GOP Governors Come Out against SEC Climate Rule

I n a letter today to Securities and Exchange Commission chairman Gary Gensler, 16 Republican governors expressed their opposition to the SEC’s proposed climate-change disclosure rule. The proposed rule would require publicly traded companies to include on their SEC-mandated reports information about climate risks, greenhouse-gas emissions, and other climate-related metrics as defined by the SEC.

“As governors, we are deeply concerned your proposed rule veers far outside the SEC’s authority as a federal agency,” they wrote. “The proposed rule will harm businesses and investors in our states by increasing compliance costs and by larding disclosure statements with uncertain and immaterial information that the federal government — let alone the SEC — is not equipped to judge.”

The signatories are Spencer Cox (Utah), Kay Ivey (Ala.), Mike Dunleavy (Alaska), Doug Ducey (Ariz.), Asa Hutchinson (Ark.), Brad Little (Idaho), Kim Reynolds (Iowa), Tate Reeves (Miss.), Mike Parson (Mo.), Greg Gianforte (Mont.), Pete Ricketts (Neb.), Doug Burgum (N.D.), Kevin Stitt (Okla.), Kristi Noem (S.D.), Greg Abbott (Texas), and Mark Gordon (Wyo.).

The governors made clear what they want the SEC to do: “We strongly urge you to withdraw the proposed rule and allow the market to continue serving as the appropriate mechanism for judging climate risk, as it does for other types of market risks.”

They expressed agreement with one of the SEC’s Republican members, Hester Peirce, who gave a statement on March 21 called “We are Not the Securities and Environment Commission — At Least Not Yet.” Peirce, who is currently the only Republican on the five-member commission (with one seat vacant), argued against the proposal piece by piece in her statement.

As Richard Morrison wrote for Capital Matters after Peirce’s statement came out, the SEC has always required companies to disclose “financially material information about their structure, operations, and plans for the future.” There’s nothing wrong with that. The problem comes with carving out a separate category for climate risks. It’s not the SEC’s job to decide which categories of risks are material, and the proposed rule would presume that climate risks always are.

The governors touched on that issue in their letter. They wrote that the proposed rule “degrades and undermines” the SEC’s mission by “injecting subjective political judgments on climate policy into corporate disclosures, in a manner calculated to harm the states that provide for America’s energy security.”

That last bit explains the preponderance of western governors among the signatories. The states that produce American oil and natural gas would feel the burden of this new regulation more than other states. They see the rule as “part of an ongoing effort across the federal government to penalize companies involved in traditional energy development.”

The governors also wrote, “Since climate change models vary dramatically, the notion of evaluating investment risk based on such uncertain variables is inherently subjective and unreliable.”

That issue was raised by Benjamin Zycher for Capital Matters last year. He wrote then, and it remains true today, that “the SEC does not know precisely what it wants companies to disclose, nor does it know how public companies are to evaluate such hugely complex topics as future climate phenomena disaggregated by sector and geographic region.” Figuring all that out would be a make-work program for the growing ESG-compliance industry, which would distract businesses from their actual productive purposes.

The 16 governors who signed this letter are raising the right concerns about the SEC’s proposal. The rule is evidence of mission creep beyond the SEC’s proper role in the economy and within the federal government. If the SEC decides to go through with it anyway, at least it was warned.