CCRcorp’s Proxy Disclosure Conference was last week and it featured a panel focused on the SEC’s Proposed Climate Disclosure Rule (“the Rule”) featuring Jina Choi and Dave Lynn of Morrison Foerster, Mark Kronforst of Ernst & Young, and Arden Phillips of Constellation Energy. The in-depth panel discussed the current state of the Rule, and climate disclosure generally. Here are some highlights.
The SEC’s proposed rule is certainly going to face legal challenges. There are four primary avenues plaintiffs are likely to take:
- The SEC lacks authority to adopt the rule because climate/emissions is outside the scope of the SEC’s authority;
- The Rule violates the Major Questions Doctrine by deciding an issue that should be left to the legislature;
- The Rule violates the First Amendment by compelling speech; and
- The SEC acted arbitrarily and capriciously when considering comments and drafting the Rule.
One big point to come out of this discussion is that the bar for staying an agency rule is very high. Even if the Rule is eventually found unconstitutional, companies will likely still have to comply during the years that litigation will take to resolve. Additionally, all eyes aren’t on the SEC. Between when the Rule was proposed and now, the SEC’s thunder has been largely stolen by the EU with the CSRD and recently by California with its two upcoming climate disclosure laws. While SEC’s reg flex agenda indicates the final release it scheduled for October, that date is not definitive and the looming threat of a government shutdown could further delay the SEC.
Rule or no rule, the SEC is still focusing on ESG. The panel discussed the SEC’s ESG taskforce and speculated that new enforcements may be announced soon. That prediction appears to have been validated as the SEC announced ESG enforcement against DWS earlier this week. Companies can protect themselves from enforcement actions by making sure statements and disclosures on ESG topics are accurate and that actions, policies and procedures are implemented. Public statements, disclosures, and reports on ESG should be scrutinized in-house before being scrutinized by the SEC regardless of the status of the climate disclosure rule.
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