Many political actors suffer from what the Internet calls “main character syndrome.” These officials think they’re saving the world. In reality, they’re abusing their power, too consumed with the idea of being the heroes of the story to notice that they’re the villains.
Few things distract these types from doing their actual jobs like climate change. A spate of recently enacted corporate climate-disclosure rules illustrates the point. Had they come out of Congress, such rules (whatever their other flaws) would have at least started in the right place. Federal bills to impose such rules have indeed been introduced, but they have failed. That has not slowed the Securities and Exchange Commission or the State of California, however. The one is supposed to regulate the securities market, the other to govern itself. Yet each aspires to set climate policy for the whole country.
Securities laws aim to help profit-seeking investors determine what to buy and sell. Accordingly, public companies already must release climate-related information material to the company’s value. Issued last spring on a 3–2 party-line vote, the SEC’s climate-disclosure rule—Democratic Chair Gary Gensler’s signature measure—is something else altogether. It is “the culmination,” observed Commissioner Mark Uyeda in dissent, “of efforts by various interests to hijack . . . the federal securities laws for their climate-related goals.” In fact, it “elevates climate above nearly all other issues facing public companies.” Gensler has “bypass[ed] Congress,” pulled the SEC “outside of its lane,” and “set a precedent for using [the agency’s] disclosure regime as a means for driving social change.”
Under the rule, public companies must identify, assess, and report on climate-related risks that might affect their operations, strategy, business model, or financial condition. They must try to measure or predict the size of such risks. They must disclose how their board members and managers track and oversee such risks, and they must explain what they are doing to address these issues. They must set forth their own climate-related objectives, and their progress toward meeting them. Though the rule claims to maintain materiality thresholds, it generally doesn’t. The materiality of many required disclosures is taken for granted, and the dollar amounts set for others are pitifully small (for example, costs as low as $100,000). The expense of determining which climate-related risks are material, and thus need reporting, will be enormous.
The rule covers both physical risks, such as severe weather events, and “transition” risks, such as new green legislation or reduced demand for climate-unfriendly products. Companies’ discussion of such hazards will be riddled with speculation. Which severe weather events will increase due to climate change (and by how much, and where)? Which climate-related regulation, litigation, or shifts in consumer attitudes will in fact arise? In the words of dissenting commissioner Hester Peirce, firms will emit plumes of “climate disclosure spam,” much of it nothing more than “high-priced guesses about the present and future.” (Calculating the cost of complying with its rule, the SEC conjured up a low-ball estimate of $2.3 billion a year.)
Some companies will also have to measure and disclose the greenhouse-gas emissions from their own operations or from the energy they purchase. These are so-called Scope 1 and Scope 2 emissions, respectively. There are also Scope 3 emissions—those that arise from the activities of the company’s suppliers and customers. The SEC considered requiring disclosure of Scope 3 emissions but thought better of it—which brings us to California.
Enacted late last year, California’s SB 253 and SB 261 don’t even pretend to cater to investors: they govern both public and private companies. Their goal, as one of their authors freely admits, is to pressure firms “to significantly decrease . . . emissions.” They order disclosure of Scope 1, Scope 2, and Scope 3 emissions, and they reach all large firms that do any business, however minimal, in California. If a big meat packer sells pork to a handful of grocery stores in San Diego, it will need emissions data from the family farms that raise hogs for it in Iowa. Even Governor Gavin Newsom understands that the laws are alarmingly onerous. “I am concerned,” he wrote in a signing statement for each of them, “about the overall financial impact of this bill on businesses.”
Legal challenges have commenced. The SEC rule could be struck down under the major questions doctrine, which bars federal agencies from making significant policy decisions without clear permission from Congress. The California laws could run afoul of the dormant Commerce Clause, which, though recently narrowed, bars states from unduly burdening interstate commerce. And both the rule and the laws raise First Amendment concerns, in that they compel businesses to speak on a fraught political topic—the better to subject them to pressure campaigns and political discipline.
The climate movement puts its own desires above civic values. Respect for the rule of law is nothing, in its eyes, next to the grand cause of rescuing the planet. Hence the activists who block freeways—and the presidents who attack the separation of powers. “If Congress won’t act soon to protect future generations” by passing a cap-and-trade bill, President Obama announced in 2013, “I will.” When Congress didn’t bend to his command, Obama directed the Environmental Protection Agency to concoct an emissions-reduction plan on its own. The Supreme Court finally blocked that plan in a landmark major-questions ruling in 2022. By then, though, the Biden administration had declared its intent to “deploy the full capacity of its agencies to combat the climate crisis.” It unilaterally committed the country to achieving net-zero emissions by 2050. “We don’t need Congress,” the administration said. Heeding the administration’s call, Gensler pressed forward with the SEC’s climate-disclosure rule.
Those who think of themselves as main characters rarely tend to acknowledge limits or obligations. Actors and athletes intervene in politics or other fields well outside their expertise; students pronounce on foreign affairs; schools, governments, and companies fixate on social-justice fulminations. The SEC can’t stick to regulating securities, and California can’t concentrate on its own very real problems. Depressing, but true.
Photo: eric1513 / iStock / Getty Images Plus