Iowa v. Securities & Exchange Commission

In March 2024, the Securities and Exchange Commission (SEC) adopted final rules requiring public companies to disclose climate‐related information in their registration statements and annual reports. The rules create a detailed and extensive special disclosure regime about material effects of climate-change risks on strategy, results of operations, financial condition, and governance structure. Many public companies must disclose certain greenhouse gas emissions.

States and private parties immediately challenged the SEC rules, asserting that they exceed the agency’s authority, violate the First Amendment, and are unlawful under the Administrative Procedure Act. Nine cases are currently pending in the United States Court of Appeals for the Eighth Circuit, where the litigation was consolidated.

Many amicus curiae, or friend of the court, briefs support the challengers. Andrew Vollmer, a scholar with the Mercatus Center at George Mason University, took the lead in filing one amicus brief that the Cato Institute joined.

That brief makes three key points. First, the SEC’s claim to broad legal authority to issue the climate-change disclosure rules relies heavily on an isolated statutory phrase taken out of its surrounding context. The brief explains that the text, structure, and context of the statutes limit the SEC’s power to issue disclosure rules. Such rules must be narrowly targeted to disclosures of information about certain internal characteristics of a company, such as its financial statements, its core business information, its directors and management, or descriptions of the securities being sold. The SEC rules mandate disclosures that extend far beyond the SEC’s statutory authority.

Second, the brief bolsters this interpretation of the statutes by looking to contemporaneous reports from the key committee of the House of Representatives involved in drafting the relevant securities laws. One House Report noted that the statutes should not give a “mere general power to require such information as the [SEC] might deem advisable.” A second House Report said that the SEC was not to have “unconfined authority to elicit any information whatsoever.” 

Third, the brief notes that the SEC itself has, in earlier decisions, disclaimed the authority to implement a climate‐disclosure regime. In 1975, the SEC considered a variety of “environmental and social” disclosure matters but concluded that “it is generally not authorized to consider the promotion of social goals unrelated to the objectives of the federal securities laws.” In 2016, the SEC reaffirmed that decision, noting that Congress had not given new statutory authority for disclosures in these areas. The statute remains the same today, yet the SEC has now found statutory authority where it had consistently conceded that none exists.

The brief urges the Eighth Circuit to find that the SEC lacked the statutory authority to implement the climate disclosure rule and block the rules from taking effect. The brief is available here.

In a series of blog posts, Vollmer analyzed and discussed the SEC’s legal justification for the climate-change disclosure rules. During the comment period on the SEC’s proposed rules, he submitted this comment questioning the SEC’s legal authority.