The SEC’s Climate Rule—And Other “Whole of Government” Assaults on Democracy
The SEC’s Climate Rule—And Other “Whole of Government” Assaults on Democracy
The Securities and Exchanges Commission’s new climate-disclosure rule is just one small part of the Biden Administration’s sweeping “whole of government” climate campaign.[1] But the rule provides us a timely reminder of why these campaigns are, by definition, hostile to our constitutional order.
The Administration’s “whole-of-government” climate campaign
In “whole of government” campaigns, the president marshals agencies across the federal government to advance one shared policy goal. For example, a Biden Administration campaign to promote “equity” has enlisted “every agency across the whole of the federal government.”[2] This Administration didn’t invent the whole-of-government approach. The Trump Administration tried it too. So did the Obama Administration—in line with its “pen and a phone” theory of the Constitution. But those earlier uses were stray sparks compared with what has become, in the Biden Administration, multiple runaway wildfires.
This Administration has announced whole-of-government campaigns to tackle a wide array of policy goals. In addition to “equity,” they include cybersecurity, cryptocurrency, antitrust, health security, unions and labor standards, biotechnology and biomanufacturing, even “arts and culture,” and more. In general, these campaigns have been welcomed by the agencies, academia, and media. What’s not to like about mobilizing the government to advance an important goal, declared by the President himself?
There is a lot to dislike—if one worries about runaway executive power and rule by unelected administrators. By definition, these campaigns conflict with our Constitution, with representative democracy, and with the rule of law itself. These problems with the whole-of-government approach often seem to remain under the public’s radar, so this blog post provides a brief review.
We see these defects in the Biden Executive Orders on climate. President Biden issued a climate Executive Order the week he was inaugurated, announcing that his Administration would “deploy the full capacity of its agencies to combat the climate crisis” through “a Government-wide approach.”[3]
This Executive Order mobilized many agencies whose expertise has nothing to do with climate.[4] To paper over that problem, the Administration recast its climate goals into language that appears to fit the subject-matter expertise of various non-climate agencies. For example, to enlist agencies whose expertise lay in the financial sector, the Administration used the language of financial regulation, tasking these agencies to “advance . . . accurate disclosure of climate-related financial risk.”[5] But it still made clear that the purpose of “accurate disclosure” would be to advance the Administration’s climate goal “of a net-zero emissions economy by no later than 2050.”[6]
The SEC joins the climate campaign
The SEC promptly stepped forward. It enlisted in the climate campaign even though its own mission is regulating the stock market and preventing financial fraud—in its own words, “protecting investors” and “maintaining fair, orderly, and efficient markets.”[7] To do its part, the SEC issued a complex rule titled “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” It requires public companies to disclose extensive information about climate-related topics. [8]
For example, it requires many companies to disclose the amount of greenhouse gas (GHG) emissions their operations generate.[9] It requires every public company to describe actions its board of directors took to oversee climate-related risks.[10] It requires many other disclosures as well, including a description of “climate-related risks,” and discussion of each company’s climate goals and its progress in meeting those goals. [11] It even mandates specific disclosures about expenses caused by “severe weather events.”[12]
The rule imposes these requirements even though longstanding securities laws already require companies to disclose information that is “material” to investors. Information is “material” if it is economically significant, which means it helps investors determine a company’s economic value or it helps protect them from securities fraud.[13]
Why the SEC’s role is unlawful
Even a casual reader will notice that the new mandates don’t provide new information about the economic value of companies’ securities. If climate-related information is important enough that it is economically material, then securities laws already require companies to disclose it. If the information is not economically material, then there is no economic-related reason to disclose it. Some of the mandated subjects virtually never would shed light on the economic value of the companies’ securities. A company’s own GHG emissions, for example, tell investors nothing about the economic value of the company or its securities. In fact, the SEC has never identified evidence that climate risk affects companies’ economic value.
So the stated justification for the rules—to address “financial risk”—is a pretext. This conclusion does not require any great insight; one SEC Commissioner who opposed the rule explicitly criticized its disclosure language as a pretext for imposing climate policy.[14] The rule makes sense, of course, only if its purpose is to pressure companies to conform to the Biden Administration’s climate goals, a purpose it achieves by providing climate activists some tools to apply that pressure.
The SEC engaged in this elaborate pretext for the obvious reason that, if it admitted it is making climate policy, it would be admitting its new rule is unlawful. Which it is, because Congress has not authorized the SEC to make climate policy. And under the Constitution, agencies can act lawfully only to the extent Congress has authorized them to act. The SEC’s pretext cannot hide the fact that the SEC—made up of unelected civil servants—usurping Congress’s authority to make the laws
Why whole-of-government campaigns are inherently unlawful
No doubt, agencies often try to stray outside the regulatory lanes Congress assigned them. But whole-of-government campaigns make this kind of overreach inevitable. By definition, these campaigns enlist agencies to act outside of their legal authority. Which means they also are acting outside the expertise that justified their creation in the first place. We see this kind of mismatch in the Administration’s climate initiative. Dozens of agencies have joined in, most of them having no expertise in climate. Multiply this climate-related agency overreach by the number of whole-of-government campaigns across the Administration, and we see a sprawling pattern of executive and administrative overreach.
The problem, of course, is that all of this legislating is the prerogative of Congress, not the President. When the President makes climate policy unilaterally, he denies a say to this most representative branch. Not only does he violate the Constitution, as a practical matter he denies voters the benefit of the negotiation and compromise that mark the legislative process
Sometimes presidents legislate by whole-of-government executive order because they become frustrated with Congress. It is true that Congress had declined for years to enact proposed legislation that would have mandated the kind of climate goals the Administration now is mandating.
But this President chose to not even ask Congress, instead acting by executive order soon after he took office. The Administration was not embarrassed about this unilateral action. In its view, proceeding “without Congress” through “the whole-of-government approach” was entirely appropriate.[15] The Administration’s explanation was candid on this point: “We don’t need Congress.”
This moment of candor revealed that the Administration’s whole-of-government approach to governing stems from a belief that the president need not even try to persuade Congress. This belief reflects the familiar Progressive narrative dating back to Woodrow Wilson: that we should override the Constitution’s separation of powers, focus authority in the executive and the expert agencies, and reduce reliance on the judgment of Congress and the voters it represents.
In this narrative, whole-of-government mobilizations don’t upset constitutional norms. To the contrary, they free us from an undue reverence for the separation of powers, popular representation, and other outmoded beliefs about the Constitution and the rule of law. It is this alternative constitutional narrative that explains the current Administration’s historic fondness for governing through whole-of-government campaigns.
Help from the courts?
For now, the best hope lies in the courts. Whole-of-government invites litigation, as we are seeing with the SEC climate rule. A host of challengers have petitioned the Eighth Circuit to vacate the SEC rule. The New Civil Liberties Alliance is counsel in that litigation for petitioner National Center for Public Policy Research, which filed a joint brief with the U.S. Chamber of Commerce. At least nine states also are challenging the rule. If these challenges succeed, the Eighth Circuit will strike down the SEC Rule based on some or all of the legal violations discussed above. That outcome will strike an important blow for democracy and our constitutional order.
[2] See https://www.whitehouse.gov/equity/
[3] Exec. Order 14008, 86 Fed. Reg. 7619, 7622 (Jan. 27, 2021), https://www.energy.gov/sites/default/files/2021/02/f83/eo-14008-tackling-climate-crisis-home-abroad.pdf.
[4] See id. at 7623 (establishing a National Climate Task Force that includes officials from totally unrelated departments, including but not limited to Departments of the Treasury, Defense, Justice, Commerce, Labor, Homeland Security, and the General Services Administration)
[5] See Exec. Order 14030, 86 Fed. Reg. 27967, 27967 (May 25, 2021), https://www.govinfo.gov/content/pkg/FR-2021-05-25/pdf/2021-11168.pdf
[6] See id.
[7] What We Do, U.S. Sec. & Exch. Comm’n, https://www.sec.gov/about/mission.
[8] See 89 Fed. Reg. 21668 (Mar. 28, 2024).
[9] 89 Fed. Reg. 21668, 21912-21.
[10] Id. at 21915 (§ 229.1501).
[11] See, e.g., id. at 21915 (§ 229.1502).
[12] Id. at 21913 (§ 210.14-02).
[13] The specific definitions of materiality all relate to information’s economic or financial significance. See, e.g., TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976); Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988).
[14] See Commissioner Uyeda’s speech here.
[15] See White House Press Briefing (Oct. 21, 2021), here (quoting Principal Deputy Press Secretary Karine Jean-Pierre).
September 17, 2024