Energy Regulatory Policy
June 17th, 2022 3 Minute Read Comment Letter by James R. Copland

Comment Letter: The Enhancement and Standardization of Climate-Related Disclosures for Investors

Re: RIN 3235-AM87, The Enhancement and Standardization of ClimateRelated Disclosures for Investors


Dear Chair Gensler,

This letter comments on the Securities and Exchange Commission's ("the SEC") Proposed Rule on "The Enhancement and Standardization of Climate-Related Disclosures for Investors" ("the proposed rule") published in the Federal Register on April 11, 2022, at 87 Fed. Reg. at 21,334 through 21,473.

The volume and the scope of the information that the proposed rule seeks is breathtaking. Registrants would be required to disclose a panoply of "climate-related" information: "physical risks" from extreme weather; so-called "transition risks" posed by potential future climate policy; a registrant's own greenhouse gas ("GHG") emissions-and often upstream supplier and downstream consumer emissions as well- to "assess a registrant's exposure" to climate risks; and a "transition plan" where a registrant is forced to explain how they will reduce their disclosed risks by reducing GHG emissions.

Because the proposed rule would force registrants to disclose data that is sheer guesswork under the best conditions and to disclose plans to reduce GHG emissions, whether financially prudent or not, registrants would find themselves stuck between a rock and a hard place. Either divest from unpopular fossil fuels or open themselves to private lawsuits over allegedly misleading climate-related disclosures, lawsuits made even more likely SEC's other proposed rulemaking seeking to crack down on "greenwashing." See Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices, RIN: 325-AM96.

This catch-22 is not an accident but by design. While the proposed rule purports to require climate-related disclosures to protect companies and investors from the risks of climate change, it is clear the disclosures' true purpose is to protect the climate from risks posed by companies. The proposed rule has its roots in pressure from elite asset managers who wish to manipulate the capital market system to force companies to align their behavior with the political preferences of the elites. As proposed, the climate-related disclosures would place a mammoth burden on large and small companies alike, while simultaneously driving up energy prices and removing valuable assets from a pool that main street investors can access, all while doing nothing to reduce financial risk or even to benefit the environment.

Fortunately for registrants and the American public, the proposed rule is illegal and unconstitutional. In seeking to regulate the environment, the SEC would step beyond the statutory authority granted to it by Congress, trespassing on the Environmental Protection Agency's ("EPA") domain and exceeding any permissible interpretation of the Exchange Act under the Supreme Court's major-questions doctrine. The proposed rule would far exceed the "materiality'' standard for disclosures that the Supreme Court has found that the Securities Act and Exchange Act require. The proposed rule would be arbitrary and capricious for more than a dozen reasons, not least of which being that it encourages substantial conflicts of interest and is based on gross misrepresentations of the facts of climate change. The proposed rule would violate the First Amendment by compelling controversial speech. And to top it all off, the proposed rule would run afoul of the nondelegation doctrine and the private nondelegation doctrine by seeking to give legal effect to the Paris Agreement's climate goals despite those goals having never been approved by Congress, much less given binding effect.

As written, the proposed rule would cost billions of dollars per year and directly undermine the SEC's mission of making regulations in the public interest. The SEC does not have-and under the Constitution could never have-the legal authority to execute such a politically motivated power grab.

I provide more specific comments on the proposed rule in the following discussion. Additionally, in support of this comment, I have attached expert declarations from Dr. Jonathan Klick ("Klick Declaration"), Dr. Roy Spencer ("Spencer Declaration"), and James Copland ("Copland Declaration") as well as two previous publications I have authored discussing the intersection of climate policy, energy policy, and the American economy.



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