Last month, Chicago-based regulatory law attorney Ty Covey took to RealClear Markets to highlight the potential legal challenges that currently loom over the Securities and Exchange Commission’s (SEC) proposed climate disclosure rule. Specifically, Covey discusses the implications of the major questions doctrine and how it could come into play when the climate disclosure rule is reviewed and decided upon.
Right now, the SEC’s proposed rule would require companies of all sizes to report on numerous types of greenhouse gas (GHG) emissions (both direct and indirect) to their investors. Covey explains how this is a direct violation of the major questions doctrine because the SEC has not been given Congressional authority to regulate environmental matters. By attempting to do so, they are going outside of their statutory power, calling into question its credibility to enact the rule.
Mission creep by regulatory agencies has been surfacing across the board and if the SEC’s climate disclosure rule gets implemented, it would open a whole new window for other agencies to have a say in climate-based regulation. Aside from the need to mitigate the risk of that occurring, Covey calls attention to the fact that the climate disclosures of companies who are required to follow the rule may not be as accurate as the SEC would lead you to believe. Their rule is not foolproof, and the room left for companies to “alter their policies to improve their showing on climate metrics, even if it might not make the most overall sense for the company and its investors,” is far too large.
The SEC continues to face wide-ranging opposition to their proposed climate disclosure rule. Adding in legal challenges on top of the long list of comments of opposition will create more challenges down the line and proves a perfect example as to why the SEC should not move forward with their rule. While the SEC does have the broad authority to issue and require certain disclosures that are beneficial for the public interest and investors, “the power is not unlimited.”