Transcript
Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to bbrophy@mercatus.gmu.edu
Brian Knight: Welcome to the FinRegRant, the audio blog of the FinRegRag, the blog for the Mercatus Center at George Mason University's Financial Regulatory Scholars. My name is Brian Knight. I'm the Chief Scholar of the Financial Regulatory Program. With me today, I'm honored to be joined by my colleague, Andrew Vollmer. Andy, great to have you on the Rant.
Andrew Vollmer: Pleasure to be here.
Brian: Andy, why I asked you here today is because there's a little controversy in SEC land. There's a lot of controversy in SEC land, but the little corner of controversy that we're going to talk about is the SEC's climate disclosure rules, which are currently being challenged in the Eighth Circuit. You have written quite a bit about these. You've written a very useful study. You wrote a very influential comment letter. You've written an amicus brief that I'm sure will have significant influence on the judges in the Eighth Circuit.
You seem like the absolute perfect person to get on here to talk about these rules. With that said, could you give me a little bit of background about these rules? What's the SEC trying to do? What prompted the SEC to do this, et cetera?
Andrew: The rules were adopted by the Securities and Exchange Commission in March 2024, so this year. They are rules that require companies that are selling securities or companies that are called reporting companies, you have to file annual reports, to make certain disclosures about climate-related information. These new set of rules, the new set, creates a detailed and extensive set of disclosure obligations about material effects of climate change on a company's strategy, results of operations, finances.
There are also greenhouse gas emission reporting requirements, and there are a reasonably long set of rules about how a company has to set up its internal governance to address climate change issues.
Brian: If I could just pause for a second, I guess to try to simplify that for me, what the SEC is saying is, if you're a public company in the United States, you must put out certain information about how you expect climate change to affect your business, how you expect-- or you must disclose certain information about the greenhouse gas emissions you are responsible for. Then the SEC also goes into the internal operations of the company and says, when you're assessing this information, here's how you must assess it. Here are processes or organizations, I guess there are internal organizations, or something like that that you have to use to create the answers to these mandatory disclosures. Is that fair?
Andrew: That is fair.
Brian: Okay, continue.
Andrew: The only other thing to say, you touched on briefly, and that is after the SEC adopted these new rules, and so there are laws that have to be followed, states and private parties immediately challenged the rules on a variety of grounds. One, that the rules exceed the statutory authority of the SEC. Second, that they violate the First Amendment. Third, that the disclosure rules are unlawful under the Administrative Procedure Act. There are nine cases that got consolidated, as you said, in the way the statute works. They go directly to a court of appeals, a federal court of appeals, and these cases got put into the Eighth Circuit.
The briefing is nearly done. Today, reply briefs are due, and those will be the final briefs, and then there will be oral argument, then a decision. I filed a friend-of-the-court brief that's called an amicus curiae brief, supporting the argument that the SEC did not have statutory authority to issue the rules. Many others also filed amicus briefs, some on the challenger side, and some supporting the SEC.
Brian: Okay, so let me step back for a second. Why do people-- some people, obviously, want the SEC to do this. You mentioned that, at least in some areas, the SEC appears to be limiting its disclosures to those things which are material to a company, or like the material effect on a company's strategy or operations. What is the-- I guess one thing is, what do supporters want to get out of this? Two, what's wrong with mandating disclosures that seem like the type of thing that many investors might want to know about?
Andrew: The claim from the people who lobbied the SEC for the rules and of the three commissioners who voted in favor of the rules is that investors want the information about the effects of climate change or the potential effects of climate change on a company's business. That, of course, doesn't explain why there's a reporting requirement for greenhouse gas emissions. There's a bizarre, attenuated argument about that, which we can get into if you want.
Brian: I love a bizarre, attenuated argument.
Andrew: It is not a sound argument. That's the reason the SEC claims it issued the rules, and that's what supporters of the rules wanted and are now pleased to have. They say that it affects their investment decisions to know about climate risks to particular companies. There are those of us who are skeptical of that as a realistic, forthright explanation for the rules. The rules concentrate heavily and exclusively on climate change effects. They're all about climate change. That is an indicator. There's a second indicator, which I'll come to. That is a principal indicator that maybe something else is going on.
Those who are skeptical about these heavy obligations to make disclosures about climate change effects think that climate change activists seek the information so that they can take steps against certain companies who are not responding quickly enough to climate change problems so that activists, climate change activists, will use the information against oil and gas companies, against other companies that are heavy users of fossil fuels, to seek to alter the behavior of those companies, to reduce the use of fossil fuels, and to move the country more quickly to using renewable and clean sorts of energy.
That's what many of us believe is truly the purpose and objective of these rules. As I said, the principal indicator is the rules are all about climate change. The second related indicator is that before the climate change rules got adopted, and for nearly 90 years, there has been a very extensive set of disclosure rules for issuing and reporting companies. Those rules, starting with disclosures that Congress set, cover nearly every financial business aspect of a company, and render these climate change rules, for purposes of investor decisions, superfluous. Because the companies already have obligations to disclose things that affect their business, their product development, their operations, their financial returns.
All of those were covered by extensive disclosure obligations. The SEC recognized that itself in 2010 when it put out what's called a guidance document about how to apply the current disclosure rules to climate change effects. It raises a pretty serious question in one's mind about the need for this separate set of climate change disclosure obligations if the true purpose was really just to get companies to disclose the financial and business effects from climate change development.
Brian: I guess the segue on that, supporters say, "Look, you look at the statutes that enable the SEC and this type of information clearly fits in there, why is everyone having a conniption?" Your position is no, in fact, the statutes do not authorize the SEC to do what they're trying to do here. Could you tell me more about like why do you think that? What is it about the statutes that you think-- what do the statutes allow, and what is it about the current proposal that runs afoul of that?
Andrew: My main argument is that a careful review of the statutes passed by Congress that give the SEC power to adopt disclosure obligations do not go so far as permitting the climate change disclosure rules. That is based on an examination of the text of the statutes and the context of the statutes which is a classical job, a classic job of a lawyer, and it's really dull and tedious, and you don't want to spend a lot of time talking about it because it's really dull and tedious.
Of course, I love that kind of thing, and so I've looked at the statutes, I looked at the words, I looked at the surrounding context, and without getting into too much detail, I think that a careful read of those statutes conveys that Congress imposed a variety of limitations on the SEC's power to adopt new disclosure rules, and those limitations were not respected by the SEC. The principal point I want to emphasize is like, "Why does he care about this?"
Brian: Who's he?
Andrew: He is me.
Brian: You.
Andrew: An opponent, as a supporter of the SEC, would look at my arguments and say, "This is all pinheaded lawyer stuff." As I said, it's very technical legal analysis of these statutes, but there's such a fundamental reason to care about it, and it's important to step back at least briefly to consider why does a statutory authority point about an administrative agency matter to everyday people.
Brian: Yes, why does it matter to everyday people?
Andrew: Why does it matter? It turns on the structure of the government as established in the Constitution, and it goes to the fundamental basis of what made this country different in 1787 and 1790 from other countries and remains core to the operation of the country today, and that is power flows from the people, the voters. The way we set up our Constitution is we created a body called Congress, and the voters get to pick the members of Congress, and Congress has the power to write the laws. Of course, this is basic civics but people forget it.
If you want a statute that's a law that's legitimate in our country, it has to come from Congress because the voters are the ones who control Congress. The Constitution set up a different part of the government called the executive branch, it's the president. Now, the president is supposed to execute the laws. He doesn't make them, he has a role. Of course, there's some overlap in roles here, but the president is also supposed to supervise administrative agencies. Now, over time, we built up an enormous federal executive branch, and the administrative agencies are part of it.
Agencies have no power on their own. They only have the power that Congress grants them in a statute, but a problem that we have seen on a recurrent basis is that federal administrative agencies write regulations or rules or laws beyond the terms set by the statutes that Congress passed. When that happens, unelected bureaucrats, not Congress, are writing the laws that people must follow. When an agency does that without approval from Congress, it means that the heads of the agency are picking out policies that they personally prefer but that have not been approved by Congress, who are the voters' representatives.
That to me is a problem. It allows a small group of people distant from the voters, and here we're talking about three out of five commissioners of the SEC who decided they were going to take on the climate change area with a special set of rules about climate change disclosures. Congress didn't give that authority with any explicitness. There are only the statutes on disclosures for the SEC that were passed in 1933 and 1934. That's my main concern with the climate change disclosure rules.
Do those statutes from 1933 and 1934 authorize the commission to write these climate change-specific set of disclosure rules? As I've said, you can look at the statutes as a technical matter, which I've done, and I don't think that you get there.
Brian: If someone's listening to this particular FinRegRant, they probably have an appreciation for the technical. Can you just give me the capsule summary of why you think the statutes don't get where the SEC seems to think they are?
Andrew: The SEC tried to explain why it had authority when it adopted these rules, because so many people questioned their authority. There are two statutes in the Exchange Act, that's from 1934, and there's one primary statute in the Securities Act of 1933. Just take that one as an example. The statute in the Securities Act explains what disclosures need to be made in a thing called a registration statement. This is for a public offering of securities. It was like a major breakthrough in the law of securities regulation in 1933, using a registration statement. Congress specified the disclosures to be put into the registration statement.
There's one particular statute that lays this all out, and it says, when you have a registration statement, you've got to put in all of the disclosures we, Congress, have specified in this statute. Then the statute says, but the administering agency, let's call it the SEC, can say, "Oh, here's some disclosures that don't make sense for a particular category of issuing companies." The SEC's got power to make an exception. Certain companies don't have to make that disclosure.
Then at the end of this same paragraph, that's based on the statutory set of disclosures, the statute says, "Oh, and the SEC may add to the disclosures that are already necessary to be made." It uses a phrase about, when necessary, appropriate, in the public interest, or for the protection of investors. I think the only way to read that section of the statute is as setting the core disclosures, Congress did that, but then granting the SEC certain limited powers to create exceptions.
They can take out some disclosures if they feel there are good reasons, they being the SEC, or the SEC may add to the disclosures already, there's a long list, they can add to those on an exceptional basis, and they need to have in the public interest or for the protection of investors as a standard. The SEC and its supporters look only at the one sentence about how the SEC may add disclosures, and they say the only requirement is that it needs to be for the protection of investors and then the SEC has carte blanche. That is not the appropriate way to read it. As I've just explained, I think it's a power to be used on an exceptional basis, and the SEC doesn't agree with that at all.
Brian: Is your view that the core of disclosures set the universe and that Congress was saying to the SEC, "Look, if you discover that there's a need, there's some unique need for something that's a flavor of one of these things that maybe we didn't specify, that's okay, but you can't just go off and say, well, we've decided that investors really want to know the birth sign of your management team and so you must disclose the birth sign of your C-suite." Is that what you're getting at, or what is the limiting principle?
Andrew: Limiting principle, I've already tried to define a big part of it, which is that Congress specified the core disclosures. This is for a registration statement. There are similar restrictions in the Exchange Act. There are 31 disclosure items. We're not talking about four or five that Congress specified. There are 31. Is it meant to be frozen? No, that's why there's power to create the exceptions, but I think that you misread the statute if you don't look at what Congress defined as a disclosure obligation, and they did a couple different things.
There's a form, a consistent form to disclosure items when Congress has specified disclosure items, and they are all on internal to the company's financial and business characteristics, which makes perfectly good sense because what investors want to know about are the things that bear on cash flow, balance sheet items, what products, what about your management, what do your securities look like? What are the terms of your securities? How much are you going to charge for a new share of stock? Who else is going to get the money?
Aren't these all painfully obvious things that a potential buyer of a security wants to know? I say, pay attention to what Congress said and how they said it, the form they put into it, the kinds of business or company characteristics that are legitimately the object of a disclosure obligation. Those are the limiting principles to me, that climate change disclosure obligations look at exterior factors, not the internal characteristics of a company.
Brian: Is your argument that to the extent these disclosures are looking at internal factors like those you listed, the disclosures are already captured by preexisting requirements?
Andrew: That is part of the point, yes.
Brian: Then to the extent that they don't, they're outside the scope of what Congress authorized the SEC to mandate.
Andrew: Yes, and on that latter point, so they're already covered by these extensive preexisting sets of disclosure obligations. Let me make two points. First, the SEC acknowledges that when they adopted them. They really fall back on, but the disclosures as they're currently required turn out to be different from company to company. That is, they are not consistently made and comparable. That is true. It is true for almost all the mandatory disclosure items, except for ones where the SEC has been very specific.
The SEC doesn't have statutory power to set up disclosures solely to make them consistent and comparable. That might bear on the policies of investor protection because it might be more manageable and usable, but it is not the basis for a set of disclosure obligations.
Brian: I guess, to play devil's advocate here, the SEC would say, "But we have investors who are asking us for these things and saying these things are useful to them." You have investors, particularly like, if I recall correctly, some of the large asset managers wrote in and were like, "Hey--" during the comment period like, "Yes, some version of this would be great for us. We'd love this." Is it that all it takes is an investor to say, "I'd like this," to get it into the statute?
Did Congress have something, and it's fine if you've already answered this question in your previous question, but like, did Congress have an idea of like, "Okay, look, investors can want-- we anticipate investors wanting certain things, and we want, and needing certain things to make informed investment decisions and not get defrauded. Here's the list, and SEC, if you can find narrow exceptions or additions that are of a piece with this, add them, but don't go crazy." Is it, "Well, yes, but we do have investors who want this."
Do the investors want it, or maybe put it a somewhat different way, do the investors want this information? The investors who do want this, do they want this information for the reasons that Congress was thinking about when they were mandating disclosures, or do they want it for other reasons? There's a lot there. We have to unpack it, right?
Andrew: The end of your question answers it for me. Is investor interest enough to justify the SEC exercising its power to require disclosures? No, it is not. That's not a basis in the statutes for a disclosure obligation. Does it bear on the question of a disclosure obligation? Yes, of course, because, as I've explained it, on an exceptional basis, the SEC may delete or add to this already long set of disclosure obligations, and they might, well, come up with ideas to supplement in a way that Congress didn't foresee in 1933 and '34, and I think that the SEC has, so classic example. There's now a big section called risk factors. I think that that's an appropriate exercise of the SEC's disclosure rulemaking powers.
Brian: Do you think that because the risk factors that they highlight tee up to, and are of a piece with that core that Congress established?
Andrew: Yes, they conform to the kinds of things that Congress told us that Congress was interested in. Investor interest, investor demand, which you need to be skeptical of because it comes from large asset managers, not from investors, is not a statutory basis. As I said, it should start a thought process at the SEC because maybe there's a growing demand by investors for a particular kind of information, and it ought to start people thinking, "Well, maybe there's something there," and we ought to maybe do something about it.
Just investor interest is not sufficient. The asset managers notoriously, for a while, and to some extent still today, were responding to activists, climate change activists, who sought the information for precisely the reason I said to be skeptical about, and that is so they could lobby companies, submit shareholder proposals, do other things to alter the behavior of the companies rather than to learn information that was critical or bears on a reasonable investor's decision to buy or sell the security. One needs to be a little worried when the asset managers have ulterior motives, and they were very, very instrumental in getting these new rules passed.
Brian: You referenced the Securities Act of '33 and the Exchange Act of 1934, and having read your stuff, you may be a lawyer, but you're becoming quite the historical detective here as well. You've gone into the meta-history of those statutes and have argued that what's going on there is relevant to the court when it's assessing the context that these statutes were created in. Can you tell us a little bit about what you found?
Andrew: I don't know what meta-history is.
Brian: It sounded good to me. Ben can cut it if he doesn't like it.
Andrew: You think our audience is extremely sophisticated as a legal matter, and that probably is true and maybe is true. Just so that people understand, we know what we're talking about.
Brian: You know what you're talking about.
Andrew: There's a big debate about the utility and weight of legislative history, and I'm not going to get into that debate right now unless you want to. I think legislative history is useful to look at. It's not as weighty or significant by any means as much as statutory text and context. Statutory text is really the most important thing to be looking at. I do think one gains illumination and enlightenment by looking at legislative history. What's really interesting here is that, as I told you, the SEC and its supporters looked through the couple relevant disclosure statutes and plucked out these isolated, vague phrases that are always applicable to the SEC's exercise of power, and that is they're supposed to act in the public interest.
Okay, what does that mean? Heaven knows. Or for the protection of investors. That's a little more helpful. That's got some content to it. The SEC plucked those phrases out and said we have total discretion to write a disclosure obligation if we can make a decent argument about investor protection. That's not very hard, and so it's effectively no restriction. I took a look at the legislative history of the Securities Act, that's 1933, and the Exchange Act, that's 1934, and I found some remarkable things.
Here is one incident, episode, during the drafting of the Securities Act that I found meaningful. It is the following. It bears on the question, it bears directly on the question of how much power does the SEC have, how much discretion do they have to choose making disclosure obligations? The incident involves some pretty famous people. President Franklin Roosevelt.
Brian: I've heard of him.
Andrew: How about Representative Sam Rayburn?
Brian: I think I've been in a building named after him before.
Andrew: Harvard Law Professor Felix Frankfurter.
Brian: Yes.
Andrew: He became a Supreme Court Justice. Sam Rayburn was not at the time, but later became Speaker of the House several times, and that's why he has a building named after him. Felix Frankfurter had various protégés working with him because Roosevelt and people in the White House asked Felix Frankfurter to draft the Securities Act. Felix Frankfurter got together a couple people, his protégés, including a guy named James Landis, who was also a professor of law at Harvard at the time, who later became Chairman of the SEC, and after that was Dean of the Harvard Law School for a very long time. He, James Landis, was instrumental in writing the Securities Act, and a couple other people. A guy named Benjamin Cohen, who is less well known.
There was an incident that, as I say, bears directly on the SEC's power. The drafting team, and by that, specifically, I mean James Landis and Benjamin Cohen, who are writing the words that are going into the bill that Sam Rayburn sponsored and was working with this drafting team. Landis and Cohen disagreed about whether the statute should specify the items for disclosure in a company issuing securities, or whether an administrative agency that was going to have certain powers should have discretion to write the disclosure obligations according to its expertise and developments.
This became a tension point between Landis, who wanted discretion at the agency, and Cohen, who wanted the statute to specify the disclosure items. Cohen got mad, and he called Felix Frankfurter up, and he said, "I can't work any longer with Landis, and I'm going to quit." Frankfurter tried to calm the waters, tried to calm Benjamin Cohen down, but said, "Well, what's the specific?" Cohen explained it's about how much discretion to give to the administering agency on disclosure items.
Frankfurter thought about it, and thought, well, of course he needs to solve his drafting team controversy, but he also wanted to address the specific issue. Frankfurter concluded that we need to put the items in the statute. There could be a delegation of authority problem if we don't, and also, you'd be giving too much power to an administrative agency. Frankfurter then contacted Roosevelt, now President of the United States, and does this in a telegram. Remember, it's 1933.
Frankfurter sends a telegram to Roosevelt, and he says, "Here's the issue, and I think, I, Frankfurter, think that we ought to put the disclosure items in the statute, and not give too much discretion to the agency," and he identified several reasons for that. Roosevelt agreed with Frankfurter and called up Rayburn, the sponsor of the legislation in the House of Representatives. Rayburn agreed too, and the end result was they put the disclosure items in the statute, which is where they are today.
They also did something else, not Rayburn and Frankfurter, but now back to Landis and Cohen. They wrote the House Committee Report about the bill that they drafted, and they put some information about their choice in the report. The report says, we have enumerated the items of disclosure, and we've done that because we don't want to give the administrative agency too much discretion over that. There's a paragraph in the legislative history of the Securities Act about it.
Similarly, in the Exchange Act, I told you there are two statutes that matter. Both have very severe restrictions on the SEC's power in the statute. There's also stuff in a committee report for the Exchange Act that says, "We didn't want to give too much--" here's the phrase in the report for the House, for the Exchange Act. The SEC was not to have unconfined authority to elicit any information whatsoever. Don't put too much weight on all this. It's legislative history, it's not the text. I say it flows into the text because I think the text does reflect these restrictions, but it helps us understand statutory words a little more easily, especially when it has the context of the people, and their personalities involved.
Brian: Let's stay on the history theme for a second because you referenced that the SEC issued guidance in, I believe, 2010 on climate disclosure, environmental stuff. My understanding is that's not the only time in the past that this issue has come up at the SEC, and that the SEC has in the past taken perhaps a contrary view to what the SEC is saying today. Can we talk a little bit about the SEC's history with environmental and climate issues and what it has thought in the past and how that jives or doesn't with its position today?
Andrew: I think this is another remarkable aspect of what the SEC did without grappling with its earlier decisions. Here's what happened. This takes us back to the early 1970s when the SEC went through an elaborate process to consider whether to adopt rules requiring disclosures on environmental matters. In the end, the SEC adopted a few narrow disclosure rules on some environmental matters. Now, the SEC's brief to the Eighth Circuit and amicus brief supporting the SEC say, see, "Those environmental disclosures from the 1970s are precedent," establishing that the SEC had power to issue the climate change disclosure rules.
My problem with that argument is it's not a fair reflection of what happened at the time. I'm just going to make a couple critical points from what the SEC was doing in the early 1970s.
Brian: Wearing bell bottoms.
Andrew: And acrylic shirts with big collars. Some of us lived during the early 1970s, just for the record. In 1975, the SEC came out with a very long statement addressing the environmental disclosure question. It had already taken some steps in '72 and '73, but it came out with this long discussion in 1975. It said it lacked the power to order environmental disclosures under the Securities Act or the Exchange Act. That's pretty powerful. The SEC confirmed that position in 2016.
Brian: Let's just hop back to the '70s for a quick second.
Andrew: I'm going to go back.
Brian: Okay. You're going to go back? We're going back to the '70s. All right.
Andrew: We're going back. We're going back. The point is, when the SEC recently acted to adopt these climate change rules, it used the authority of the Securities Act and the Exchange Act, which in 1975, the SEC said it couldn't do. I did mention that the SEC adopted a couple narrow environmental disclosure items, but it did so--you would say, "Well, why is the SEC wrong to claim that it had statutory power? If it had it back then, it's got it now." Here's a critical point and a critical distinction.
In the 1970s, the SEC acted pursuant to a specific congressional mandate, that is, an act called the National Environmental Policy Act of 1969, which required all agencies, including the SEC, to take into account environmental considerations when they acted. That was not true in 2024 when the SEC adopted the climate change rules. They did not have a special statutory mandate like the SEC did in the 1970s.
Brian: Could they claim that NEPA enables them to do this?
Andrew: Nobody's mentioned that, except I certainly thought about that when I discovered this important distinction. The SEC said that it had finished its consideration of its NEPA, National Environmental Policy Act, obligations in 1975. It said, "We've done what we're supposed to do, and we're finished." Also, when the SEC acted this year to adopt the climate change disclosure rules, it did not cite the National Environmental Policy Act of 1969 as statutory authority. No, it did not use NEPA powers. They've been exhausted.
Here’s the final point I want to make about the environmental disclosures from the 1970s, which as I said, the SEC tries to use as precedent in its favor. Amicus briefs supporting the SEC try to do the same thing. I think it's really an unfair use of the SEC's considerations from the 1970s because I personally cannot read that long statement that the SEC issued in 1975 as anything but overwhelmingly negative about the SEC's powers to address policy issues like environmental or other social policy issues with the securities law disclosure rules. The SEC said we really shouldn't be doing this and we're only going to be doing a little bit because of a different statute.
Brian: The court, when this comes up, you mentioned that this is being challenged on, broadly speaking, three grounds. Constitutional ground, First Amendment, Administrative Procedures Act ground that there was a technical problem with how the rule was put forward, and then the statutory ground that, "Hey, SEC, Congress doesn't authorize you to do this." Now, what they taught me in law school way back in the day is that courts like to avoid the constitutional issues if they can because constitutional issues are very fraught and very challenging. If they can resolve something on a non-constitutional basis, they will.
Let's put the APA question to the side because, it's the APA, it's complex, it's interesting, but what we've been talking about here is the SEC's inherent organic authority. In looking at whether or not a court has, or an agency has authority from Congress for, since West Virginia versus EPA, the major questions doctrine was the big, exciting thing. Now this past year, Chevron got overturned and so now maybe Loper Bright/Relentless will be the new exciting thing, but let's talk about what is the major questions doctrine and how might it be relevant here?
Andrew: Several of the briefs of the challengers invoke the major questions doctrine and argue it quite forcefully. It's in the case. Let's talk about what it is and how it might influence the case. The major questions doctrine is a method the courts use to determine if Congress genuinely delegated rulemaking authority to an agency. The doctrine is not entirely settled or well-formed, but under the doctrine, courts look for clear authorization from Congress when an administrative agency embarks on a new and expansive regulatory mission that has economic and political significance.
A lot of those words I just used come from the Supreme Court's description of the major questions doctrine. Essentially, Congress needs to speak directly to an issue or topic when an agency claims power to regulate a substantial policy area. The argument here, I've alluded to already, some of the challengers invoke the major questions doctrine in the climate change case because on the ground that securities laws do not provide a strong basis for the SEC to regulate through disclosure or to issue disclosure rules about climate change.
That climate change is an enormously important area. It's very controversial. Congress has not been able to develop and adopt statutory guidance on climate change overall. It's done certain narrow things, but it has not addressed climate change in a comprehensive way. It's clearly a major policy issue. Congress never spoke directly to the SEC and said, "We want you to develop and adopt a set of disclosure items on climate change." It didn't do that.
Brian: I guess, is it fair to say that basically how this might play out in court would be that the SEC would say, "Yes, but Your Honor, look down at the bottom. It says we can come up with new categories of disclosures." The major question doctrine-influenced response would be, "Yes, but if what you're trying to do touches on some sort of new area with a lot of economic or political salience, we would need to see Congress explicitly do that. You don't get to just ride under a somewhat vague and general grant. If Congress wanted you to do this, we believe they would have said so relatively explicitly at least."
Andrew: Precisely correct. That's exactly right. That's how the argument is run. I think applying the major questions doctrine in the case, the climate change case, would be reasonable, but I don't think you need to get there. Because as you've now heard me at length, I think that just a normal approach of courts to figuring out what statutes mean, it's called statutory interpretation or construction, just using normal methods that judges employ, you can reasonably conclude, with a high degree of confidence, that the statutes did not permit the SEC to adopt the climate change rules.
I don't think you need to get into the major questions doctrine, which is somewhat controversial. It's got support on the Supreme Court, and some judges in the Courts of Appeals. There's a lot of academic sniping, at least, on it. I say you don't need to get there.
Brian: All right. Speaking of academic sniping-
Andrew: Yes, please.
Brian: -you're not the only person who filed a brief, even if, from my very biased perspective, your brief's the best. In fact, a fairly large collection of scholars filed a brief that took the opposite side of what you're saying. Then other people have submitted briefs across the spectrum. Are there any other briefs that you particularly want to discuss? Praise, call out, whatever. Hey, your brief is mentioned on this, and you want to come on the FinRegRant and discuss your brief and your argument? Hit us up. We're happy to have you. Please, my email is readily available. You can get in touch with me. Yes. Anyway, Andy, go for it.
Andrew: I've been pretty critical of the SEC brief and several of--
Brian: Gary Gensler, if you're listening to this, please come on. We're happy to have you.
Andrew: Several of the amicus briefs supporting the SEC. I think it's disappointing, to say the least, that you can have briefs in a big case, from a major administrative agency that are so weak in their legal arguments. I'm going to mention one particular amicus brief. It came from a set of law professors, a group near and dear to my heart, as well as former SEC officials, another group near and dear to my heart. This is one brief from a collection of former SEC officials and law professors.
Brian: For the record, Andy is both the former Deputy General Counsel of the SEC and a former law professor at UVA Law, the best law school, even though they graduated me. No institution is perfect.
Andrew: I think that the SEC's brief, and this, I'm going to call it the scholar's brief, because I hope you detect the irony, has serious flaws, have serious flaws in them. They both rely heavily on the environmental disclosures from the early 1970s. I've already told you what I think the problems are with that as precedent. I think the 1970s environmental disclosures are precedent against the power of the SEC to do the climate change disclosure rules. Another problem was in the SEC brief and the scholars brief this effort to do a textual analysis and they did what I've described.
They've lifted out this vague and isolated this vague phrase about the ability to write disclosure rules for the protection of investors while ignoring all of the restrictions and limitations in the associated statutory text, which I think is an unacceptable way to construe the statutes. There was a further error in the amicus brief from the law professors and former SEC officials. They argued that the legislative history of the Securities Act, that's the 1933 Act, supported the commission's authority to adopt the climate change disclosure rules, and they discussed in their brief the text of a Senate bill and testimony about the Senate bill.
Their mistake was that the Senate bill was not the primary basis for the Securities Act. The primary basis was a bill in the House sponsored by Representative Rayburn. I've already talked a little bit about that. The statute in the Securities Act that I've also now talked about, which by the way is exactly today, has the same words that it did when it was passed in 1933. The statute that the SEC used as a basis for the climate change disclosures came from the House bill, not the Senate bill.
There are bits from the Senate bill, but I kept-- the phrase I used was the House bill is the primary basis, and to a very substantial degree. Specifically on the question of section 7(a)(1) of the Securities Act, which is the statute the SEC invoked for their climate change disclosure rules, that came from the House bill. As a result, the legislative history of the Senate bill on this point is not enlightening. The mistake in the scholars' brief is glaring.
Brian: Look, thank you so much for taking all this time to help educate me and our listeners about what's going on here. Do you know roughly when the oral argument is supposed to be scheduled?
Andrew: I do not.
Brian: Okay. That's something that we're going to be keeping an eye on. After the Eighth Circuit renders its judgment, we'll have you back on. I do want to renew the offer. If anyone here whose work we mentioned and who wants to discuss your work and has a different take on it, wants to come on to the FinRegRant, we'd love to have you. Reach out to us. We should have something available on the FinRegRant webpage where you can get in contact with us. Andy, thank you again.
Andrew: Thank you for allowing me to talk about my work.
Brian: It's always a pleasure.
[00:58:35] [END OF AUDIO]
