What Are Opponents Saying About the SECs Push to Demand Climate Risk Disclosures?

The Securities and Exchange Commission (SEC) has proposed ESG rules that may compel public firms to disclose climate risks that may impact the environment. The rule proposal was accepting comments from interested parties up until this past week with a deadline of June 17th.

While everyone wants a clean and healthy environment – that is not the issue-  opposition to the proposed rules is staunch for multiple reasons.

First, the SEC is probably transgressing its statutory mission by pursuing environmental rules. In fact, one Commissioner lambasted the SEC as becoming the Securities and Environment Commission.

Second, the cost foisted upon public firms will be substantial and will certainly compel firms to avoid becoming reporting companies to begin with as they “vote with their feet” and avoid public markets due to the excessive cost of compliance. As publicly traded firms have been declining for years, this number will continue to diminish – most likely even faster of the rules go into effect.

Of course, new disclosure requirements will obviously lead to a new era of expensive lawsuits as ESG proponents pursue firms they deem are falling short in what most certainly will become subjective requirements difficult to measure at best.

So who and what are some of the opponents saying about the SEC’s pursuit of climate rules? Below is a selection of comments submitted by individuals or groups standing against the SEC’s privateering.

David Burton, Senior Fellow, Economic Policy at the Heritage Foundation, commented:

Climate Change Disclosure Requirements Would Have No Meaningful Impact on the Climate. The information elicited by the rule, especially scope 3 reporting, will be extraordinarily unreliable and built on a speculative house of cards that would raise fraud issues in any other context. It strains credibility to believe that including this unreliable, immaterial information in financial statement footnotes and other disclosure documents is going to have a significant impact on the climate. The only way that this disclosure will have even the slightest impact is if the disclosure is weaponized by a highly politicized SEC that launches enforcement action after enforcement action against disfavored industries seeking billions of dollars in fines (nominally for disclosure violations) in an effort to drive them from conventional fuel use.”

Andrew Vollmer, Senior Affiliated Scholar at the Mercatus Center at George Mason University (who submitted two comment letters), stated:

“Adopting the Proposal would not be in the best interests of the United States. It would determine significant national environmental policies without direction from Congress, creating a high risk of proving to be a futile gesture because of the likelihood that a court will overturn final rules. It would damage the role of the SEC as a securities regulator. It would interfere with domestic and international energy policy. It would impose massive new costs on business without gaining offsetting benefits. It would impose detailed prescriptions for running a company and execute a further invasion into state corporate law and the business judgment of corporate managers. It would rest on a disclosure process that is not workable. It would foment meritless private securities litigation. The Proposal is deeply unwise. No matter how fervently a commissioner personally believes in the need to take action against the effects of climate change, he or she should put duties to the nation and the proper functioning of the system of government first. Personal liberty interests deserve greater weight. The SEC should end the rulemaking with no further action.”

Americans for Tax Reform, a nonprofit, taxpayer advocacy organization that opposes tax increases and supports limited government regulation, submitted this statement:

“Blanket disclosure requirements will entrench market power with larger companies while smaller companies without the resources to comply with the new disclosure and reporting requirements will struggle to maintain solvency. The Proposal’s onerous intervention will exacerbate anticompetitive behavior, thus reducing options and quality of services for consumers. Instead of drafting this in the “public interest” or for [the] “protection of investors” the cost of the Proposal’s provisions would, if adopted, produce a capital markets sector that is costly, reduces returns for investors, and limits investment options and services for consumers. Instead of focusing on investors’ pecuniary interest, public companies would be regulated to focus less on returns and more on criteria that promotes a political or social agenda at the behest of special interest groups and activists. Free market enterprise would be slowly chipped away because the SEC’s prerogative is to inculcate a larger focus on ancillary environmental, social, and governance (ESG) factors.”

Brett Palmer, President of the Small Business Investor Alliance, declared:

“… the Proposal represents a far-reaching and unprecedented effort by the SEC to expand reporting obligations regarding the effects of climate change on businesses’ operations. While the Proposal is ostensibly intended to apply to public companies, it would have significant downstream consequences for private businesses that are either customers of public companies or part of a supply chain and would have to provide issuers with granular emissions data. The Proposal would also inappropriately apply to BDCs given the nature of these businesses as a managed portfolio of investments with statutorily required diversification, significantly increasing compliance costs and inhibiting the ability of BDCs to deploy capital to middle market businesses. The SEC has failed to consider many of these indirect consequences of the rule and how private businesses in particular will be impacted. Accordingly, we urge the SEC to delay any consideration of a final rule until it has properly considered and assessed how the Proposal will affect small business capital formation, job creation, and economic growth. A careful approach is even more important given this precarious and increasingly fragile period for the American economy, and at a time when small business confidence is reaching lows not seen since the onset of the pandemic in 2020.”

Christopher A. Iacovella, Chief Executive Officer at the American Securities Association, shared:

“This will result in thousands of privately owned businesses, including small businesses that have limited resources, having to comply with an enormously costly Commission mandate. However, the Proposed Rule and accompanying economic analysis make little mention of these costs and how they would affect businesses that the Commission has no authority to regulate. This is a fatal flaw of the Proposed Rule, and again, it highlights how the Commission has overstepped its authority.”

J.W. Verret, Associate Professor, George Mason University Antonin Scalia Law School & former member, of the SEC Investor Advisory Committee, slammed the SEC’s politicization of their mandate.

“… the Commission notes its assumption that future laws will be adopted to restrict GHG emissions and transition the economy toward carbonless energy.62 This assumption underlies much of the proposal, particularly its transition reporting requirements. This would be the first time in the Commission’s history that it would require disclosures about hypothetical and contentious laws not yet adopted. The proposal requires registrants to presume that these hypothetical laws will be adopted in the future, then require registrants to provide a disclosure which will undoubtedly provide a highly contested political perspective of one party. It’s hard not to describe this aspect of the proposal as anything less than a politicization of the securities disclosure system. That description is not hyperbole, but rather straightforward in light of the proposal’s requirements like those contained on page 104 of the proposal.”

All of the submitted comments are available here. The above is just a very small selection of perspectives from opponents of the SEC’s push into environmental impact disclosure. Many opinions have been contributed as form letters but hundreds of letters have been contributed by individuals and interested associations and other groups both in support and opposition.

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