The SEC’s Attempt to Take Power: A Strong Disagreement
By Richard W. Fulmer – March 25, 2022
“I offer a modest counter-proposal: Require all regulatory agencies to provide Scope 1, 2, and 3 disclosures for their day-to-day operations and for all proposed regulatory changes and to make those disclosures public.“
On March 21 of this year, Securities and Exchange Commission (SECOND) published Press Release notification:
proposed rule changes require registrants to include certain climate-related disclosures registration statement and periodic reports, including information on climate-related risks that have the potential to materially affect our business, results of operations or financial position, and financial reporting metrics related to climate in the notes to their audited financial statements.
Required information will include Range 1, 2and 3 emissions disclosures, (respectively) including greenhouse gas (GHG) emissions; emissions from the company’s energy supplier(s); and emissions by the company’s suppliers, employees and customers.
As Chairman of the SEC Gary Gensler explained in one his Time in works short video, the goal of which is to enable investors to consider the environmental responsibility claims of companies and market funds.
SEC Rejection of Peirce Free Market
In her react notice, Commissioner SEC Hester M. Peirce raised objections to the proposal, citing its lack of:
- A credible rationale for such a regulatory framework when our existing disclosure requirements capture the serious risks associated with climate change;
- ONE material restriction;
- A compelling explanation of how the proposal will produce comparable, consistent, and reliable disclosures;
- An adequate legal basis for the proposal;
- A reasonable estimate of the cost to the company; and
- Honest calculation of the consequences for investors, the economy, and the agency.
Here are the highlights of Pierce’s statement (emphasis added):
“It is proposed to make the information disclosure mode to the top. The SEC’s current disclosure mandates are intended to provide investors with an accurate picture of a company’s current and future performance through the eyes of regulators themselves.… In contrast, the shows company managers how managers conduct the bidding of a wide range of stakeholders other than investors. , expect them to run their own company. It identifies a set of risks and opportunities—some of which may be practical, others clearly theoretical—that managers should consider. and even suggest specific ways to reduce those risks. It forces investors to see the company through the eyes of a group of stakeholders, whose environmental reputation is of equal or greater importance than the company’s financial performance.… ”
“[The proposal] establish a disclosure framework that is, in large part, based on Task Force on Climate-Related Financial Disclosure (“TCFD”) Framework and Protocol on Greenhouse Gases. It requires disclosure of: climate-related risks; climate-related impacts on strategy, business model and outlook; oversight of the board and management on climate-related issues; processes for identifying, assessing and managing climate risks; transformation plan; climate-related financial reporting figures; greenhouse gas emissions (“GHG”); and climate goals and objectives. ”
“Under the proposal, a company, unless it is a smaller reporting company, would be required to disclose Scope 3 emissions, but only if the company sets an emissions reduction target that includes Scope 3 or if those emissions are physical. The materiality limit is not particularly useful because the Commission proposes that such emissions are generally”
“The proposal not only requires information about the company making the disclosure; it also directs companies to speculate about the habits of their suppliers, customers and employees; changing climate policies, regulations and laws; technological innovation and adaptation; and changing weather patterns. ”
“Another area where the proposal would require disclosure of information that would appear useful but would likely be completely unreliable concerns the physical risks associated with climate change. Establishing a causal link between physical phenomena occurring at a particular time and place and climate change is, at best, an extremely difficult task. Physical risk disclosure would require companies to select a climate model and adapt it to assess the impact of climate change on specific physical locations of their operations. them, as well as for the locations of their suppliers and customers. This work is huge. It will entail superimposing speculation on assumptions. It will require reliance on third parties and a range of experts, who will use their own assumptions, speculations and models. How can the results of such an exercise be reliable, let alone be comparable across companies, or even be consistent over time within the same company? “
“Required disclosure of so-called conversion risk – [that is, negative impacts to the business from] ‘regulatory, technological and market changes to address mitigating, or adapting to, climate-related risks…’ Transition risks can stem from potential changes in the market, technology, law or more silly “policy”, which companies will have for analysis across many jurisdictions and all over the “Value Chain. “These transformational assessments are rooted in prophecies about upcoming government and market action, but experience teaches us that such prophecies often fail to come true. Markets and technology are inherently unpredictable. Domestic legislative efforts in this context have failed for decades, and international agreements, such as the Paris Agreement, have seen the United States in and out. Thus, how might this proposal elicit comparable, consistent, and reliable disclosure on these topics? “
“It’s important to remember…that lofty intentions, once embedded in complex management plans, often have unacceptable results. This risk increases dramatically when regulatory complexity is designed to promote politically and socially beneficial capital allocation, and when The managers who designed the framework had no expertise in capital allocation, political and social insights, or the science used to justify these favored ends. This proposal, developed under these circumstances, would hurt investors, the economy, and the agency.
“Investors will not be the only ones experiencing a shift in attention from financial goals to climate. The entire economy, and all the consumers and producers it sustains, could also be hurt. First, This proposal could backfire on important concerns about climate change. Trying to drive long-term capital to the right companies has been foolish in the past because we simply didn’t know what effective climate solutions would emerge or from. Markets, if we let them work, are very adept at solving problems of all kinds, even big ones like climate change, but they do so in incremental and rewarding ways. Surprise is motivated by a combination of chance, opportunity, necessity, and human ingenuity. “
“[D]Raising more capital for green investments under the unified definition of financial regulators could spur an asset bubble that could leave the financial system vulnerable rather than resilient. better “.
Conclusion
The following objections may be added by Commissioner Pierce:
- According to the SEC announcement, the comment period will be limited to “30 days after publication in the Federal Register, or 60 days after publication and publication on sec.gov, depending on the time period.” Which is longer?” That is a very short amount of time for interested parties to assess the far-reaching impact of the requirements listed in the 534-page document.
- Breeding according to regulations (e.g. “push more capital into green investments under the uniform definition of financial regulators”) could lead to regulatory signs (e.g. asset bubbles). An important component of risk management is diversity. Requires all companies in a country to identify and respond to risks consistently that could lead to disaster.
- The new SEC requirements will likely have a carbon emissions. Tens of thousands of workers with thousands of companies across the country will use scarce resources and energy to provide, review, and verify this information every year.
- The opportunity cost of redirecting scarce resources to provide these reports and avoiding the increase richness Will that allow us to better adapt to climate change?
I offer a modest counter-proposal: Requires all regulators to provide Scope 1, 2, and 3 disclosures for their day-to-day operations and for all proposed regulatory changes and to make those disclosures public.
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