Skeptical members of Congress have begun weighing in on the Securities and Exchange Commission’s (SEC) recent climate disclosure proposal, and their objections are significant. Earlier this week, letters went out from Republicans in the House and Senate urging the SEC to table or withdraw the new rule, which the agency initially released on March 21. The deadline for the public to submit comments on the proposed rule, “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” is May 20, 2022.
The letters from House and Senate members cover similar territory, and include the following objections:
- The SEC does not have statutory authority to issue this rule.
- The rule would violate First Amendment protections again compelled speech.
- Existing SEC regulation and guidance already cover relevant risk disclosures, including climate-related risks.
- The rule would change the definition of “materiality” for the worse.
- The proposed rule is a backdoor attempt at substantive climate legislation.
- The SEC does not have the technical expertise to evaluate the required submissions.
- The rule will be extremely costly to firms and shareholders.
- Small companies, not normally subject to SEC requirements, will be swept up under this rule.
- This is the worst possible time for such a regulation, given inflation, high energy prices, and concerns about long-term economic growth.
Both letters closed with the reminder that setting U.S. policy on energy use and climate change is a job for Congress, not a finance agency like the SEC. This is an especially important point, because some advocates of this proposal have framed it as a necessity in the absence of new congressional legislation on the topic. But Congress declining to legislate in this area is not an oversight; it is a conscious policy decision. Our nation’s lawmakers have decided that new laws in this area—and new powers for the SEC—are not needed and should not be approved. Members of Congress did not “forget” to authorize this approach; they made an affirmative decision not to do so.
The House members in particular emphasized how the SEC is attempting to reinvent go-nowhere legislative proposals into binding federal policy, writing: “This Administration must end its assault on American businesses and the rule of law in the name of an immediate and expensive transition to a ‘Green New Deal’ agenda.” Everyone in Washington, D.C. knows that proposals like Rep. Alexandria Ocasio-Cortez’s (D-NY) Green New Deal are dead on arrival in Congress because they’re too radical and too costly to ever be passed, even with both houses controlled by Democrats. Thus, the next best way forward for proponents is to have individual regulatory agencies advance the same goals by less democratically accountable means.
Individual members of Congress are moving even further along with legislation that would stop the SEC from promulgating this proposal. As I wrote about earlier this week, Rep. Beth Van Duyne (R-TX) and a dozen co-sponsors recently introduced the Stopping Excessive Climate Reporting Act (H.R.7355), which would stop the SEC from requiring climate change and greenhouse gas disclosures, but leave companies free to share whatever such information they believed was material to shareholders and potential investors.
This increasing skepticism in Congress of environment, social, and governance (ESG) investing dovetails perfectly with policies that governors and legislators are advancing at the state level. As I recently wrote in National Review, officials in Florida, Texas, West Virginia, and other states are pushing back on politicized investing, in particular the intentional sabotaging of the hydrocarbon energy sector. The American Legislative Exchange Council has also released model legislation that would protect the pensions of state employees from similar politicized mismanagement.
The Competitive Enterprise Institute’s opposition to these kinds of policies goes back many years, and includes criticism of the Obama administration’s “Operation Choke Point” starting in 2014 and our push-back on the (pre-ESG) agenda of “corporate social responsibility” starting in 2005.