuing disclosure rules and guidance responded to that crisis, and since then have enabled investors to better assess firms’ performance and position, and have never been challenged as beyond the SEC’s authority. Although “climate change” overall indisputably raises important policy questions, the March 2024 rules leave those broader questions for Congress to resolve.  Disclosure rules do not constitute substantive climate policy that might trigger the “major questions doctrine,” as in West Virginia v. EPA, 597 U.S. 697 (2022).  For example, the March 2024 rules:

    Disclosure of climate risk cannot be equated with energy mandates simply through the arbitrary say-so of the SEC. The SEC has many times required disclosures that have had a bigger impact on society and the markets than the March 2024 requirements and has never suggested (nor has any court concluded) that it lacked authority to do so, simply because the impacts of those rules were significant.  Even if one were inclined to take at face value the SEC’s estimates that the aggregated annual compliance costs of the March 2024 rules would be $4.9 billion,[28] this estimate pales in comparison to cases the SEC itself cites where the major questions doctrine applied. such as the $430 billion of student loan debt in Biden v. Nebraska[29]or the trillions of dollars associated with tariffs in Learning Resources v. Trump.[30]  The gross costs of compliance with the March 2024 rules hardly present a significant burden to large accelerated filers, let alone to the economy at large.[31]

    Finally, the SEC also claims the March 2024 rules intrude on corporate governance, an area “traditionally governed by State law.”[32]  The rules on their face plainly do not intrude into corporate affairs.  They require registrants to disclose how they approach climate-related risk; the SEC did not address how the information was to guide management.  The March 2024 rules require no operational changes, such as adopting specific governance structures, setting emissions targets, or implementing climate transition plans.  The rules require disclosure about transition plans or targets only if a company has adopted them.[33] The requirement that companies disclose “oversight by the board of directors of climate-related risks”[34] is similar to long-standing disclosure requirements relating to governance over other topics.  The requirement in no way compels or even creates a strong incentive for boards to function other than as they choose to function under state law, as a company with a good reason for not having climate governed at the board level can simply explain that reason and continue to do so.[35]  The March 2024 rules are disclosure rules, and so fall squarely within the SEC’s side of the “firebreak” between federal securities law and state corporate law.[36]  The thinness of the SEC’s claim that these disclosures supplant state corporate law is shown by the fact that the position set forth in the new release would support invalidation of virtually any disclosure rule.[37]  Such an argument is incompatible with Congress’ clear vision of the SEC’s role in crafting disclosures, embodied by the delegations in the 1933 Act and the 1934 Act.

    The SEC’s Policy Arguments Are Even Weaker

    Having attempted but failed to set out a legal basis for abandoning the March 2024 rules, the SEC then attempts half-heartedly to offer a set of thin policy rationales for the action proposed in the new release.  Those include claims that the March 2024 rules (a) are unnecessary given other disclosure rules, (b) over-prioritize climate relative to other risks, (c) impose costs that exceed their benefits, (d) deter going or remaining public and capital raising, and (e) are inconsistent with international standards, which the SEC asserts, have been scaled back since the SEC finalized its rules in March 2024.  None of these claims has merit.

    1. Argument that the March 2024 Rules Were Unnecessary. The first of these arguments, as noted above, belies its legal argument—if the 2010 guidance and existing SEC rules already accomplish what the March 2024 rules are intended to accomplish, then the March 2024 rules cannot be unauthorized. Nor in fact do they merely duplicate existing requirements. The March 2024 rules: (i) set out detailed, comparable specifications of how to comply with and assure investors about existing, more general disclosure requirements on a timely basis, (ii) were based on extensive fact-finding set out in the March 2024 release, and (iii) are precisely in line with what Justice Gorsuch has identified as an appropriate role for a federal agency.[38]
    2. Argument that the March 2024 Rules Over-Prioritized Climate Risk. The second of these arguments is nonsensical. Congress did not impose an arbitrary limit on the number of categories of risks about which the SEC could require disclosures.  Even if true that climate risk is less important than (say) risks from use of derivatives—and the SEC’s proposing release does not provide any convincing evidence on this point—it would not make any policy sense to believe that only the highest priority risks are worth companies addressing in their disclosures.  If all the SEC means by this argument is that the relevant risk should be worth the costs of disclosing, then this argument collapses into its cost/benefit argument, which we address next.
    3. Argument About the Costs and Benefits of Climate Disclosures. The pretextual nature of the third of these arguments—that the costs of the March 2024 rules outweigh their benefits—is betrayed by fact that the proposal devotes less than eight pages to an assessment of the benefits of the March 2024 rules. The March 2024 release contains over 200 pages of detailed economic analysis, most of which is completely ignored by the current do-over release. The March 2024 release cites and relies on dozens of peer-reviewed studies to establish a basis for believing that climate disclosures provide investors and companies alike with material benefits.  These benefits include:

    The current release neither cites, critiques, nor analyzes any of the studies supporting the SEC’s prior identification of these benefits, leaving the impression that the current SEC is either being willfully blind about a fair and full economic analysis, or has rejected for unstated reasons a large body of research that is directly relevant to its policy conclusions.

    The emptiness of the economic analysis in the new release is reinforced by the current SEC’s circular and nonsensical assertion that the March 2024 rules would only add costs without adding benefits because companies already are complying with existing rules that require the same disclosures. Again, we question the SEC’s logic. The March 2024 rules cannot impose new marginal costs without going beyond existing requirements, but if they go beyond existing requirements, then the SEC cannot dismiss the information benefits of those new disclosures on the ground that they are already required.

    The SEC also attempts (at 59) unpersuasively to minimize the benefits of the March 2024 rules by claiming that they only benefit “certain investors who choose to focus their investment strategies on climate-related matters or who have interests other than the pursuit of a financial return that are driving their informational demands.”  The new release provides no reason to doubt the extensive evidence presented in March 2024 that the vast majority of investors benefit from (through market pricing and analyst commentary) and want climate risk disclosures.  These disclosures do not benefit a particular clientele of institutions—they benefit all investors who rely on market prices to help guide their investment choices.  Indeed, they were requested by a wide variety of institutions holding more than 75% of the market capitalization of all U.S. companies, along with thousands of individual investors who commented on the March 2024 rules before they were adopted. This broad support for such disclosure is at odds with the narrative set forth in the new release.

    1. Argument that the March 2024 Rules Deter Companies from Being Public. The fourth of these arguments is asserted but nowhere shown in the new release. Even if the claim that climate disclosures may deter companies from going public had merit, that concern could easily be addressed in the same way that other compliance-cost-generating disclosures have been addressed by the SEC: with appropriate phase-in, scaling, or other tailoring requirements, such that only mature, larger companies facing the largest climate risks would be required to comply with the most expensive elements of the climate disclosure rules.  Instead, the SEC makes no serious attempt in the rule-reversal proposal to justify why it is abandoning the March 2024 rules altogether, rather than tailoring them more, as it is currently also proposing to do with respect to control assessments, for example.
    2. The Misleading Argument About International Standards. The SEC’s final argument—that international bodies have scaled back their climate disclosures since March 2024—mixes apples and oranges. A candid and non-prejudged assessment by the SEC would have to acknowledge that non-U.S. requirements were and remain significantly more extensive and detailed than U.S. requirements prior to the March 2024 rules, and whatever modifications that non-U.S. and international standard setters have made to their requirements or recommendations still leave in place a set of disclosure rules or norms about climate risk that provide investors with better and more reliable information about climate risk than is true of currently enforced SEC requirements. And taking no action perpetuates the comparability issues (discussed earlier) among issuers as they compete for investor interest.

    Conclusion

    In sum, the SEC’s climate proposal—to “do over” the March 2024 rules by wiping them out altogether—betrays the U.S. investor.  It is primarily premised on poor legal reasoning that is internally inconsistent.  It is not based on meaningful use of the SEC’s expertise, and if adopted as proposed deserves no deference by any court reviewing it under the APA. It should be replaced with a more serious, studied proposal that takes on the fact that climate risks and opportunities are generally material, financial, and real to a supermajority of large, listed operating companies, and their investors, whatever one thinks about climate policy or how best to address climate risks more generally.  A head-in-the-sand approach will not address fraud—greenwashing—or help reduce the total social costs already being incurred by investors as they attempt to assess and respond to the over-80% of large companies that understand the material, financial reality of climate change and its impacts—through floods, fires, and severe weather—on the physical world, a reality obvious to anyone who has not pre-committed to let politics precede judgment.

    ENDNOTES

    [1] We note the SEC—now headed by three Commissioners from one party, contrary to Congress’ statutory design and long-standing practice—reached its decision to abandon the March 2024 rules long before the current rule proposal, as reflected in its decision to attempt to persuade the Eighth Circuit to carry out the SEC’s obligations under the Administrative Procedure Act for it.  There is nothing in the current rule proposal that reflects any fact-finding, deliberation, or new information subsequent to that litigation decision.

    [2] See Skidmore v. Swift & Co., 323 U.S. 134 (1944), which predated Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) and is now again the relevant legal baseline.

    [3] E.g., Nat’l Res. Def. Council, Inc. v. SEC, 606 F.2d 1031, 1050 (D.C. Cir. 1979) (“The SEC . . . was necessarily given very broad discretion to promulgate rules governing corporate disclosure. The degree of discretion accorded the Commission is evident from the language in the various statutory grants of rulemaking authority.”); id. at 1045 (“Rather than casting disclosure rules in stone, Congress opted to rely on the discretion and expertise of the SEC for a determination of what types of additional disclosure would be desirable.”) (emphasis added).  This case is particularly relevant, as it involved a challenge to the SEC’s exercise of authority to require environmental disclosures and was cited in the March 2024 release adopting the rules reversed in the current proposal yet is nowhere cited or discussed in the new release. The SEC does cite Basic Inc. v. Levinson, 485 U.S. 224 (1988), but does so misleadingly and inappropriately, for the proposition that its authority is limited to “material” information, which was not at issue in that case—the anti-fraud component of the securities laws was at issue, but there was no challenge to the SEC’s authority to enforce its anti-fraud rules, which explicitly incorporate “materiality” for purposes of proving fraud.  Basic is not cited for the more general question relevant to the SEC’s authority of why the securities laws were adopted at all, and therefore how to interpret its rule-making authority generally.  E.g., id. at 230 (“The [1934] Act was designed to protect investors against manipulation of stock prices. Underlying the adoption of extensive disclosure requirements was a legislative philosophy: There cannot be honest markets without honest publicity….This Court repeatedly has described the fundamental purpose of the [1934] Act as implementing a philosophy of full disclosure.”).  Nor does the current release cite Lorenzo v. SEC, 139 S. Ct. 1094, 1103 (2019) (“The fundamental purpose” of the securities laws is substituting “a philosophy of full disclosure for the philosophy of caveat emptor.”), nor any of the decisions applying and enforcing disclosure requirements that go beyond what the SEC now asserts is the limit of its authority.  E.g., SEC v. Life Partners Holdings, Inc., 854 F.3d 765 (5th Cir. 2017) (disclosure of risks and revenue recognition, even if not material to current financial position); SEC v. Das, 723 F.3d 943 (8th Cir. 2013) (disclosure of related-party transactions and executive compensation, even if not material to a company as a whole); SEC v. Goldfield Deep Mines Co., 758 F.2d 459 (9th Cir. 1985) (disclosure of certain legal proceedings, even if not material to a company as a whole).

    [4] Release at 47 (“The [March 2024] Rules are unnecessary because existing disclosure requirements already elicit information about the material effects of climate-related matters.”).

    [5] Release No. 33-9106 (Feb. 2, 2010) [75 FR 6290 (Feb. 8, 2010)].

    [6] Release at 20.

    [7] Id.

    [8] The general authority in Section 7 allowing the SEC to require disclosure of “such other information” does not follow the reference to Schedule A or any other specific list of disclosures, as the SEC’s current release implies.  Instead, it rests in its own sentence, separated from the mention of Schedule A by two other, lengthy sentences addressing other topics. That general authority does have its own sentence-specific qualification (“for the protection of investors”), but it is not a general authority for which the reference to Schedule A is providing implied specific limit.  In context, it is clear that the phrase “such other information” does not refer back to Schedule A but refers forward to the limiting phrase “as the Commission may by rules … require … for protection of investors.”  As a result, the statutory canon of construction ejusdem generis cannot reasonably be understood to add any further implied limits on its meaning. In the nearly 90 years since the Act was adopted, no court has found such a limit.

    [9] Id. at 23 (citing FCC v. Consumers’ Rsch., 606 U.S. 656, 690 (2025) and Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115 (2001)).

    [10] “Material” is used 43 times in the 1933 Act, including in the anti-fraud sections of both the 1933 and 1934 Acts, but does not appear as a limit in Section 7, in its text or its heading, “Information Required in the Registration Statement” (a fact that would in conventional statutory interpretation inform how authority in the section should be understood).  Nor is the word “financial” used in the text or the heading to Section 7.  “Financial” is used, however, 35 times in other places in the 1933 Act. “Central” simply does not appear in the 1933 Act at all, and its use by the current SEC appears to be its own new and undefended invention, perhaps because the current SEC realizes the text-based hurdles it would face in trying to argue that the 1933 Act implicitly included “material” or “financial” as limits on its authority to require “other information” for investors.

    [11] 15 U.S.C. §§ 78l–78m (2024).

    [12] Disclosures that have nothing to do with a company’s business or governance would be beyond the SEC’s authority to require, but the SEC nowhere attempts to argue that climate risks are categorically unrelated to the business or governance of public companies, nor could it plausibly do so.

    [13] Release at note 75.

    [14] E.g., H.R. Rep. No. 73-1383, 73d Cong., 2d Sess., at 11 (1934); id. at 5 (“When everything everyone owns can be sold at once, there must be confidence not to sell.”).

    [15] Release at 25.

    [16] See, e.g., Enhancement and Standardization of Climate-Related Disclosures for Investors, Securities Act Release No. 33-11275, Exchange Act Release No. 34-99678 (Mar. 6, 2024) at, e.g., n. 2656 (Form 10-K disclosures on material climate risks are associated with increased precision and lower dispersion in analysts’ earnings forecasts); 2657 (“in the context of earnings conference calls involving analysts, discussions concerning exposure to climate-related risks have been shown to contain important information that is priced in stocks and options”); 2660 (“research finds an increase in stock price volatility around the day when GHG or carbon emissions are disclosed in a Form 8-K filing”); Table 5 (half of all large accelerated filers were reporting scope 1 and 2 emissions in 2021); 2700 (one third of companies had announced plans by 2021 to cut emission); Table 7 (67% of LAFs had announced emission reductions initiatives); 2720-22 (summarizing multiple investor surveys and research publications showing increased investor demand for climate disclosures); 2729 (duration of equity is in excess of 35 years, so events far beyond the next five to ten years can affect valuation today, and evidence from research shows market reflecting expectations of climate events); 2737-42 (summarizing published research showing “well-established link between climate-related risks and firm fundamentals”); 2743-46 (summarizing published research showing “publicly available climate-related information is reflected in asset prices”).

    [17] See SEC Rel. No. 34-48960 (Dec. 29, 2003) (requiring disclosure of material key performance indicators used to manage the business); see also Release No. 33-6176 (Jan. 15, 1980). The EPA requires collection of information relevant to Scope 1 emissions, and public reporting of certain emissions if they exceed set emission-source-specific thresholds, but only for U.S. emission sources.

    [18] Release at 28.

    [19] Id.

    [20] See ASC 275 (“Financial statements provide information about certain current conditions and trends that help users in predicting reporting entities’ future cash flows and results of operations. The quality of users’ predictions depends to a significant degree on their assessment of the risks and uncertainties inherent in entities’ operations and of the information about those operations that financial reporting provides.”)  (emphasis added).

    [21] Id.

    [22] See ASC 855.

    [23] Release at 40-41 (citing West Virginia v. EPA, 597 U.S. 697, 723 (2022)).

    [24] Id.

    [25] A great deal of what the SEC requires disclosure about generates contention in society.  Consider CEO pay, the future of artificial intelligence, or the use of credit default swaps by banks, for example.  Yet neither the SEC nor the courts would ever (we hope) agree that once an issue becomes a political flashpoint, it somehow loses authority to require disclosures related to it.  Nor can congressional inaction transform something that is not otherwise a “major question” into one—Congress commonly fails to act for a variety of reasons, not the least of which is that it does not have the capacity to legislate on every major issue, much less every minor one.

    [26] Release at 41.  We do not address at length the SEC’s empty claim that climate disclosures are better handled by the Environmental Protection Agency, and that Congress should not have been understood to give the SEC authority to require disclosures relating to climate because the EPA has more expertise on the topic.  The EPA’s authority is limited to U.S. sources of pollution, to operations located in the U.S., and to the substance of emissions and their impact on the environment.  It does not extend to disclosures about investment risks and opportunities, even if driven by climate change, for companies based in other countries, and the EPA has no authority over disclosures by companies about physical risks manifesting through storms and fires.  The SEC’s claim ignores the long history of the SEC requiring environmental disclosures, reviewed above, and conflates the expertise related to substantive regulation of climate-affecting activities (e.g., carbon taxes, power generation) with investment expertise related to disclosures about physical or transition risks associated with climate change or climate policy.  As with many other areas in which the SEC has developed specific disclosure requirements, such as aircraft construction program accounting, key performance indicators, and oil reserves, much of the evidence and research cited in the March 2024 rules (summarized above, about climate-related investment strategies, business operations, asset pricing, stock market liquidity, etc.) would be clearly beyond the EPA’s expertise, but is well within the SEC’s expertise.  We also note that NEPA applies to all government agencies, and Congress has never intervened since the SEC started adopting environmental disclosures in the 1970s. These facts belie the SEC’s claim that Congress has not acted to give the SEC any authority over environmental matters.

    [27] See, e.g., George S. Georgiev, The SEC’s Climate Disclosure Rule: Critiquing the Critics, 50 Rutgers L. Rec. 101, 120 (2022).

    [28]  Release at 42. The SEC’s framing of the rules’ burdens overlooks both that compliance costs tend to fall (often dramatically) over time, and that the potential for the disclosure rules to decrease a company’s cost of capital by allowing investors to more accurately price climate-related financial risk. See Letter from Shivaram Rajgopal, Roy Bernard Kester & T.W. Byrnes Professor of Acct. & Auditing, Columbia Bus. Sch., to Sec. & Exch. Comm’n, on File No. S7-10-22 in Support of the SEC’s Climate Risk Rules 3–4 (June 12, 2022), https://www.sec.gov/comments/s7-10-22/s71022-20130924-299962.pdf (arguing that “[e]ven a very modest reduction in estimation risk can decrease cost of capital by more than enough to pay for the already modest compliance costs” associated with the March 2024 rules). Moreover, the release does not reveal to what extent the costs estimated double count the expense issuers incur to generate climate risk information as part of existing or baseline managerial stewardship of the firm.

    [29] Biden v. Nebraska, 600 U.S. 477, 483 (2023).

    [30] Learning Res., Inc. v. Trump, 146 S.Ct. 628, 641 (2026).

    [31] See Rajgopal Letter, supra note 26, at 1 (arguing that “[c]ompliance costs are not a significant portion of market capitalization.” Rajgopal estimates that a “loss in market capitalization due to capitalized compliance costs, all else constant, will reduce the earnings in price-earnings by 0.09%.”).

    [32] Id. at 41. See also id. at 34 (arguing that “[w]hile framed in terms of risks to and impacts on the registrant, the disclosure mandates in the Final Rules effectively provide an aspirational framework for how public companies should manage climate-related matters”).

    [33] See Jill E. Fisch et al., Comment Letter on The Enhancement and Standardization of Climate-Related Disclosures for Investors (June 6, 2022), https://www.sec.gov/comments/s7-10-22/s71022-20130354-297375.pdf at10.

    [34] Release at 11.

    [35] In 2009, for example, the Commission required disclosures, regardless of materiality, for each director or nominee for election as director, about his or her “specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve.” See Proxy Disclosure Enhancements, Securities Act Release No. 33-9089, 74 Fed. Reg. 68,334 (Dec. 23, 2009) (codified at 17 C.F.R. § 229.401(e)).

    [36] Business Roundtable v. SEC, 905 F.2d 406 (D.C. Cir. 1990) (observing that the “firebreak” between securities law and corporate law is that the former addresses disclosure).

    [37] See Letter from Working Grp. on Sec. Disclosure Auth. to Vanessa A. Countryman, Sec’y, U.S. Sec. & Exch. Comm’n, on The Enhancement and Standardization of Climate-Related Disclosures for Investors, File No. S7-10-22 (June 16, 2022), https://www.sec.gov/comments/s7-10-22/s71022-20131670-302060.pdf at 8.

    [38] Gundy v. US, 139 S. Ct. 2116 (2019) (Gorsuch, J., dissenting) (“once Congress prescribes [a] rule governing private conduct, it may make the application of that rule depend on executive fact-finding”).

    This post comes to us from the Shadow SEC, whose members are professors John Coates at Harvard Law School, John C. Coffee, Jr. at Columbia Law School, James D. Cox at Duke University School of Law, Merritt B. Fox at Columbia Law School, and Joel Seligman at Washington University School of Law. The authors would like to thank Honor McCarthy for excellent research and comments.

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