The U.S. Securities and Exchange Commission (SEC) has proposed a new climate-reporting rule that has received criticism due to its legality and the cost of its implementation.
A Freedom of Information Act (FOIA) request submitted by the Functional Government Initiative (FGI) to review documents about the mandate was quickly denied, earning accusations of hypocrisy by an agency that mandates transparency by companies but refused to release documentation about the rule.
"Companies and investors alike would benefit from the clear rules of the road," SEC Chairman Gary Gensler said in a release on the agency's website, adding that the SEC has earned broad support for uniform climate reporting measures.
Reuters reported on March 21 that proposed legislation would require American companies to report Scope 1 and Scope 2 emissions, which are any direct or indirect greenhouse gas emissions. It also requires reporting for Scope 3, which are greenhouse gases generated by suppliers and partners. The rules would also require businesses to report on the "actual or likely material impacts" of climate change on their business, which critics say the SEC doesn’t have the authority to demand.
Sen. Pat Toomey (R-Penn.), the Senate Banking Committee's top Republican, spoke against the proposed rule, saying it "extends far beyond the SEC's mission," according to Reuters.
Arizona Attorney General Mark Brnovich wrote in an op-ed in the Wall Street Journal on March 6 that "the biggest antitrust violation in history may be in plain sight," explaining that Wall Street banks and money managers were practicing a coordinated effort to stop investments in traditional energy sources like oil and gas. Brnovich also said his office would open an investigation into the“potentially unlawful market manipulation,” claiming it was his responsibility to “protect consumers from artificial restrictions on production.”
Morningstar found that $71 billion went into environmental, social, and governance-related funds in 2021, Reuters reported.
“The Supreme Court has been clear that any required disclosures under securities laws must meet the test of materiality, and we will advocate against provisions of this proposal that deviate from that standard,” Tom Quaadman, executive vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said on the chamber's website.
The Functional Government Initiative made a FOIA request to the SEC to review documents associated with the proposed reporting rule but was refused in a day, arousing immediate criticism.
“I’ve never heard of a federal agency working so fast to ‘carefully consider’ a request only to issue a blanket denial within a day,” Peter McGinnis, spokesman for FGI, said. “Perhaps I should be less surprised by the agency’s hypocritical approach inherent in mandating climate disclosures for the private sector but dismissing requests for disclosure of its own public records. It does make one wonder what the agency is so concerned we will find that they’ve decided to play hide and seek with these records. In the middle of an energy crisis and record inflation, which special interests were so influential as to force out such an expansive and costly rule? We intend to find out.”
Glenn Hegar, Texas comptroller of public accounts, on March 16 wrote to nearly 20 companies to inform them that they may have violated the state's Oil & Gas Protection Act, the Austin Journal reported. Hegar asked the companies to clarify their fossil fuel investment policies and present a list of portfolio funds that prevent or restrict investment in fossil fuels.
The resistance isn’t confined to Texas and Arizona. Jay Clayton and Patrick McHenry co-wrote an editorial in the Wall Street Journal in which they argued that the SEC was overstepping its boundaries and that Congress “is offloading decision-making to the federal agency that should be retained by the elected body.”
“Taking a new, activist approach to climate policy — an area far outside the SEC’s authority, jurisdiction, and expertise — will deservedly draw legal challenges,” they wrote. “What’s worse, it puts our time-tested approach to capital allocation, as well as the agency’s independence and credibility, at risk.”
Clayton served as chairman of the SEC from 2017 to 2020. McHenry (R-N.C.) is a ranking member of the House Financial Services Committee.