Republican attorneys general are trying to use the First Amendment to derail proposed Securities and Exchange Commission (SEC) rules that would require public companies to make climate-related disclosures. Their arguments are misguided. Here’s why.
First, some background for those unfamiliar with the proposed rules: The rules would require companies to disclose certain information about climate-related risks that are likely to affect their bottom line, as well as greenhouse gas metrics that would help investors assess those risks. Why? Climate change creates financial risk for companies and the financial system as a whole, but existing disclosures of climate-related risks don't adequately protect investors.
Citing a case called Reed v. Town of Gilbert, Republican attorneys general argue that the proposed rules should be subject to strict scrutiny because they are content-based restrictions on speech. Not only this, they strongly suggest that the entire SEC disclosure regime should be subject to this framework, a framework that—not for nothing—is often described as "strict in theory, fatal in fact."
Accepting this argument would be disastrous—not only for securities regulation but also for other areas of extensive government regulation, like antitrust and labor law.
Thankfully, the state attorneys general are wrong, as a June 17 letter we sent on behalf of First Amendment scholars explains. The proposed rules are part of a long tradition of requiring companies to disclose truthful information about their securities to inform and protect investors. Disclosure requirements of this kind do not ordinarily raise First Amendment concerns. Quite the opposite: they have long been understood to be an integral part of the regulation of securities.
If the rules trigger First Amendment scrutiny at all, they should be evaluated under Zauderer v. Office of Disciplinary Counsel, the deferential standard of review that applies to compelled disclosures of factual information in the commercial context. The rules appear to easily satisfy this standard.
[This post was originally published as a Twitter thread. Follow @2RamyaKrishnan. And read our letter to the SEC.]
Ramya Krishnan is a staff attorney at the Knight Institute.