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The Securities and Exchange Commission (SEC), which recently flexed its muscles to expand regulations over private equity firms, is at it again. Only this time, the stakes are far higher: its tedious 506-page proposal for mandated disclosures relating to climate change will expose every major corporation in the United States to unending administrative meddling.
As with the private equity proposal, the new SEC initiative provoked a detailed and powerful response from SEC Commissioner Hester Peirce, who disputed virtually every assertion made by the three-member Democratic majority, headed by SEC Chairman Gary Gensler. Gensler claims that the new rules will allow for greater consistency and comparability of the anti-global-warming efforts of different companies. Peirce responds instead that the SEC diktat will force each company to make so many ad hoc factual assumptions that the new findings will be indigestible by the very investors whom it is said to inform and protect. The Democratic majority claims that expanded climate disclosures are always material to prudent investors, citing in support of its position the general remarks of BlackRock CEO Larry Fink, who insists that the threat of global warming requires a “Fundamental Reshaping of Finance.” Peirce responds that the definition of materiality extends only to cover information that private parties use to make investment decisions, but does not cover matters of general public affairs as defined by the ESG—environmental, social, and governance—movement, which often subordinates firm welfare to advance highly intertwined matters of environmental protection and social responsibility. She further insists that these marginal explorations fall outside the statutory authority of the SEC, which contrasts with the Democratic majority’s view that this vast initiative lies at the core of the SEC’s statutory mission.
On balance, Commissioner Peirce has the best of these arguments. But, at this time, I shall go off into a different direction to see whether, wholly apart from these technical legal issues, the entire exercise is worth the candle. On this score, what is so disconcerting about the SEC’s new initiative is how little attention it pays to the central questions that should be preconditions for adopting the novel program in the first place. Here, I can deal with only three of these issues. The first is whether the SEC has demonstrated that global warming is such an existential threat that this bold initiative is warranted. The second is whether the proposed initiative can curb the supposed adverse effects of global warming. And the third is, assuming that the initiative could in the abstract curb such purported effects, whether the proposed institutional design achieves that outcome.