SEC Unbound: Yet More Regulatory Creep

If the SEC has decided that it can regulate anything under the sun, what is to stop every other federal department or commission from realizing an equivalent opportunity to expand its authority?

Federal agencies like the Securities and Exchange Commission (SEC) have long varied in their focus and priorities, depending on their current leadership and the ideological composition of their members. In the Biden era, however, we may be seeing the dawn of a new age in the federal regulatory apparatus: one in which regulatory agencies, originally created and given their responsibilities by Congress, will begin implementing policies that are directly opposed to their statutory missions.

The SEC, as its website will inform you, has a multipart mission. It exists “to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.” That mission has guided the commission since the 1930s, when it was founded in the aftermath of the market meltdown that had ushered in the Great Depression. While not without controversy, the creation of a new finance regulator was meant to do something specific: protect investors and allow markets to work. In the new age of environment, social, and governance (ESG) theory, those goals might come to rank second — if they are considered at all.

During a speech at the Center for American Progress last week, SEC acting chair Allison Herren Lee said that “human capital, human rights, and climate change” are “fundamental to our markets,” and that the demand for information about those topics “is not being met by the current voluntary framework.” She assured her audience that “our efforts at the SEC should and will stay firmly rooted in our mission,” but that statement was not at all consistent with the rest of her remarks.

Lee clearly has plans that exceed the agency’s traditional parameters, announcing that “the perceived barrier between social value and market value is breaking down.” The COVID-19 pandemic, racial-justice protests, and climate change all became linked in the last year, as “the issues dominating our national conversation were the same as those dominating decision-making in the boardroom.”

And lest anyone think this is a technocratic verdict that will affect only nerdy readers of corporate 10-K statements, MarketWatch also summarized the acting chair’s remarks on further mission creep, warning that her proposed disclosure rules would require further disclosure of political spending as well.

Commissioner Lee clearly believes that an SEC-mandated “comprehensive ESG disclosure framework” is consistent with the agency’s long-term mission. But even if we agreed with her, the people most highly motivated to advance ESG-style priorities will not be bound by any such constraints. Climate change, for example, is by far the single highest-profile issue in the ESG basket, and the climate activists’ long-term playbook — which will be strengthened and advanced by additional disclosure mandates and political-spending restrictions — is a direct threat to the SEC’s true mission.

Read the full article at National Review.