This article summarizes the argument of the author’s more technical article, “What’s ‘Controversial’ About ESG? A Theory of Compelled Commercial Speech under the First Amendment.”

The SEC is on the cusp of enacting rules to compel companies to disclose “climate risk.” Commentators have critiqued the rules as misguided and beyond the SEC’s statutory authority. But the proposed rules have a more fundamental flaw that will doom them when the inevitable court challenges are filed. The rules violate the First Amendment.

The SEC is, at its core, a regulator of speech. Because no branch or agency of the government has First-Amendment immunity, the SEC’s constitutional authority depends upon Supreme Court precedent granting deference to regulations of “commercial speech.” Commercial speech — speech involved in the purchase or sale of a good or service — receives less First-Amendment protection so that the government can pass laws to protect consumers. The SEC’s mandatory-disclosure regime, involving as it does the purchase and sale of securities, operates under this paradigm.

But there is a catch. Regulations compelling commercial speech receive deferential review only when they are “purely factual and uncontroversial,” according to the 1985 case Zauderer v. Office of Disciplinary Council. The “uncontroversial” requirement works to ensure that the regulation is motivated solely to protect consumers. It is a pretext check. Applied to the SEC, this means that only regulations that are plainly grounded in investor protection are uncontroversial and therefore entitled to deference. Regulations aiming at some other purpose are controversial and therefore subject to heightened scrutiny.

This brings us back to the SEC’s proposed climate disclosures. Firstly, can they be said to be uncontroversial? The question answers itself. The proposed rules do not rest upon the simple idea that the climate is changing and that human beings might have something to do with it.

Rather, they rest upon a set of strong assumptions concerning climate change. The strong assumptions underlying the proposed rules are: (1) that the climate is changing in ways that are (very) bad for human beings; (2) that human beings are largely responsible for that change, principally through greenhouse-gas (GHG) emissions; (3) that human beings must reduce their GHG emissions to save the climate; and finally, because this is the SEC and not the EPA, (4) that corporate financial returns are causally linked to the company’s climate policies and GHG emissions.

All these assumptions are necessary to support the SEC’s rule. Assumptions (1) and (2) are the (partial) basis of (3). Assumption (3) supports (4), which is necessary to bring climate within the purview of SEC rulemaking. However, each of these claims is subject to reasonable doubt, and as a whole, they are highly contestable. What to do about climate change is a tradeoff question, not a scientific question, and tradeoff questions are, in their very nature, political. The extant empirical literature in no way supports a causal link between climate policy and corporate returns.

It is true that many people accept the SEC’s premises. In fact, they are a formal part of the Democratic Party’s platform. But when people accept these assumptions, they adopt a political viewpoint, not an uncontestable truth, and compelling disclosures that impose a political viewpoint is anathema to the First Amendment. Regardless of how many people now accept these assumptions, the SEC cannot use governmental power to impose a regnant political orthodoxy. Or, at least, regulations that do so cannot be said to be uncontroversial.

Second, the real beneficiary of the proposed rules would seem to be asset managers who can use climate disclosures — greenhouse-gas emissions in particular — to automate ESG portfolios. But the SEC does not have the authority to benefit one class of investors at the expense of others. Rather, the investor-protection rationale requires the SEC to consider investor interests on a class basis — the interests of investors as such — rather than focusing on the idiosyncratic preferences of certain individuals or groups. Compelling the disclosure of information not relevant to financial return to benefit asset managers at the expense of ordinary investors is something the SEC cannot do. Or, at least, something it cannot do uncontroversially.

Because the proposed climate disclosures are controversial, they are not subject to deferential treatment under the commercial-speech doctrine. Instead, they are subject to heightened First Amendment scrutiny — a standard they cannot survive.

These rules should not have been proposed at all. Each SEC commissioner takes an oath to support and defend the Constitution. Yet three of the four sitting commissioners voted to promulgate these rules without making any effort to defend their constitutionality. Fortunately, it is not too late for them to remember their vow and withdraw the proposed climate rules.

This piece originally appeared at NationalReview.com and has been republished here with permission.