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Climate-related financial disclosure, ESG, Materiality, Major questions doctrine, West Virginia v. EPA, TCFD, Regulation S-K, Regulation S-X, SEC disclosure regime


This Article focuses on capital market efficiency as an often-downplayed legal rationale for mandating corporate climate disclosure, and explores it alongside the notion of investor demand, which has assumed a prominent and, increasingly, contested role in debates on climate disclosure. Because market efficiency (encompassing both securities price accuracy and overall capital market allocative efficiency) is generally unobservable, many commentators have instead emphasized the highly visible investor demand for climate-related disclosure as evidenced by shareholder proposals, voting behavior, stewardship policies, and public statements. Unfortunately, investor demand can be disputed, fairly or unfairly, because investor preferences are heterogeneous, dynamic, and difficult to aggregate. This Article argues that while investor demand can be a helpful datapoint, a proper and sufficient legal justification for mandating climate-related disclosure lies in the need to ensure that firms’ securities prices accurately reflect relevant information, which, in turn, will help maintain the overall integrity of the capital markets. This argument is supported by the statutory text, legislative history, SEC rulemaking practice, and judicial doctrine. In short, the role of corporate climate disclosure is “market-essential” and need not hinge on evidence of investor demand.

The Article’s analysis has implications for ongoing debates about regulatory efforts on corporate climate disclosure, including the propriety of the SEC’s climate disclosure project, the viability of an “investor-optional” approach to disclosure, and objections based on “major questions” theories. Indeed, once it becomes clear that the SEC’s disclosure rule is about basic market efficiency—and not about “regulating climate change”—such objections begin to fall away. More broadly, the Article also highlights the enduring importance of market efficiency as an objective justification for mandatory disclosure in an era of highly visible and sometimes controversial stewardship by asset managers and other investors.

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UC Davis Law Review


Copyright © 2023 George S. Georgiev.