Editors at the Washington Examiner critique the Securities and Exchange Commission for its actions linked to climate change.
After years of delay, the Securities and Exchange Commission is set to vote on whether to adopt new climate-risk reporting requirements Wednesday. After fierce criticism from the business community, the costliest part of the original proposal has been eliminated, but the new mandates are still an unnecessary burden, fall outside the scope of the SEC’s jurisdiction, and should be rejected outright.
If a company wishes to raise capital by issuing stock, it must register its securities under the Securities Act of 1933 and it must file periodic reports to the SEC pursuant to the Securities Exchange Act of 1934. The purpose of both these laws is to ensure that investors can make informed investment and voting decisions.
In addition to general information such as the financial condition of the company and management compensation, the SEC also requires disclosure of more specific information that could affect a company’s bottom line. For example, if a retailer signs a new long-term lease at a new location, that would have to be disclosed. But not everything needs to be disclosed. Renewing an existing lease for another year would not need to be disclosed.
The test for whether or not something needs to be disclosed has been the subject of literally decades of litigation including many Supreme Court cases. The court has developed a “materiality” test that applies to all new information that the SEC wants to request from companies. Importantly, the information required by the SEC must be business-related. A company’s political position on a controversial public policy issue is outside the scope of SEC jurisdiction.
In 2016, President Barack Obama’s SEC noted that “disclosure relating to environmental and other matters of social concern should not be required of all registrants unless appropriate to further a specific congressional mandate.” No further congressional mandate has come.
