Mandating Climate-Related Risks and GHG Emissions: Does the Securities and Exchange Commission Have the Power?

Joseph Dowdell

The Securities and Exchange Commission (“SEC”) recently proposed a new rule that would require public companies to disclose material climate- related risks and greenhouse gas (“GHG”) emissions based on the Task Force on Climate-Related Financial Disclosure (“TCFD”) framework and GHG Protocol. The proposed rule stems from Environmental, Social, and Governance (“ESG”) investing principles—the general belief that public companies should disclose non-financial information such as environmental, social, and governance issues to inform investors about a company’s performance and make shareholder proxy voting decisions. Opponents of the proposed rule have complained that these disclosures go beyond the SEC’s authority and mission, arguing that environmental information is not material to investors. History, SEC past practice, and court decisions, however, strongly counsel that the proposed rule’s required disclosure of material climate-related risks are within the SEC’s statutory authority and mission. The only aspect of the rule that may not be within the SEC’s power is the mandated disclosure of GHG emissions, and the proposed rule would be improved if modifications were made to lessen their impact or eliminate them entirely.

First, Part I provides information on ESG, the SEC’s authority, current rules to enforce environmental disclosures, and the basic features of the proposed rule.6 Second, Part II splits the proposed rule into three main Sections and analyzes whether each aspect of the proposed rule fits within the SEC’s authority and mission as shown by past practice, rulemakings, and legislative history.