Friday, April 29, 2022

ICYMI: "Twenty-Two National Professors Urge SEC to Withdraw Climate Disclosure Proposal"

As per the relevant press release (via Lawrence Cunningham): "Twenty-two of the nation’s leading professors of law and finance this week wrote the Securities and Exchange Commission (SEC) to dispute the agency’s authority to adopt a new far-reaching climate disclosure regime and to urge an immediate withdrawal of the proposal." You can find the full letter here. Here is a hopefully useful excerpt:

The following analysis raises concerns that the Proposal is neither necessary nor appropriate for either investor protection or the public interest and will not promote other statutory goals. The SEC would do better to withdraw the Proposal and revisit the subject with a fresh approach focused on America’s ordinary investors rather than an elite global subset. The three parts of this letter address each statutory issue in turn, as follows:

I. “Investor Demand” versus “Investor Protection”
    A. Investor Varieties: Diverse Institutions and Individuals
    B. Climate Shareholder Proposals: Few Are Made, Most Lose, Many Are Political
    C. The Ample Supply of Climate Disclosure
    D. Correlation of Climate Practices with Economic Performance Is Not Causation
II. Authority of Others and the “Public Interest”
    A. The Environmental Protection Agency’s Statutory Jurisdiction
    B. State Corporate Law Prerogatives on Purposes, Powers and Business Judgments
    C. Risk of Unconstitutional Compelled Political Speech
III. Other Statutory Considerations
    A. Certain High Costs versus Highly Speculative Benefits
    B. Impairs Investment Industry Competition
    C. Compliance Burdens Discourage Public Company Registrations

Stefan J. Padfield | Permalink


The call for an approach “focused on America’s ordinary investors rather than an elite global subset” raises questions. Funds like the Big Three seem to be included in the snide reference to “an elite global subset,” yet most ordinary investors today invest through the Big Three or similar funds. The comment letter suggests a conflict of interest, so that fund managers do not accurately represent the interests of their investors. For the Big Three, they suggest that statements on climate change are a “competitive market tool.” But doesn’t that imply that a significant group of investors does care, and that there are not enough investors who care on the other side to discourage making such statements?

For those signers who are shareholder primacy advocates, this distrust in those who control most public market shares calls their approach into serious question. For signers like Stephen Bainbridge who support director primacy, the tension is less severe, since he wants company managers to advance shareholder interests without input from actual shareholders. But for that position, the support of so many managers for action on climate change including some type of mandated disclosure (see e.g. the Business Roundtable’s support for such disclosure, though it doesn’t support every element of the SEC’s proposed rules) is deeply embarrassing. Here we have serious scholars who say the law should be all about protecting shareholders, and yet those who control the actual shares, those who run the companies, and the SEC all argue that climate change disclosure is good for shareholders, and many (though not all) of the empirical scholarly studies on the subject agree.

Posted by: Brett McDonnell | May 2, 2022 10:59:42 AM

Thanks, Brett. I've posted a response here:

Posted by: Stefan Padfield | May 3, 2022 5:43:14 AM

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