This post is based on a comment letter sent to the SEC by Stephen M. Bainbridge (UCLA), Jonathan Berk (Stanford), Sanjai Bhagat (Colorado), Bernard S. Black (Northwestern), William J. Carney (Emory), Lawrence A. Cunningham (GW), David J. Denis (Pittsburgh), Diane Denis (Pittsburgh), Charles M. Elson (Delaware), Jesse M. Fried (Harvard), Sean J. Griffith (Fordham), Jonathan M. Karpoff (Washington), Scott Kieff (GW), Edmund W. Kitch (Virginia), Katherine Litvak (Northwestern) Julia D. Mahoney (Virginia), Paul G. Mahoney (Virginia), Adam C. Pritchard (Michigan), Dale A. Oesterle (Ohio State) Roberta Romano (Yale), Christina P. Skinner (Pennsylvania),and Todd J. Zywicki (George Mason).

We appreciate the contributions of colleagues who have commented on the SEC’s proposal for mandatory climate-related disclosure rules for public companies (the “Proposal”). In particular, we read with interest two letters analyzing whether the Proposal is within the SEC’s rulemaking authority: one from a group of thirty law professors (the “Thirty Professors’ Letter”) and another by Professor John Coates (the “Coates Letter”).

We are moved to offer additional thoughts because these two letters, compared to our prior letter, reflect divergent understandings of the nature and factual background of the Proposal. Moreover, we believe those different understandings will likely play a role in any challenge to final rules that may be adopted pursuant to the Proposal. Illuminating those differences will therefore assist the SEC and ultimately the federal courts.

We agree with the Thirty Professors’ Letter and the Coates Letter that the SEC has broad statutory authority to require disclosures for the protection of investors. We further agree that the relevant inquiry is whether a proposed disclosure requirement will protect investors, not whether it is material, although the two inquiries will generally overlap. Finally, we agree that the relevance of a disclosure requirement to a social issue or to non-shareholder constituents does not demonstrate, in and of itself, that it exceeds the SEC’s authority.

Indeed, the two letters make a strong case that the SEC’s 2010 guidance regarding climate change disclosures (the “2010 Guidance”) was a valid exercise of the SEC’s statutory authority. The 2010 Guidance reminded issuers that several elements of the existing disclosure framework, including disclosure of the material effects of compliance with laws and regulations, material pending legal proceedings, and material risk factors, may require disclosures relating to climate change.

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