The SEC’s proposed climate disclosure rules create an opportunity to reflect on the limits that the First Amendment places upon securities regulation. As regular readers of this blog know, the SEC has proposed rules to make companies disclose their “climate risks” along with their greenhouse gas (“GHG”) emissions and certain climate-related financial metrics. Unlike existing rules, which require disclosure of climate-related matters when they have a material effect on business operations, the proposed rules largely dispense with the concept of materiality and, where they do not disregard it altogether, significantly alter its meaning. These rules thus raise the question of whether there is any limit on the SEC’s ability to impose them and, in particular, whether there is any First Amendment constraint on the SEC’s authority to mandate disclosures.

My paper, What’s “Controversial” About ESG? A Theory of Compelled Commercial Speech under the First Amendment, analyzes these questions. It argues that there is indeed a First Amendment limit to SEC action and that the proposed climate rules exceed those limits.

The SEC is, at its core, a regulator of speech. It makes rules about what companies and investors must say to one another. Yet the First Amendment prevents the government from, among other things, “abridging the freedom of speech.” The SEC is part of the government, and it abridges the freedom of speech. So, one wonders, is the SEC unconstitutional?

(more…)