Character of the Corporation: SEC Disclosure Agenda
The following is an excerpt from a conversation that took place at MLR Media's Character of the Corporation conference.
Peter Begalla: What are the new SEC climate and carbon disclosure requirements?
Christopher Franklin: There’s 500 pages that I’m still trying to get through. Some of the things that people are saying are, “I’m going to be net-zero by ‘pick the year’ with no clear path to that net-zero.” So regulators are trying to get their hands around what that really looks like. And are these things real, or are these expectations being made by CEOs for CEOs that are going to be three down the line from where we sit today? And how serious are the commitments for the long and the short run? Therefore, should we put metrics in place? Which metrics are corporations expected to follow? Which metrics should we follow today versus yesterday and tomorrow? Is there a standardized expectation that we could fulfill?
Anthony Santomero: I think the problem is that we’re still evolving. The question becomes, can you be precise enough? Is this something we’re going to standardize? The first thing you’ve got to say is, “Let’s make sure we know what we’re doing. Have the team assigned to the task of writing up who we are, what we’re doing and what we believe.” This, of course, will result in multiple reports from the industry, which is viewed by many as a bad thing. To be sure, it’s not perfect, but they are multiple attempts to get to a standardized report, which will take some time. And the industry really doesn’t have the opportunity to say, “We’re going to be noncompliant.” What you say is, “What are they trying to get at? Let’s put together a team to articulate where we are, and eventually we’ll get to something that is an appropriate place.” But in the meantime, it’s trial and error.
Robert Jackson: I’ve been somewhat puzzled and a little bit troubled by the political response — and, to be clear, it’s a political response, not a serious securities-law response — to the SEC’s work in this space. It’s one thing to say that the SEC’s proposed rule would be bad policy. But to take the view that the principal securities regulator of the United States lacks authority to require transparency in an area where investors have said they need information, and where there is evidence that the information moves markets, is unserious. I think those arguments are coming not from a place of legal analysis about authority, but instead a policy view that the choices that the commission is making are regrettable. It’s more than fair to make that argument. But to say that the SEC lacks authority to do things you don’t like is a very different and dangerous approach in my view. It’s a claim that the world’s principal securities regulator lacks statutory basis to provide transparency to investors, and it’s incorrect.
When I first saw these arguments being made, I read an article by someone I deeply respect and admire, later adopted by several former Republican officials I also think very highly of, saying the key thing to understand is that the Clean Air Act of 1974 gives the Environmental Protection Agency exclusive authority in this area. I thought, “Boy, I’d better get to know this Clean Air Act of 1974.” So I sent off my students to go find that statute, bring it to me and share with me the implications of that statute for the authority of the agency I used to help run. The students came back to me and said, “Professor Jackson, this is a bit awkward. There is no Clean Air Act of 1974.” I had to have second-year law students tell me that, in fact, the Clean Air Act was adopted in 1970, signed into law by President Richard Nixon, and that at the same time the same President and same Congress also signed into law the National Environmental Policy Act, which specifically says that federal agencies, including the SEC, are required to consider environmental-policy issues when exercising the authority granted by their organic statutes.
I would say respectfully to those making these claims that, when you find yourself in such a hurry to disclaim the authority of a regulator that you’re pointing to laws that don’t exist, I think it might be time to take a beat and ask yourself whether this is really about the agency’s authority or about your private views about their policy choices. If we limit our analysis to the actual law, rather than our personal politics, I don’t think there’s any serious question about the agency’s authority to require climate-related disclosure.