Playing Both Ends of the Field on Climate Risk

The regulatory apparatus at the Securities and Exchange Commission is running full tilt these days, with the agency pushing forward major rules in a number of areas, from retail stock trading to SPACs. But none of them are as ambitious — or as complex and costly — as its rule on climate disclosure. That 500-page proposal, which was published in March of this year, would require public companies to disclose large volumes of new data on their operations, management, and future plans, including the alleged market risk from future climate change. The Commission has strayed beyond its legitimate role and is not just warning investors about risk — it’s manufacturing it in service of climate policy.

When describing the so-called transition risks that companies might face from climate change, the Commission’s proposal repeatedly cites “changing consumer, investor, and employee behavior and choices,” and other similar formulations. The agency is suggesting that companies with large carbon footprints might find themselves abandoned by climate-conscious customers, investors, and even employees. Because of this hazard, the SEC expects firms to plan for and explain how they will be “financially impacted by a transition to a lower-carbon economy.”

This might seem reasonable at first: All kinds of changes can impact a firm’s future success, and it would be of interest to at least some investors to read about management’s strategies. But the SEC already expects companies to make disclosures about the market conditions and changes they find most likely to affect their bottom line. This new rule would change that and put the government’s thumb on the scale, essentially insisting that anything climate-related be given priority and importance, even if the companies themselves would not deem it to be financially material.

Read the full article on National Review.