Patrick Morrisey, West Virginia’s Attorney General, penned a letter to SEC Acting Chair Allison Herren Lee protesting her recent remarks and ensuing statement seeking input on how the Commission should approach mandating environmental, social, and governance (ESG) disclosures, with climate change being a specific focus of her speech. Not only would such mandated disclosures change the scope of the SEC’s mission, they would also violate the First Amendment by compelling speech, Morrisey asserted.
Lee’s CAP remarks. During her speech at a virtual event hosted by the Center for American Progress (CAP), Lee spoke about the importance of ESG disclosure by public companies, including climate risks, as well as issues involving racial injustice, worker safety, workforce diversity, and other human capital issues. In conjunction with her CAP remarks, Lee issued a statement seeking input on a number of issues relating to the SEC’s disclosure rules with an eye toward facilitating the disclosure of consistent, comparable, and reliable information on climate change. Lee’s speech and her statement were the latest actions taken by the acting chair to put forward an agenda that includes an enhanced focus on ESG matters, including the establishment of an ESG enforcement task force and directing the Division of Corporation Finance to focus more on climate-related disclosures.
Morrisey’s concerns. In his letter, AG Morrisey outlined his grievances with Lee’s remarks, stating that they could lead to an "unprecedented and dangerous course," with states and other stakeholders filing challenges in the federal courts as unconstitutionally compelling speech in violation of the First Amendment.
Describing possible regulations that require ESG disclosure as fundamentally changing the Commission’s mission by helping activists "advance prejudice and animus" towards groups and activities they disfavor, Morrisey implored the SEC to stick to its core mission of requiring disclosure regarding statements that are material to a company’s future financial performance, and not on issues that are meant to drive a political agenda. He floated an example of activists opposed to the consumption of meat influencing companies to disclose how much meat is consumed in company cafeterias. He also compared—unfavorably—such activism to the BDS (Boycott, Divestment, and Sanctions) movement targeting Israel over the nation’s treatment of Palestinians.
Compelling disclosure on issues such as workforce diversity, expenses, turnover, political contributions, contributions to tax-exempt organizations, and dues paid to trade associations is also misguided, Morrisey remarked. Doing so would create a system of unlimited mandatory statements, he said, calling it "federal overreach and political activism at its worst."
According to Morrisey, such mandatory disclosure requirements would violate the First Amendment. Citing a number of Supreme Court cases, Morrisey maintained that this content-based speech regulation is subject to the strict scrutiny legal standard, which requires that the government show a compelling government interest. While protecting investors from fraud and deceptive practices in the issuance and trading of public securities can be seen as a compelling government interest, the same cannot be said for mandating ESG disclosure, Morrisey asserted. If these matters are not material to a company’s future financial performance, the SEC will be hard-pressed to justify mandating them, Morrisey stated.
In an apparent criticism of the Biden administration, Morrisey wrote that "mission creep" in federal agencies to "advance a President’s political agenda" would be resisted. As for the SEC in particular, he advised that Lee’s ESG initiatives would needlessly transform securities enforcement into political activism, adding that if the SEC goes down this path, he intends to mount a court challenge.
Describing possible regulations that require ESG disclosure as fundamentally changing the Commission’s mission by helping activists "advance prejudice and animus" towards groups and activities they disfavor, Morrisey implored the SEC to stick to its core mission of requiring disclosure regarding statements that are material to a company’s future financial performance, and not on issues that are meant to drive a political agenda. He floated an example of activists opposed to the consumption of meat influencing companies to disclose how much meat is consumed in company cafeterias. He also compared—unfavorably—such activism to the BDS (Boycott, Divestment, and Sanctions) movement targeting Israel over the nation’s treatment of Palestinians.
Compelling disclosure on issues such as workforce diversity, expenses, turnover, political contributions, contributions to tax-exempt organizations, and dues paid to trade associations is also misguided, Morrisey remarked. Doing so would create a system of unlimited mandatory statements, he said, calling it "federal overreach and political activism at its worst."
According to Morrisey, such mandatory disclosure requirements would violate the First Amendment. Citing a number of Supreme Court cases, Morrisey maintained that this content-based speech regulation is subject to the strict scrutiny legal standard, which requires that the government show a compelling government interest. While protecting investors from fraud and deceptive practices in the issuance and trading of public securities can be seen as a compelling government interest, the same cannot be said for mandating ESG disclosure, Morrisey asserted. If these matters are not material to a company’s future financial performance, the SEC will be hard-pressed to justify mandating them, Morrisey stated.
In an apparent criticism of the Biden administration, Morrisey wrote that "mission creep" in federal agencies to "advance a President’s political agenda" would be resisted. As for the SEC in particular, he advised that Lee’s ESG initiatives would needlessly transform securities enforcement into political activism, adding that if the SEC goes down this path, he intends to mount a court challenge.