The SEC’s Climate-Disclosure Rule Goes against 90 Years of Restraint

The final rule will likely expose the SEC to a torrent of legal challenges.

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The Securities and Exchange Commission (SEC) is finalizing a mandatory climate-disclosure rule for public companies — perhaps the costliest regulatory mandate in its entire 90-year history. In fact, the rule represents the first SEC-inspired disclosure that compels secondary information beyond a company’s present and prospective financial performance. 

Beforehand, disclosures were inspired by materially relevant information from the perspective of the company’s board and managers. Today’s climate-disclosure rule deviates from this tradition by compelling largely theoretical information on climate risks from an outside stakeholder’s perspective.

After repeated setbacks, the SEC aims to finalize its rule this spring, and the Office of Management and Budget has reserved space in the Federal Register for an April release date. The Commission will officially vote on whether to finalize the rule by next week.

There are major problems with the proposed rule.

Public companies and their private suppliers face significant financial costs if the rule is enacted. The SEC estimates a 250 percent increase for disclosure costs from the climate rule alone, raising the annual amount to $10.2 billion. 

The average per-firm costs for producing climate disclosures amount to $864,864 across the 7,400 reporting companies, in addition to compliance costs for private entities (which would not otherwise be subject to the SEC’s control) across a firm’s value chain. As a result, private firms would be under immense pressure to provide the registrant with accurate data on their emissions for inclusion with the actual disclosure. 

Read the full article on National Review.