Author : J. Robert Brown
Release : 2022
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Kind : eBook
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Book Synopsis Essay by : J. Robert Brown

Download or read book Essay written by J. Robert Brown. This book was released on 2022. Available in PDF, EPUB and Kindle. Book excerpt: The Securities and Exchange Commission (SEC or Commission) has proposed a rule that addresses the disclosure needs of investors with respect to climate change. The proposal would require that public companies tell investors about the risks to their business associated with climate change and explain the system and strategy of governance for monitoring those risks. In addition, the proposal would mandate the disclosure of certain greenhouse gas emissions. The SEC's proposal arrived contemporaneously with the Supreme Court's announcement of the “major questions” doctrine. A deliberate attempt to limit the authority of the executive branch, the doctrine would restrict agencies from adopting rules on politically or economically important topics unless “clearly” authorized by Congress. The doctrine in part arises out of a deep-seated suspicion of agency motivations for regulatory action in politically sensitive areas. While still under construction, the fundamental tenet of the doctrine is that certain policy decisions are reserved for Congress unless specifically given to agencies. Reliance on the major questions doctrine presupposes a colorable claim of authority under the relevant statute. Climate change disclosure falls neatly into the SEC's longstanding and broad regulatory authority and can be characterized as not particularly novel, with any differences from past practices mostly a matter of degree. Investors want the information. The proposal mostly imposes disclosure requirements that fit within longstanding categories and focus on the materiality of the information. Moreover, environmental matters have been explicitly integrated into the disclosure process since the 1970s. This, however, only begins the analysis. The importance of the information to investors may not, therefore enough for the current Court. To the extent characterized as novel, particularly with respect to the disclosure of greenhouse gas emissions, the SEC will need to establish sufficient limiting principles. These arise less form the particular topic and more from the need for, and purpose of, the rule. In adopting the Securities Exchange Act of 1934, Congress confronted an existing but inadequate system of corporate disclosure. The system did not sufficiently protect investors and resulted in the misallocation of capital. The SEC was expected not to devise an entirely new system of disclosure but to fix one already in place. In the case of climate change disclosure, most of the issuer-oriented information comes from voluntary disclosure in the form of sustainability and other types of reports not filed with the SEC. The system has yielded a voluminous amount of information that, from the investor perspective, is inconsistent, non-comparable and unreliable. Issuers, for example, routinely disclose emission reduction targets. Under the system of voluntary disclosure, however, the targets often lack sufficient accompanying detail for investors to determine whether they are supported by comprehensive plans or are mostly public relations ploys. The system of voluntary disclosure limits the oversight role of the Commission, reduces the importance of the periodic reporting process, and contributes to the misallocation of capital. The SEC's climate change proposal is designed to address these failings. Indeed, inactivity would amount to a policy decision to push investors towards a largely unregulated disclosure environment in a manner inconsistent with what Congress intended in adopting the Exchange Act. This paper briefly discusses the “major questions” doctrine then looks at the history of the Exchange Act and the disclosure regime that existed prior to the adoption of the legislation. The problems associated with climate change disclosure strongly resemble those that existed when Congress acted during the Great Depression. Whatever limits may or may not exist on the authority to require disclosure in the first instance, the SEC was given the authority to ensure the efficacy of disclosure regimes arising from private ordering that failed to meet the needs of investors and caused a misallocation of capital.