This post is based on a comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule by James R. Copland and Bernard S. Sharfman. Below is the text of the letter with minor adjustments to eliminate the correspondence-related parts.

We respectfully submit this letter as a means to bring to the Commission’s attention deficiencies that we have found in its proposed rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors (“the Proposed Rule”). In our view, the Proposed Rule fails to comply with Congress’s demand that agency actions not be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” as interpreted by the Supreme Court to require an agency to “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choices made.” Nor does the Proposed Rule comport with the “unique obligation” Congress has given the SEC to “to consider or determine whether an action . . . will promote efficiency, competition, and capital formation.” The Proposed Rule also runs afoul of the Constitution’s commitment to federalism and separation of powers, both by substantially interfering with corporate governance, a creature of state law, without an express Congressional mandate, and by resolving a “major question” of policy clearly within the province of the legislative branch. Because the Proposed Rule’s disclosure requirements are not “purely factual and uncontroversial,” they also implicate the First Amendment’s prohibition against government-compelled speech. Although our analysis can apply more broadly to much of the Proposed Rule, we are providing comments clarifying this critique in significant detail as to two Sections of Part II of the Proposed Rule: Section G: GHG Emissions Metrics Disclosure (“Section G”) and Section D: Governance Disclosure (“Section D”).

I. Section G: GHG Emissions Metrics Disclosure

Our analysis of Section G focuses on how the Proposed Rule fits within the statutory requirements laid down by Congress in the Administrative Procedures Act (“APA”) and the securities laws. We divide our analysis into three Parts. Part A focuses on the Proposed Rule’s required disclosures for Scope 1 and 2 emissions, which are not limited by a materiality standard. Part B focuses on the required disclosures for Scope 3 emissions, which purportedly do face a materiality requirement. Part C focuses on deficiencies in the Proposed Rule’s articulation of “investor demand” purporting to justify the need for Section G disclosures.

(more…)