The SEC Disclosure Divide: The Cost of Compliance
In the new short film The SEC Disclosure Divide: The Cost of Compliance, The Federalist Society’s Regulatory Transparency Project takes aim at a critical but overlooked question: Why are federal agencies making sweeping rules without Congress?
The film explores how the U.S. Securities and Exchange Commission (SEC)—originally created to ensure transparency in financial markets—has unilaterally given itself more power that contradicts the Constitution’s guarantee of separation of powers.
Born out of the chaos of the 1929 stock market crash, the SEC was tasked by Congress to enforce the statutory requirement for publicly traded companies to file scheduled financial reports, as well as their future plans so shareholders and future investors can make sound fiscal decisions.
But in March 2022, the SEC took it upon itself to extend its power and require companies to report on their role in climate change, including the companies’ greenhouse gas emissions, potential risks from climate change, and their intentions to address climate change risks.
The SEC has no power to impose such a rule. Mandates of this nature must come from Congress. The Constitution also prohibits Congress from delegating its legislative authority to executive agencies like the SEC.
Allowing for the erosion of the separation of powers is a dangerous game to play, and Pacific Legal Foundation is working hard to protect the separation of powers.
Attorney Luke Wake of Pacific Legal Foundation, featured in the film, lays it out plainly:
If an agency was going to naturally address climate change, one would think it is the Environmental Protection Agency. But of course, EPA only has the authority that Congress has given it, under the Clean Air Act. But the Supreme Court has made it very clear now in repeated cases that climate change is such a consequential issue that if there’s going to be regulation to address climate change, that has to come from Congress, not from an agency.
Wake warns that bypassing Congress in the name of expediency sets a dangerous precedent:
But there is a movement afoot of people who think that if Congress isn’t doing what I think Congress ought to do, we should just go around Congress and find a way to get it done.
That is a really dangerous proposition. If you go around Congress to get at an issue that you personally think is important, you have to remember you’re setting a dangerous precedent and you’re eroding the foundations of our democratic system.
When bureaucrats feel empowered to create rules however they seem fit, it undermines the checks and balances our country was founded on. Placing these burdens on individuals or companies, without the consent of their elected representatives, is a problem all branches of government need to address.
This film serves as an important reminder that the separation of powers isn’t a relic of the past—it’s a safeguard for the future.