Via Washington Stone
July 23, 2024
The Securities and Exchange Commission’s (SEC) climate disclosure rules pose real problems for public companies. The SEC’s mission is to facilitate capital formation and maintain market efficiency, but for the first time in 90 years historyThe SEC has incorporated political risk factors into its traditional principles-based disclosure framework.
Before the new rule, the SEC bowed to pressure from left-wing interest groups to impose its first environmental disclosure mandate on public companies. If the SEC’s final rule is allowed to go into effect by the courts, it would be a financial disaster for the public markets.
My latest policy report illustrates the many ways U.S. companies will suffer under the SEC’s climate rule. The report was released the same day the RealClearFoundation held its 2024 conference. Energy Future Forumwhere the SEC’s over-interference in climate policy is a point of contention.
The climate rule would require most large and mid-sized public companies to report annual and quarterly disclosures that take into account a myriad of climate risk factors. This would translate to more than $628 million in direct disclosure costs for approximately 3,488 companies, and millions more in indirect costs.
As a result, companies will need to spend significant resources hiring climate scientists, ESG experts, lawyers, and accountants to carefully prepare disclosures for SEC review, taking away time that would normally be spent on enhancing their market value.
Corporate boards would lose much of their discretionary power, forced to prioritize environmental risks over purely financial concerns. Instead, corporate boards would have to bring speculative climate science into play to determine which climate risks warrant SEC disclosure.
With the SEC’s 12 new climate disclosure categories, investors will spam with a confusing and potentially contradictory array of environmental data. This undermines investors’ ability to navigate meaningful market risks or assess the health of a company. The gloom and doom of climate risk jeopardizes sound financial analysis.
But now the SEC has found itself in a hostile regulatory environment, facing multiple lawsuits from a range of disgruntled organizations and concerned investors seeking to block the rule from being implemented. As many as 25 state attorneys general have filed two lawsuits against the SEC for exceeding its statutory authority and violating the SEC’s Article 1000 Code. big questions doctrine by enacting climate change legislation.
The Eighth Circuit Court of Appeals was selected by the Judicial Council on Multidistrict Litigation to consolidate nine complaints into one case against the SEC. The SEC subsequently stopped applying the rule to the legal claims.
The SEC is in the difficult position of trying to protect the indefensible.
The SEC does not have any legislative authority to enforce its climate disclosure rules. In 1976, the SEC provided minimal updates to its corporate disclosure requirements to reflect new environmental laws such as the National Environmental Policy Act (NEPA) of 1969. This was so that companies could comply with NEPA standards in their annual reports. SEC Filings and executive expense reports.
This is in stark contrast to today’s climate laws, which are imposed without due regard for the democratic will of Congress.
Climate regulation advocates rely on a loose interpretation of Section 12 of the Securities Act of 1934 and Section 7 of the Securities Act of 1933 to mistakenly claim that Congress has given them broad authority to set disclosure criteria.
RealClearFoundation’s Recent Energy Future Forum challenge the financial instability and investor damage caused by ESG disclosures like the SEC’s.
During the “Misallocation of Capital” panel discussion featuring Terrence Keeley (see the video linked above for his piece), President and CEO of 1PointSix, he raised the issue of how SEC regulation is a hidden environmentalist practice. Mandatory climate disclosure represents an undemocratic form of ESG policymaking that neither Congress nor U.S. voters have approved.
“There are some decisions that society needs to make regarding the environment. Those need to be made democratically,” Keeley said, “not by some self-appointed elite at the Securities and Exchange Commission who have decided on the sly.” [manner] that we have to do this about Scope 3 emissions. That is not the way to make decisions. And unfortunately, it will ultimately be a path to less abundance, less energy independence, and less clean energy.”
In response to the notion that the SEC serves investors’ best interests by forcing companies to disclose their climate risks, Keeley noted that most ESG fund disclosures fail to justify their purpose or address their environmental impact. SEC regulation would do nothing to address the lack of positive environmental impact from ESG funds or ESG-oriented companies.
“None of them [ESG funds] “It doesn’t make any claims about any impact,” Keeley asserted. “All it’s trying to do is beat the MSCI index, which itself was created to promote this ESG industrial complex. And it’s not achieving its goal.”
Keeley and I have made clear that the SEC rule would artificially infuse environmental consciousness into corporate board decisions, undermining their discretion to exercise appropriate risk management for their companies.
Additionally, greenhouse gas disclosure would provide a rich source of information for climate activists, who would use this information as leverage to “force them to adopt costly carbon reduction targets,” Keeley explains.
The SEC’s finalized climate disclosure rule represents the most significant regulatory blow to corporate freedom in the agency’s history. If it survives litigation or congressional intervention, many investors will suffer lower returns and higher prices for goods and services. The last thing investors need is costly climate disclosure junk disguised as corporate transparency.
Stone Washington is a research fellow at Institute of Competitive Enterprise.
This article was originally published by RealClearEnergy and syndicated via RealClearWire.
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