Evaluating Challenges To SEC's ESG Disclosure Proposal

Published date26 August 2021
Subject MatterCorporate/Commercial Law, Environment, Corporate and Company Law, Corporate Governance, Environmental Law, Securities, Climate Change
Law FirmWinston & Strawn LLP
AuthorMr Jonathan D. Brightbill and Jennifer P. Porter


Many companies now publish sustainability reports. Their managers are voluntarily trying to meet investor and consumer demand for climate-related disclosures.

The U.S. Securities and Exchange Commission says it will propose new regulations mandating such disclosures from, at least, public companies in October.

But not everyone agrees that is a good idea. Some say the SEC lacks authority to adopt such rules.

We examine arguments against more mandatory SEC regulations.


Since 2010, the SEC has provided interpretative guidance for public companies regarding how its existing disclosure requirements apply to climate change matters.1

In May, President Joe Biden called for further action. In an executive order issued that month, the president announced a governmentwide strategy to address climate-related financial risks.2

As part of this, the SEC is considering mandatory climate-related disclosure requirements. The SEC projects it will release the proposed rulemaking in October.3

To inform this proposed rule, the SEC requested public comment on 15 detailed questions regarding potential changes to climate risk reporting, and certain environmental, social and governance, or ESG, disclosures more generally.4

The SEC received over 550 unique comment letters, including one in support of broad and comprehensive climate requirements from a group of attorneys general, led by California Attorney General Rob Bonta and New York Attorney General Letitia James.5

After the public comment period ended, SEC Chairman Gary Gensler publicly said he had asked SEC staff to develop a mandatory climate risk disclosure proposal for the commission by the end of the year.6

He also identified what he wanted staff to consider when drafting these disclosures. Gensler's requests included:

  • Whether these disclosures should be filed in the Form 10-K or elsewhere;
  • How companies might disclose Scope 1, Scope 2 and Scope 3 emissions;
  • If there should be certain metrics for specific industries such as banking, insurance or transportation;
  • If fund managers should disclose the criteria and underlying data they use; and
  • If anything about the Names Rule needs to changed.7

According to the SEC's public comments, and a recent speech by Gensler, companies can expect the SEC to finalize expanded federal disclosure and reporting regulations regarding climate-related risks in the next year.

Challenges to Mandatory Climate-Related Risk Disclosures

In a speech in late July, Gensler said that three out of four of the 550 unique responses the SEC received in its comment period supported mandatory climate disclosure rules.8

That means that a good many comments the SEC received opposed more mandatory regulations.

Opponents to more SEC financial reporting mandates included corporations, states and nonprofit organizations.

Some have a track record of challenging government and administrative actions.

Just as one group of state attorneys general submitted comments supporting broad mandatory disclosures,9 a different set of attorneys generals, led by West Virginia Attorney General Patrick Morrisey, submitted a letter against.

These state officials urged the commission to:

[R]emain focused on its historic mission and role rather than seeking to expand its congressional mandate into unrelated social matters — particularly where companies are showing themselves adept to provide the type of information that customers and investors actually demand in this area.10

A number of commenters suggested that if the SEC attempts to move beyond the 2010 guidance to impose mandatory regulation, litigation will follow.

Some of the arguments made include the following.

Constitutional Claims: Compelled Speech
Policy groups, like the Competitive Enterprise Institute, claim that...

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