Recently, the Securities and Exchange Commission (SEC), proposed a new disclosure rule entitled “The Enhancement and Stabilization of Climate-Related Information for Investors.” This rule would require public companies that disclose climate-related risks to investors. This reporting framework is the first step toward making ESG reporting mandatory.
23 state financial officers wrote a letter to SEC expressing concerns about the proposed rule. The State Financial Officers Foundation, (SFOF), led the effort and identified eight problems with the rule.
- The SEC is not a climate regulator, and this rule lies outside the scope of the SEC’s responsibilities.
- This proposed rule violates the First Amendment because it will force company leadership to speak extensively about their impacts on climate change, even if they disagree with the assessment of climate risks.
- The proposed rule does not consider impacts on everyday Americans investing in an unstable economic environment.
- This proposed rule would be extremely costly for issuers because they would need to account for climate risks throughout their supply chain, and there is no apparent benefit to these increased costs.
- The proposed rule indulges in climate exceptionalism elevating climate concerns above pertinent economic risks.
- It fails to consider relying on the EPA’s existing greenhouse gas (GHG) emissions registry, which already requires disclosures for environmental issues.
- A justification for this proposed rule is comparable data, but it fails to provide a method to enable comparisons across issuers.
- The decision to require additional disclosures has been prejudged by the SEC Acting Chair, who has not allowed the proposed rule to have fair and full consideration.
Derek Kreifels, Chief Executive Officer of SFOF, stated that while it is disappointing and not surprising to see activist behavior by the SEC, as it continues to promote policies and rules which prioritize polarizing agendas over fiduciary obligations to investors, and issuers. “This rule is far beyond the authority of the SEC, and we encourage them to address our concerns regarding using ESG as a political weapon against consumers.” Kreifels stated that the SFOF does not seek a “conservative fund manager.” Funds should be managed with a neutral view for the benefit and enjoyment of investors.
Kreifels stated that the administration is determined to push a green agenda through multiple agencies and not just the SEC since January 2021. Kreifels continued, “Biden appointed people to positions throughout the government, and not just within the SEC with the sole purpose to use them to pursue an ideological agenda.” Kreifels stated that these government agencies have been working with fund managers and activist organizations like Larry Fink of BlackRock to force publicly-held companies to implement a political agenda that won’t be passed through the legislative process.
Corporate boards and fund managers have a fiduciary obligation to investors. They are playing with money from other people and should be focusing on the financial well-being of those individuals. This concept is evident in Elon Musk’s recent bid to purchase Twitter. The current market value of Musk’s offer was higher than Twitter’s, so Twitter’s board couldn’t refuse it for ideological reasons and avoid lawsuits. According to Kreifels, investors have been unable to ignore investments in oil and natural gas this year. These investments are safe investments for millions of Americans. Managers of funds that ignore them in pursuit of green ends could be held responsible.
The push by the SEC to include ESGs in climate impact calculations does not stop there. Kreifels stated that this is just one part of the “E”. “Ultimately, ESGs encompass everything the Left cannot get done through the legislative process.” It is already happening. Activism was ignited by the leaked draft decision, which indicated that the Supreme Court could overturn Roe V. Wade.
Three different investment groups put forth shareholder proposals at Walmart, Lowe’s, and T.J. Maxx’s parent companies that would force the companies to provide access to abortions for their employees in states where the procedure is restricted or outlawed. International Shareholder Services, a decidedly left-leaning provider of “corporate governance and responsible investment solutions,” is advising Walmart and Lowe’s shareholders to vote for the proposals to address some undefined “likelihood that the company’s female workforce will be impacted.” Lowe’s, Walmart, and TJX recommend shareholders reject the proposals.
Large retailers might not be inclined to speak out on divisive issues that could upset large numbers of customers. As long as ESGs are pushed through regulatory agencies, activist investor groups, and small groups of vocal employees, there will be pressure for companies to adopt left-leaning political positions. The SFOF and other Republican state politicians are trying to force corporations to be neutral on social issues. Florida Governor Ron DeSantis publicly attacked Disney after the corporation announced that it would be addressing education issues in Florida.
Kentucky was the latest to take action against ESGs. The state published a May report on its website that said “Kentucky State Treasurer Allison Ball asked for an opinion from Attorney General concerning whether “stakeholder capitalism” and Environmental, Social, and Governance (“ESG”) investment practices in relation to the investment of public pension fund funds are consistent with Kentucky law regarding fiduciary duties.” Ball stated that the state has a body law that requires state pension board members to manage state pension funds in a manner that is focused on profit, solvency, improving the state’s economic development, and health.
Cameron agreed. Cameron agreed. Today, we issued an opinion finding that ESG practices were inconsistent with state law.” This opinion will regulate the investment actions of state boards and allow for lawsuits against firms that use ESG criteria. It provides a guideline for other states and groups participating in state pensions, whose state representatives fail to take appropriate action to enforce the fiduciary responsibilities of funding managers.