WilmerHale
MONTH-IN-BRIEF (Aug 2024)
SEC Submits Response Brief to Defend Climate Disclosure Rules
By Karen Liu, Reid & Wise LLC
On August 5, 2024, the U.S. Securities and Exchange Commission (the “SEC”) submitted a 135-page response brief (the “Response Brief”) to the Eighth Circuit Court of Appeals (the “Eighth Circuit”) in support of the disputed climate disclosure rules (the “Rules”) adopted by the SEC on March 6, 2024.
The Rules require standardized climate disclosures by SEC registrants. On the heels of the Rules’ adoption, nine petitions were filed in courts and were later consolidated for the Eighth Circuit’s review.
In its Response Brief, the SEC argued against the nine petitions on the following grounds:
- The SEC has statutory authority to adopt the Rules, because the Rules (i) regulate the securities market, not the environment; (ii) require disclosures on registrants’ financial performance; and (iii) apply a “materiality” approach to only “require disclosure of information important to investors’ investment and voting decisions.” The SEC further cited Loper Bright Enterprises v. Raimondo to explain that the Rules are within the SEC’s congressionally granted authority. In addition, the SEC clarified that the major questions doctrine established by West Virginia v. EPA does not apply and, in any event, does not undermine the Rules.
- The SEC adopted the Rules because the SEC believed that the Rules would facilitate informed investment and voting decisions by providing more detailed, consistent, and comparable information. Furthermore, the SEC has explained and substantiated the need for the Rules, analyzed the record evidence, and considered reasonable alternatives.
- The SEC reasonably considered the cost of the Rules and the Rules’ possible impact on efficiency, competition, and capital formation.
- The SEC satisfied the Administrative Procedures Act’s procedural requirements because the Rules followed a “rigorous notice-and-comment process” and the SEC reasonably considered comments received. For example, the SEC added materiality qualifiers, eliminated the originally proposed Scope 3 disclosure requirement, and relied on supplementary studies.
- The Rules are consistent with the First Amendment, because (i) the Rules are subject to the lesser scrutiny applicable to commercial disclosures and require “uncontroversial” and “purely factual” disclosures, and (ii) the required disclosures are “reasonably related to a legitimate government interest” and are not “unjustified or unduly burdensome.”
- The nine petitioners’ requested relief is overbroad.
