Comment from Securities Law Professors on SEC’s Climate Disclosure Proposal

A group of distinguished securities law professors have submitted a comment to the SEC on the proposed rule that would require additional disclosures about climate change. Some highlights [footnotes omitted]:

The Commission’s disclosure authority extends not just to information relevant to investor trading decisions but also to information used by investors in connection with the exercise of their voting power. 

Even a narrow reading of the legislative history of the original securities laws supports the Commission’s authority to pursue the Proposal because climate-related matters impact the most important aspect of any securities transaction—the price at which investors buy or sell— and Congress was focused on valuation matters, among others, when it adopted the Securities Act in 1933. 

Without standardization, investors lack the ability to assess the risk of greenwashing and other practices meant to conceal and confuse regarding these risks, trends, uncertainties, and opportunities. There is extensive evidence that markets currently do not have sufficient information to price climate-related risk accurately, even though climate-related matters may lead to significant write-downs.

Regardless of one’s normative stance, however, it is an uncontroversial proposition that competition for investor capital should not be based on misleading or incomplete information. And yet, ESG information today lacks consistency, comparability, and reliability despite the large pools of capital at stake.

As a foundational matter, we emphasize that nothing in the federal securities statutes or in judicial precedent, including Supreme Court precedent, imposes a materiality constraint on Commission rulemaking, or requires the Commission to incorporate materiality qualifiers in the language of specific disclosure rules.

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