11 August 2022

Does the SEC have a mandate for climate disclosures?

At the end of June, the US Supreme court ruled against the Environmental Protection Agency (EPA) in a landmark decision which many believes could set a precedent against the US SEC if the regulator was to pursue its proposal for climate disclosures. However, the US Senate heard from climate finance experts that the SEC has a mandate to pursue such regulation.

The SEC's proposed rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors have been met with widespread criticisms in a country where climate change may not be as much on the agenda as in Europe.

Business Roundtable CEO, Joshua Bolten, labelled them "unworkable", whilst some major companies have opposed them for being too expensive, burdensome and a potential source of securities fraud litigation.

The critics now also believe they have found a legal ground against the proposals. On 30 June, the Supreme Court issued a landmark opinion in West Virginia v. EPA which said the EPA could not pass regulations without congressional authorization. Many legal commentators have argued that the SEC may also need authorization from congress as it is also an unelected executive body which is trying implement significant national regulation.

However at a public discussion held by the Senate Climate Change Task Force on 2 August heard climate finance expert arguing the SEC has a mandate to implement those changes.

"Climate change will potentially expose publicly traded corporations to billions in climate damages and liabilities, meaning those losses get passed to their investors," Senator Ed Markey, chair of the task force said, to kick off the proceedings.

Steven Rothstein, managing director of CERES Accelerator for Sustainable Markets, and Ivan Frishberg, senior vice president and chief sustainability officer of Amalgamated Bank, both said that the SEC has the authority to require these disclosures due to its mandate to protect investors.

Aarthi Ananthanarayanan, director of climate and plastics of Ocean Conservancy, concurred. She said: "By requiring transparency about how public companies make decisions that affect the future of their businesses, the SEC is fulfilling its mission to protect investors."