The rule recently proposed by the Securities and Exchange Commission is so complex and far-reaching that it could reorient the entire US financial system into one that prioritizes climate change over financial soundness. The rule risks turning the SEC into a quasi-environmental agency in which climate “experts” have greater influence than financial regulators focused on preventing fraud and promoting fair incomes for workers and retirees.
The SEC describes the rule as necessary to meet investor demands for transparency about climate change risks. It sounds simple, but the size of this ruler is anything but. It is designed to withhold funding from the US oil and natural gas industry just at a time when increased production is needed to drive down prices at the pump.
The proposed climate change disclosure rule is so complex that it is 506 pages long with 1,068 footnotes. This would impose a cost of $10.235 billion on society, putting additional upward pressure on energy prices. Rather than providing clarity to investors, it would force companies to point out the unknowable and predict the impossible.
First, it requires companies to report their greenhouse gas emissions. This is difficult but possible to do when it comes to direct emissions from their operations, called scope 1 emissions. The Environmental Protection Agency already requires GHG reporting from companies.
But reporting GHG emissions becomes impossible when companies have to report indirect emissions from all their suppliers and every consumer who uses their products, known as Scope 2 and 3. Companies should obtain data on emissions from every manufacturer and service provider they use, to the amount of waste they throw away, the hotel stays of their employees and the mileage of their vehicles. Companies would be responsible for the emissions of consumers who benefit from their products. The amount of data needed to calculate all emissions would require legions of bean counters – if it is even possible to collect or estimate.
Second, the SEC rule requires companies to assess the physical risks to their operations in the event of natural disasters and sea level rise. There are thousands of climatologists who study weather events and run complex models to try to predict how global warming will affect natural disasters. Their projections are carefully framed with error ranges and uncertainties. The SEC expects the companies to try to sift through all the science and speculate on the risk to their coastal facilities or the effects of the drought on their food supplies. How does this guess really provide investors with useful information?
The rule also requires companies to assess the risk of “transition” related to climate change. In other words, the SEC assumes that America will move away from oil and natural gas. But Congress has never passed legislation requiring such a transition because climate change advocates have failed to convince the majority of people that the sacrifices needed to make it are wise or even realistic. In the continuing absence of an alternative that does everything oil and natural gas do, eliminating their use would deprive the public of reliable means to heat their homes, drive their cars, turn on lights and put on food on the table.
In reality, what is happening is that the Biden administration is using bureaucracy to advance an otherwise impossible agenda through the democratic process. The rule, in effect, forces companies to guess at what political risk they might face in the future from yet-to-be-passed climate change laws by yet-to-be-elected politicians. . Since pollsters can’t accurately guess what the November election results will be, how can the SEC ask companies to guess what their political risk is five, 10, or 30 years from now? The SEC’s rule is not to provide useful information to investors. It’s about running a climate change agenda without the consent of the people.
In reality, it is the activists who create the political risks to companies that the SEC now wants companies to disclose. By advocating unrealistic policies aimed at phasing out fossil fuels and increasing their regulatory burden, like this SEC rule, they are trying to render worthless the very assets they claim to be so worried about on behalf of investors. They are unlikely to have the best interests of investors in mind.
Basically, the SEC is a financial regulator who should make sure the market is run well so that it provides the goods and services America needs while delivering returns to anyone with a pension fund. , IRA or 401k. The SEC should not put forward a political agenda as an endgame around Congress.
Kathleen Sgamma is president of the Western Energy Alliance. Tim Stewart is the president of the US Oil and Gas Association.