Earlier this month, the Securities and Exchange Commission (SEC) enacted new climate disclosure rules for public companies. This represents part of a broader political agenda at the SEC that aims to enact new rules that align with ESG or Environmental, Social, and Governance activist policies. The climate disclosure rules have been slammed by certain policymakers as overreach by the Commission with some mocking the agency as becoming the Securities and Environment Commission.
This past week, as was largely anticipated, legal challenges emerged to the rules that stretch the authority of the Commission.
The 5th Circuit Court of Appeals halted the SEC’s climate disclosure rules, blocking them from going into effect—something that would have occurred 60 days after they were published in the Federal Register.
The US Chamber of Commerce filed a separate lawsuit, along with co-plaintiffs, challenging the SEC’s decision stating the burdensome disclosure “seriously erodes the reasonable investor standard of materiality and micromanages how companies make key determinations about materiality.”
Two SEC Commissioners voted against the rules. Commissioner Mark Uyeda said, “The Commission is a securities regulator without statutory authority or expertise to address political and social issues.”
Commissioner Hester Peirce described the rules as fundamentally flawed.
“Congress did not create this agency to satisfy the wants of every investor, but to serve the interests of the objectively reasonable investor seeking a return on her capital,” explained Commissioner Peirce.
Congressman Patrick McHenry, Chairman of the House Financial Services Committee, said they will be holding a hearing to review the impact of the climate rules and the “gross regulatory overreach.”
Congressman Tom Emmer, the House majority whip, stated that the SEC has “no business attempting to dictate climate policy; that’s Congress’ job.”
While everyone desires a clean environment, the SEC was not created to dictate climate policy. The new rules will saddle public firms with unknown annual fees, engender a new industry of consultants to greenwash operations, and inevitably spill over into private firms as they are pressured to derive data to support customers who are public firms. The loser in all of this is the investor and consumer, as firms will be compelled to increase prices or diminish earnings while pushing private firms away from public markets. While the market already allows individuals to invest in firms that tout their green cred, not all investors want this type of information, as most are more interested in the financial performance of the company.
The SEC, under the guidance of Chairman Gensler, has been described as the most political Commission in memory. The activist approach by the Chair has even riled certain Democrats who believe his activities have gone too far.
