On March 21, the Securities and Exchange Commission (by a 3-1 vote) told public companies they must disclose the risks that climate change may have on their financial future.
In its press release, the SEC said the requirement “would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.” But that is just the beginning.
The risks include both weather-related risks and financial risks coming from trying to reduce weather-related risks. And it requires disclosure not just of the immediate impacts (such as carbon dioxide emissions) but also “downstream” effects—so General Motors has to include the risks of carbon emissions from the cars it makes.
The reaction of the The Wall Street Journal editorial board was scornful: “The main intent of the rule is to make it easier for left-leaning asset managers like BlackRock, public pension funds and trial lawyers to bully companies.” (BlackRock, one of the largest asset management firms in the world, has been pushing to add ESG [environmental, social, and governance] reporting, moving beyond financial risk per se.)
The Wall Street Journal explained:
“The SEC claims to have ‘broad authority to promulgate disclosure requirements that are “necessary or appropriate in the public interest or for the protection of investors.’” But neither securities law nor the Constitution lets the SEC mandate whatever public disclosures some investors or politicians want.
“In 2015 the D.C. Circuit Court of Appeals ruled that an SEC disclosure mandate for so-called conflict minerals violated the First Amendment because it compelled speech. Government can require companies to disclose information to prevent fraud or protect public health, but how does requiring companies to report greenhouse-gas emissions do either?
“As a fall-back argument, the SEC claims climate disclosures ‘will promote efficiency, competition, and capital formation.’ They will do the opposite. They will saddle companies with new costs, discourage private firms from going public, and encourage some public firms to go private.”
Image by keralt on Pixabay.