The Securities and Exchange Commission (SEC) has become the latest federal agency under the Biden administration to step outside its legal mandate to impose ideological climate regulations on Americans.
Established by an act of Congress during the Great Depression to combat securities fraud and restore public trust in the stock market, the SEC is now proposing to mandate that all publicly traded companies in the United States report their compliance with international climate change criteria. This initiative has sparked protests from Republican senators and Democratic Sen. Joe Manchin. West Virginia Attorney General Patrick Morrisey has gone a step further, threatening legal action for the “unconstitutional politicization of the Securities and Exchange Commission.”
In a March 25 letter to the SEC, Morrisey stated that the SEC must “stick to its core mission of requiring statements on matters that are material to future financial performance – not statements on issues that drive a political agenda.” A climate reporting mandate, he argued, would amount to a “federal regulation compelling speech in violation of the First Amendment” and would “compel costly and unjustified collection and disclosure of information solely to satisfy activists.”
SEC Chairman Gary Gensler stated that a federal mandate was justified by the fact that “investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risk can pose significant financial risk to companies.” The investors pushing for ESG (environmental, social, and governance) compliance include asset managers BlackRock and State Street, which together have more than $14 trillion in assets under management, as well as the largest state pension funds, such as CalPRS, CalSTRS, and the New York State Common Retirement Fund, all of which are working to impose a progressive agenda on corporations.
The SEC mandate, currently in the proposal stage but likely to be enacted in May, will require that any listed company report all climate risks and greenhouse gas emissions, along with its climate solution policies, not only for itself but for “upstream and downstream activities in its value chain”—in other words, suppliers and customers. The SEC noted that a number of private ESG rating companies already provide information to investors, but argued that climate reporting should be centralized in a government agency because “these multiple voluntary frameworks failed to produce the consistent, comparable, and reliable information that investors need.”
Senate Banking Committee Chair Sherrod Brown, D-Ohio, said the SEC mandate was “a step forward and would establish for the first time consistent data frameworks, balancing the need to accurately evaluate market risks while ensuring small businesses aren’t overburdened.”
But according to Sen. Pat Toomey, a Pennsylvania Republican on the Senate Banking Committee, “forcing publicly-traded companies to gather and report global warming data—almost none of which is material to the business’s finances—extends far beyond the SEC’s mission and expertise.”
In an April 4 letter to the SEC, Manchin protested the mandate, stating that “the most concerning piece of the proposed rule is what appears to be the targeting of our nation’s fossil fuel companies.” Manchin made headlines in March when he harshly criticized another agency that had overstepped its mandate in an attempt to hold up development of natural gas pipelines, telling Federal Energy Regulatory Commission Chairman Richard Glick that he had gone “way outside his wheelhouse” and should “just do your damn job.” Glick subsequently announced a “course correction” that allowed the pipeline projects to move forward.
“This is another signal to the private sector to stay away from fossil fuels or we are going to make your life very difficult,” said Daniel Turner, executive director of Power the Future, a pro-energy organization. “It’s just a terrible precedent of using government to punish industries or ideas you don’t like, and the Biden Administration has decided they don’t like fossil fuels.”
Critics of the mandate point out that complying with the order will be difficult and expensive, particularly for smaller companies that may struggle to pay for assessments and audits, not only of their own operations, but of their supply chains as well. How companies that source their products from numerous suppliers in foreign countries will be able to comply with this mandate is unclear. An iPhone, for example, is designed in the U.S. but assembled in countries including China, Taiwan, Thailand, and Vietnam, with component materials mined in Africa and South America.
A report by legal analysts at Skadden, a law firm, states that the “extensive” new disclosure requirements “would require companies to provide climate-related information in a separately captioned section of annual reports and registration statements, based on a detailed list of specific disclosure items,” and in some cases “obtain independent third-party [audits] of their [greenhouse gas] emissions.” This mandate, Skadden notes, is “expected to face legal challenges.”
Another concern is that the new SEC rule will produce expensive volumes of data that will rarely be useful to investors but will provide corporate data to activists and help them to pressure companies into compliance with social credit criteria. Changing the SEC’s mission to include political causes “would allow it to compel collection and disclosure of information to help some customers and investors advance prejudice and animus toward groups and activities they disfavor,” Morrisey said.
The mandate could also favor large corporations, which can more easily absorb the expense of complying, against smaller companies that cannot afford to do so. According to a report by MSCI, a financial research company, only 28 percent of the companies they analyzed currently report climate change data in line with the proposed SEC requirements regarding their own operations, and only 15 percent reported regarding their suppliers and customers.
“To suggest that any and all public companies have the resources and capabilities to capture this data is shortsighted,” Manchin said in his statement. “Forcing this rule on companies has the potential to not only impose undue financial hardships, but also to erode public trust, especially if less-resourced companies are unable to accurately report this data.”
The SEC’s new rules were designed to align U.S. regulations with those of other countries and were modeled on criteria spelled out by the Task Force on Climate-Related Financial Disclosures, an international organization chaired by billionaire Michael Bloomberg. The SEC also cited the influence of the U.N. Principles for Responsible Investment, the Global Investors Statement to Governments on Climate Change, the Net Zero Asset Managers Initiative, Climate Action 100+, and the Glasgow Financial Alliance for Net Zero. These organizations are global coalitions of large financial firms and wealthy individuals that collaborate with government regulators to enforce ESG standards on companies around the world.
Critics charge that such rule making by federal agencies, developed in conjunction with international clubs and never put to a vote in Congress, denies Americans their constitutional right to make laws through their elected representatives, instead handing power over to an unelected global elite. Toomey deemed it a “thinly-veiled effort to have unelected financial regulators set climate and energy policy for America.”
According to Turner, the SEC’s climate initiative is just another example of the Biden Administration’s disregard for the rule of law as he manipulates federal agencies into executing a progressive agenda far beyond what Congress authorized them to do. “If the executive branch thumbs their nose at the judiciary and at Congress,” Turner said, “then there is no check and balance, then there’s just the power of the president.”
Kevin Stocklin is a writer, film director, and founder of Second Act Films, an independent production house specializing in educational media and feature films. Previously, he worked in international banking for more than a decade.
This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.