The SEC’s proposed climate disclosure rule has no shortage of critics. Among the most high profile and vocal critics in recent months have included former SEC Chairman Jay Clayton and House Financial Services Ranking Member Patrick McHenry of North Carolina. Chairman Clayton and Congressman McHenry co-authored a Wall Street Journal op-ed in late March coinciding with the SEC’s release of the proposed rule where they panned the proposal for its expansive nature of the commission’s mandate. Both leaders are acutely aware of the SEC’s congressionally enforced mandate; Clayton set the commission’s agenda during the Trump administration and Congressman McHenry leads the committee with oversight jurisdiction over the SEC. They would know better than anyone that this rule exceeds the SEC’s statutory authority. And the fact that they expended political capital with this recent column speaks volumes about the seriousness of the SEC’s latest “mission creep.”
But what are Clayton and McHenry’s specific criticisms? They outlined four areas:
- First, implementing an economy wide emissions-reduction policy will have a profound impact on the domestic energy, labor, transportation, and housing markets, among others. Many jobs will be destroyed while others are created. Some businesses will close while others will flourish. Even if the long-term benefits outweigh the costs, near-term stresses on working Americans are inevitable and will be distributed unequally.
- Second, leaving policy decisions this significant to a single regulator—or even a patchwork of regulators—has failed time and again. Tellingly, there is no indication that the SEC has meaningfully coordinated with any of the other relevant federal agencies and departments on the policy choices embedded in its proposed rules.
- Third, Russia’s war against Ukraine demonstrates again the clear and longstanding links between energy policy, global stability and competing national interests. America’s ability to lead on the global stage depends on our economic and military strength, and energy policy is a key to both. These issues are far outside a financial regulator’s depth and mandate.
- Fourth, the body that the Constitution prescribes for weighing the relevant trade-offs in this area is Congress., Duly elected by and responsible to the people, Congress is precisely where climate policy, in all its complexities and consequences, should be resolved. Yet over decades, elected leaders have pushed hard policy questions to federal agencies staffed by unelected bureaucrats, whose decisions are reviewed only by unelected judges. This is at best bad for democracy and at worst unconstitutional.
They are right on every count. Overall, forcing private companies to disclose amorphous and extensive climate-related data will add new burdens on America’s business community with no real benefit. Businesses are already overwhelmed by many challenges right now from supply chain shortages, an underperforming stock market, adjustments to a global pandemic with no signs of receding, and a potential coming recession. Why is the SEC – whose mandate is regulation over securities markets and protecting investors – forcing companies to veer into an area already addressed by the EPA? The SEC should listen to the experts, starting with their financial services colleagues Clayton and McHenry, and reconsider this deeply misguided proposed rule.