Impromptu Questions on the SEC’s Climate Risk Proposal, Part 3
pa href=https://www.cato.org/people/c-wallace-dewitt hreflang=enC. Wallace DeWitt/a
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pHaving discussed the views of Congress and of retail investors on Monday and Tuesday in relation to the Security and Exchange Commission (SEC) climate risk a href=https://www.sec.gov/news/press-release/2022-46rule proposal/a, today, we’ll turn our attention to the potential for shareholder litigation in response to the rule, if adopted./p
h4Did anyone ask plaintiffs’ attorneys?/h4
pPerhaps not, but the SEC’s largest and most complex disclosure rulemaking in years—decades?—will certainly provide anbsp;target‐rich environment for private actions. Recent a href=https://www.wsj.com/articles/sec-climate-disclosure-proposal-looms-as-litigation-risk-11648299600reporting/a by theem /emWall Street Journal suggests that the corporate bar is already alerting its clientele to this eventuality. “The underlying premise is simple: Make anbsp;company talk more—on the record, in their mandatory disclosures like annual reports—and you are more likely to catch it in anbsp;mistake that could prove lucrative for the aggressive plaintiffs’ lawyers that earn anbsp;living suing companies after bad news.”/p
pMaybe so. While the Journal’s reporting is sound—lawyers emare /emtalking about this—I wonder whether bringing and winning (or at least wresting settlements) in cases arising from this rule will be so straightforward. The judicially created implied private right of action under the Exchange Act is held to have six elements: (i) anbsp;material misrepresentation or omission; (ii) scienter; (iii) anbsp;connection with the purchase or sale of anbsp;security; (iv) reliance; (v) economic loss; and (vi) loss causation. a href=https://www.sec.gov/rules/interp/2010/33-9106.pdfAs early as 2010/a, the SEC already exhorted public companies to disclose their “material” risks associated with climate change and climate regulation. Yet there seems to have been no ensuing glut of securities litigation premised on the claim that public issuers have omitted to disclose material side effects of, say, rising sea levels or extended growing seasons. One suspects that the reason might be that proving that there is anbsp;causal connection between the issuer’s fraudulent behavior and anbsp;plaintiff’s resultant financial losses—emi/em.eme/em., establishing loss causation—might be particularly difficult to prove when dealing with essentially frivolous disclosures that have nevertheless been given official imprimatur as “material.”/p
pThe SEC wishes to have public companies publicly acknowledge their manifold sins and wickedness in the matter of greenhouse gas emissions. Most, if not all, effects of global warming are anticipated to fall toward the end of the 21st century. Some, like the UN Intergovernmental Panel on Climate Change, have been wont to advocate anbsp;series of swifter timetables from time to time. But even the most perfervid climate Cassandra does not believe that anbsp;secular rise in global mean temperatures is likely to have anbsp;discernible effect on anbsp;public company’s bottom line emnext fiscal quarter/em, or even the emnext fiscal year/em. Call it “short‐termism,” but U.S. securities disclosure simply does not operate on the sort of global, climatological time scale implicated by global warming. Consequently, this author is dubious that plaintiffs’ attorneys will be successful in showing that, for example, anbsp;public company’s omission to state that its widget subcontractor exhales prodigious quantities of carbon dioxide and methane emmade me lose money when it came to light/em./p
pIn case you missed it, click here for a href=https://www.cato.org/blog/impromptu-questions-secs-climate-risk-proposal-part-1part 1/a and a href=https://www.cato.org/blog/impromptu-questions-secs-climate-risk-proposal-part-2part 2/a of the impromptu questions./p