Active: Federal lawsuit challenges agency’s illegal rulemaking

On March 6, 2024, the Securities and Exchange Commission finalized a rule mandating climate-related disclosures from publicly traded companies. This is on top of the agency’s existing regulations requiring companies to disclose material environmental risks. 

The new Climate Rule mandates that public companies must report on whether they have implemented corporate policies to prioritize climate change concerns within the company. For example, the Rule mandates that companies must report on what systems they have in place to continually monitor and respond to all manner of climate change risks—even speculative concerns about possible regulatory changes or possible changes in consumer behavior in the indefinite future. The SEC mandates that these companies must tell the world whether they have institutionalized climate change risk management strategies or admit that they are not making climate change a priority concern—regardless of whether there is any reason to believe that climate change risks pose any actual material risk to investors. 

The SEC claims the Climate Rule is necessary for investors who care about climate-change issues.  

The truth is that such disclosure requirements serve no investment purposes. Instead, the agency created the rule as a weapon to publicly shame companies that don’t take their preferred approaches to climate change. 

Such brazen rulemaking strays far from the SEC’s mission of protecting investors. Congress authorized the SEC to protect investors from fraud, facilitate capital formation, and require only material disclosures related to investing. But requiring disclosure about whether and how much a company thinks and talks about climate change does little to advance those goals.

Furthermore, climate change is an especially controversial regulatory subject that Congress should speak clearly on if it wants this sort of regulation. But Congress has repeatedly balked at calls to impose burdensome regulation to confront climate change. 

The implications of such unaccountable lawmaking are alarming. If the SEC can get away with compelling companies to say what they are doing about climate change, it could do just the same with any other politically contentious issue. And if the SEC succeeds in shaming companies into institutionalizing climate change alarmism in corporate America, the result will be that companies spend inordinate time and energy on issues that distract from their core mission of earning profits for their shareholders.  

When an agency regulates an especially controversial subject without Congress’s authorization, they invite all sorts of regulatory mischief. If the SEC can regulate how companies prioritize climate change, then the Department of Labor, the Federal Communications Commission, or any other of the alphabet soup agencies may regulate anything they want by elastically stretching their own legal limits.  

In that world, there is no rule of law, and we are all at the mercy of the regulatory agenda favored by Washington bureaucrats. 

The Texas Alliance of Energy Producers and the Domestic Energy Producers Alliance are trade associations that represent many businesses in the energy industry. While public companies are directly subject to the SEC’s new disclosure requirements, these groups oppose this new regime because it also affects small and independent businesses that work with publicly traded companies. For example, the rule requires public companies to consider climate change risks—including “reputational risks” of associating with business partners who are viewed as contributing to climate change. Accordingly, the rule not only imposes burdensome disclosure requirements on public companies, but it likely will prompt those companies to exert greater control over their partners’ business activities, or to disassociate with companies that are not doing enough to scale back greenhouse gas emissions. 

Represented at no charge by Pacific Legal Foundation, these groups are fighting back with a federal lawsuit to reel in the SEC’s unlawful rulemaking and to restore the separation of powers in government. 

What’s At Stake?

  • The Securities and Exchange Commission is charged with protecting investors from fraud and enabling them to make reasoned decisions with their assets. That’s not a license to publicly shame companies for business practices they don’t like. Requiring companies to disclose all the ways they think and talk about climate change within their walls is beyond the SEC’s mission.
  • Congress did not authorize the SEC to demand that companies report environmental or any other controversial issues completely unrelated to finance, and the Constitution’s separation of powers does not allow the SEC to make law.

Case Timeline

April 03, 2024
Motion to Stay
United States Court of Appeals for the Fifth Circuit
March 11, 2024
United States Court of Appeals for the Fifth Circuit