Thursday, June 2, 2022

ICYMI: Sean Griffith on "What’s 'Controversial' About ESG?"

Sean Griffith has posted What’s “Controversial” About ESG? A Theory of Compelled Commercial Speech under the First Amendment on SSRN (here). The abstract:

This Article uses the SEC’s recent foray into ESG to illuminate ambiguities in First Amendment doctrine. Situating mandatory disclosure regulations within the compelled commercial speech paradigm, it identifies the doctrinal hinge as “controversy.” Rules compelling commercial speech receive deferential judicial review provided they are purely factual and uncontroversial. The Article argues that this requirement operates as a pretext check, preventing regulators from exceeding the plausible limits of the consumer protection rationale.

Applied to securities regulation, the compelled commercial speech paradigm requires the SEC to justify disclosure mandates as a form of investor protection. The Article argues that investor protection must be conceived on a class basis—the interests of investors qua investors rather than focusing on the idiosyncratic preferences of individuals or groups of investors. Disclosure mandates that are uncontroversially motivated to protect investors are eligible for deferential judicial review. Disclosure mandates failing this test must survive a form of heightened scrutiny.

The SEC’s recently proposed climate disclosure rules fail to satisfy these requirements. Instead, the proposed climate rules create controversy by imposing a political viewpoint, by advancing an interest group agenda at the expense of investors generally, and by redefining concepts at the core of securities regulation. Having created controversy, the proposed rules are ineligible for deferential judicial review. Instead, a form of heightened scrutiny applies, under which they will likely be invalidated. Much of the ESG agenda would suffer the same fate, as would a small number of existing regulations, such as shareholder proposals under Rule 14a-8. However, the vast majority of the SEC’s disclosure mandates, which aim at eliciting only financially relevant information, would survive.

Stefan J. Padfield | Permalink


I have not read the paper but I fail to see how protecting the Earth from climate change -- a scientific fact -- for the sake of humankind's future generations is a political viewpoint. I look forward to reading the paper though and hope I am wrong that this is the argument presented.

Posted by: Alicia Plerhoples | Jun 2, 2022 2:35:59 PM

Thanks for the comment, Alicia. Here's some perhaps relevant data:

"Large majorities of Democrats think the United States should play a leading role on limiting climate change (81%) and consider it to be a critical threat (82%). By contrast, only 31 percent of Republicans support a leading US role on limiting climate change, and just 16 percent consider it a critical threat. Gallup polling shows that seven in 10 Democrats and Democratic-leaning Independents (71%) place a higher priority on protecting the environment than on economic growth. Nearly as many Republicans and Republican-leaning independents (68%) emphasize economic growth over environmental protection."

Posted by: Stefan Padfield | Jun 2, 2022 2:44:26 PM

In our current political climate, is protecting investor financial interests to the exclusion of all other concerns non-controversial? Even if one only focuses on the opinions of investors themselves, is there widespread agreement on that point? If not, does Griffith's argument then entail that all mandated speech in securities regulation has become unconstitutional, given our polarized political environment?

Posted by: Brett McDonnell | Jun 5, 2022 9:35:11 AM

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