The U.S. Securities and Exchange Commission responded this week to a bevy of petitioners challenging the agency’s climate-risk disclosure rule. The agency — which is facing nine lawsuits protesting the rule, all consolidated in the U.S. Eighth Circuit of Appeals — maintained its authority to promulgate the regulation in its reply brief filed Monday.
The rule was finalized in March and has been stayed by the SEC since April, but the petitioners in the case argued that the rule is arbitrary and capricious, unconstitutional, beyond the agency’s authority and violates the First Amendment, according to court documents.
The agency responded to all the rule’s challengers — which include 25 states, an energy trade association, two think tanks, the U.S. Chamber of Commerce and public oilfield services company Liberty Energy — in a single reply brief refuting each of the claims. The agency maintains that the rule is well within its congressionally granted authority, and that its challengers’ claims to the contrary “lack merit,” according to the Aug. 5 brief. The plaintiffs’ criticisms of the agency’s rationale fail to hold up, the SEC said.
“Each provision of the rules falls within the Commission’s statutory authority and is consistent with the Commission’s decades of practice exercising its delegated rulemaking authority,” the agency said. “Petitioners’ contrary arguments misapprehend the relevant statutes and mischaracterize the rules.”
The agency was accused of going beyond its remit by each of the petitioners, according to their briefs. Each raised variations of the argument that the rule is not authorized by the Securities and Exchange Act of 1934 or violates the major questions doctrine.
The SEC said it was given the authority to “require disclosure of information important to investors’ investment and voting decisions” by Congress through the Securities and Exchange Act. Additionally, the agency said the major questions doctrine — established by West Virginia v. EPA to be used in “extraordinary cases” — does not apply because it “invoked core provisions of the securities laws that expressly authorize” the SEC to promulgate rules to protect investors.
The agency’s final rule was also accused of being arbitrary and capricious for a variety of reasons, including allegations that it was “unreasoned”; fails to explain why existing regulations are inadequate; fails to acknowledge the agency’s change in position; and deviates dramatically from the SEC’s original proposal, according to court records. The approved climate-risk disclosure rule eliminated requirements for public companies to disclose scope 3 emissions and limited the universe of companies that need to disclose scope 1 and 2 greenhouse gas emissions.
The SEC said its rule “reasonably explained” the problems it was designed to solve, and “will facilitate informed investment and voting decisions by providing more detailed, consistent, and comparable information,” according to its reply.
The agency said the importance of such disclosures has been confirmed by “substantial investor demand” and that “numerous” institutional and individual investors sent comment letters that showed they were looking to assess the climate-related risks that public companies face “and evaluate how registrants are measuring and responding to those risks.”
“Based on substantial evidence, the Commission reasonably determined both that information regarding climate-related risks is important to investment and voting decisions and that there is a need for more detailed, consistent, and comparable disclosure of that information,” the agency said.
The SEC said it maintains its traditional concepts of materiality and reasonably estimated the costs of compliance with the rules. The agency called the final rule a “logical outgrowth of the proposal” and, despite allegations to the contrary, it promulgated a rule regulating the “securities market, not the environment” and only require “purely factual” disclosures.
While Congressional Republicans started a push to repeal the rule via the Congressional Review Act, that window closed last week with neither the House nor Senate version receiving a vote from the full chamber.
The challengers have until Sept. 3 to reply to the SEC response.
