Responses to the SEC’s Disclosure Rule Announcement

Ballotpedia cites Research Fellow Richard Morrison on how the Securities and Exchange Commission (SEC) has proposed new climate rules:

Richard Morrison, a research fellow at the Competitive Enterprise Institute, a Washington, D.C. free-market think-tank, penned a piece for National Review Online’s “Capital Matters” in which he spelled out some of the likely consequences of the SEC’s new proposed rule. He wrote:

“The SEC’s proposal would be difficult, on any reasonable interpretation, to square with the exercise of its normal authority over financial markets, and is yet another troubling example of regulatory mission creep. It is also a disappointing and alarming development for those who care about property rights and a competitive, growing economy….

The SEC has always required firms to disclose financially material information about their structure, operations, and plans for the future. Something doesn’t — and shouldn’t have to — fall into a topic-specific bucket such as climate to be worthy of such attention. The SEC has traditionally used a “principles-based” approach to materiality, under which a company’s management draws attention to the risks and opportunities that it considers most important to that particular company. This allows for, as the SEC’s Walter Hinman described in a 2019 speech, a disclosure regime that “keeps pace with emerging issues . . . without the need for the Commission to continuously add to or update the underlying disclosure rules as new issues arise.” The new proposals foolishly go in the opposite direction.

Similarly, the concept of materiality itself gets a problematic twist. By introducing specific, prescriptive requirements rather than ones based on general financial principles, the agency is trying to put its thumb on the scale and suggest that anything climate-related should be considered presumptively material. This is not an honest attempt to protect investors; it is climate activism in finance-regulation drag. The goal is to force firms to disclose information about greenhouse gases and carbon intensity on the assumption that future investors will penalize them because of it. The one silver lining in this case is that investors — if they are left to make up their own minds — are unlikely to consider “climate exposure” nearly as much of a poison pill as the climate campaigners are hoping….

Much of the specialized reporting and audit assurance called for would need to be outsourced to consultants, accountants, and law firms with climate-focused practices. The world of ESG business services is already salivating over such increased demand stemming from this and similar initiatives. Big Four accounting powerhouse PwC announced last year that it was planning to hire 100,000 new staff to deal with climate and diversity issues over the next five years alone. Additionally, the proposed rule acknowledges that the change may result in heightened litigation risk and the revelation of trade secrets.”

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