Today the SEC adopted sweeping disclosure requirements by which public companies over the next few years will compel detailed recitation of two kinds of climate information: what the company emits directly and indirectly, and what risk it fears from climate change.  The details are, well, very detailed and will be parsed minutely in numerous publications;  even this afternoon I see separate statements from the five SEC Commissioners putting different spins on this new rulemaking, and third party commentary reflecting different evaluations.

If you are not part of a public company, and not yet in receipt of disclosures as an investor as that stage is a year and more away, what are the present key take-aways aside from the fact that you will be deluged with both boilerplate (“we strive to reduce emissions” and ” hurricanes ruin our facilities in Florida and reduce the need for some of our products but then again we will sell more sandbags”) and inscrutable technical detail?

As starters, what kinds of emissions are to be analyzed?  You will hear about Scope 1 emissions (what is emitted from fuels and materials consumed within the company premises), and Scope 2 emissions (what is emitted by utilities supplying the company with electricity, heat, cooling, steam, etc.  You may miss the fact that removed from the new Rule is a requirement to disclose Scope 3 emissions, a requirement in the 2022 original proposal that  included reflection of some of the emissions created by a company’s suppliers.  No doubt that task would be very expensive and time-consuming and inaccurate, but the new Rule will favor offloading by manufacturers of emissions  to producers of components they acquire for assembly, thus hiding the real ultimate climatic impact of a given machine, automobile, detergent or any other product.

What is apparent also is the manner in which the political battlefield upon which SEC rulemaking, ostensibly designed to educate investors who are either concerned with the environment or concerned with an accurate financial evaluation of a security, reflects the growing philosophical divide between the Left and Right in this country.  No surprise that the new Rule was adopted by vote of all three Democratic SEC Commissioners over dissent from the two Republicans. Aside from favoring less regulation of business, the Republican position is also premised in the contention that the SEC does not have the legal right to in effect legislate climate policy and social policy.  Although the Rule is framed as disclosure useful to investors, and it will no doubt fulfill that function, the pressure of the marketplace will also no doubt alter the behavior of public companies which will fall under general social scrutiny.

This is part and parcel of the Right’s fight against the administrative state, which many Republicans vow to disembowel.  This is the argument against much of what the SEC decrees in the name of disclosure, and is also an argument advanced against many regulatory initiatives undertaken by other Federal agencies, particularly under Democratic administrations which tend to be more activist in promulgating affirmative regulation.  Among numerous examples, take a look at the recent case brought against the government’s sweeping reporting requirement contained in the Corporate Transparency Act which, in the name of uncovering illegal activity, requires most American businesses to disclose to the government their ultimate owners; one Federal court case just did declare the CTA legislation unconstitutional, setting off a firestorm of reaction in policy forums, courts and within the Federal government itself.

SEC Chair Gensler, a most activist sort of regulator,  has pushed through very many programs favored by the Left; same can be said for other agencies, particularly the FTC and DOJ in antitrust regulation (for which see several prior posts to this site).

I offer no opinion here as to who is more correct, the Left or the Right; I keep my opinions to myself in this regard. However, I recommend viewing current politics partly in light of this tension, and suggest that the results of the Presidential election, already fraught with numerous concerns on all sides, will have significant impact also in the manner in which our Federal government interacts with its citizens and its business organizations.