In a letter to the SEC, West Virginia Attorney General Patrick Morrisey raised concerns and opposition to Acting Chair Allison Herren Lee's approach toward compelling public companies to disclose environmental, social and governance information. Mr. Morrisey cited Ms. Lee's recent speech and related request for input, both of which indicate that she intends for the SEC to pursue regulations compelling public companies to make a variety of disclosures relating to environmental, social and governance ("ESG") matters that go beyond matters related to financial performance. (See previous coverage of Ms. Lee's remarks.)

Mr. Morrisey argued that First Amendment protections as to compelled speech are inconsistent with Ms. Lee's proposals. He stated that such disclosures must (i) advance a compelling government issue, (ii) be directly and substantially related to advancing that end, and (iii) use the least restrictive means. AG Morrisey stated that strict scrutiny applies to the type of "content-based speech regulation" at issue with regard to ESG disclosure, as per the decisions in Reed v. Town of Gilbert (2015), NIFLA v. Becerra (2018) and Barr v. Am. Ass'n of Political Consultants, Inc. (2020).

Mr. Morrisey asserted that:

  • meeting investor demand for ESG disclosure does not qualify as a "compelling government interest";
  • requiring ESG disclosure would not "directly and substantially serve that end"; and
  • the SEC would be "hard-pressed" to demonstrate that ESG disclosure constitutes the least-restrictive means for investors to obtain ESG information, considering that private competition already yields "a vast amount of voluntary statements on a host of [ESG] issues."

Mr. Morrisey urged the SEC to focus on its core mission of requiring statements that are material to future financial performance - not statements that "needlessly transform securities enforcement into political activism."

Commentary - Steven Lofchie

Acting Chair Lee's comments on disclosure suggest that she would support regulatory actions that not only raise first amendment concerns (by, for example, taking actions that might discourage advertising on disfavored shows), but also by potentially making the SEC a political actor by using those disclosure requirements in such a way as to determine which candidates for office may be  deemed to be sufficiently ESG-favorable. (See prior coverage and commentary.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.