SEC Defends Authority to Mandate Climate Risk Disclosures

The Securities and Exchange Commission is firmly asserting its authority to require public companies to disclose information about their climate-related risks and greenhouse gas emissions.

In its court brief, the SEC argued that the new climate disclosure rules fall squarely within the agency's longstanding statutory mandate to ensure investors have the factual information they need to make informed decisions about the value of public company securities. The SEC contended that disclosures about a company's climate impacts, risks, and mitigation efforts are directly material to investors, just as other operational and financial information has long been required under securities laws.

The agency pointed to significant inadequacies in existing voluntary climate disclosures, which it said are often "inconsistent, difficult to compare, and often boilerplate." The new SEC rules, the agency argued, are carefully designed to address these shortcomings and provide investors with more comprehensive, decision-useful data on climate-related risks.

Notably, the SEC pushed back forcefully against characterizations that the rules improperly interject climate policy into securities regulations. "This case is not about climate change or environmental policy," the agency stated emphatically. "It is about protecting investors."

The SEC underscored that its disclosure-focused approach has been a foundational principle of securities laws since the Great Depression era, when Congress empowered the agency to mandate reporting of information material to investors. Requiring the disclosure of climate risks, the agency argued, is a natural extension of this longstanding philosophy of using transparency to empower investment decisions.

The SEC also highlighted its extensive history of mandating disclosure of various environmental and other business risks that could materially impact companies and their securities over the past several decades. Climate-related disclosures, the agency contended, are a logical next step in this evolving regulatory framework.

The SEC asserted that its authority to promulgate disclosure rules is firmly established when the record demonstrates that investors are not receiving the information they need to make fully informed investment and voting decisions. The high-stakes outcome of this legal battle could have significant implications for climate-related reporting requirements going forward.

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