SEC Climate Disclosure Mandate Exceeds Agency’s Statutory Authority, Raises Constitutional Concerns

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WASHINGTON—The Securities and Exchange Commission’s (SEC) plan to mandate companies disclose energy use and planning for climate change-related financial risks lacks authorization from Congress, infringes companies’ First Amendment rights, and fails any reasonable cost-benefit test according to a new report by CEI senior fellow Richard Morrison.

In “The SEC’s Costly Power Grab: The Securities and Exchange Commission’s Climate Disclosure Risk Proposal Threatens an End-Run around Congress on Climate Policy,” Morrison argues the proposal exceeds the agency’s statutory powers. Congress has specifically authorized the agency to compel disclosures on specific issues multiple times in the past but has not done so in the case of climate. 

Beyond the statutory problems, Morrison finds the SEC proposal threatens the First Amendment rights of regulated firms. The federal government has authority to compel speech by corporations in limited circumstances – if the disclosures are “purely factual and uncontroversial.” Since the point of requiring disclosure of climate-related information is to drive capital away from energy-intensive firms, Morrison argues the information covered by the mandate is not merely factual or uncontroversial but inherently disparaging.

Morrison points out that companies regulated by the SEC have long been required to disclose financially material information about structure, operations, and future plans. Those disclosure requirements are not specific to a topic or category, so it could cover climate-related information already without the new rule.

Another problem is cost. The SEC itself estimates the proposal will increase the overall cost of disclosure and compliance for public companies by almost $7 billion per year, an increase of more than 250 percent. Morrison notes the agency has failed to demonstrate this massive burden would generate equivalent benefits.

“The Securities and Exchange Commission does not have statutory jurisdiction to require climate-specific disclosure, and it is inappropriate for a finance agency to be making environmental policy. As the SEC acknowledges, companies already are required to disclose materially relevant climate data,” says Morrison. “Expanding the agency’s jurisdiction into this new realm could open the floodgates for unbounded mission creep into other politically trendy concerns—by the SEC and other agencies relying on the SEC’s current expansion of its own authority as precedent.”

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