The Securities and Exchange Commission (SEC) recently published its long-awaited proposed

rulemaking mandating disclosure by public companies of risks associated with climate change.

Under the proposal, public companies of all sizes would be required to publish reams of

immaterial and unreliable information about the greenhouse gas emissions arising from their

operations, the producers of the energy they consume and even, in some cases, the activities of

their suppliers and customers to the extent the SEC deems those activities to “contribute to

climate change.”

This 534-page monstrosity marks the transformation of the SEC from an independent agency

dedicated to investor protection to an unaccountable and politicized bureaucracy intent on

advancing radical environmental and social policy, over which it has neither jurisdiction nor

expertise. It’s one more chapter in the Biden Administration’s whole-of-government adventure

in weaponizing financial regulation, discriminating against affordable, reliable energy and

redirecting capital away from the American energy sector.

The regulation would be an exercise in arrogant government overreach at any time. But the fact

that Biden officials are pressing forward at this time—when constrained supply has pushed

inflation to a 40-year high, gas prices are skyrocketing and Russia’s invasion of Ukraine has

reminded us how over-dependence on foreign sources of energy threatens our national security—

reveals how astonishingly out of touch they are.

Yet the central planners at the SEC have made it clear that their goal is to choke off financing for

fossil energy, at all costs—even if that means lurching well beyond their authority, politicizing

the allocation of capital and prioritizing unquantifiable environmental, social and governance

(ESG) objectives over investor returns.

The statutory mission of the SEC is to “protect investors; facilitate capital formation; and

maintain fair, orderly, and efficient markets.” Far from achieving these goals, the climate

disclosure proposal would harm investors, destroy capital and produce unfair and inefficient

markets.

From an investor protection standpoint, appropriately tailored disclosures of material information

provide investors with visibility into the current and prospective financial health of public

companies. But disclosure mandates should not advance unrelated policy goals at the expense of

investor returns. And this rule would do just that, steering investors toward higher-fee, less

diversified and, in many cases, lower return investments—all for the ostensible purpose of

disclosing “climate risk.”

In fact, fees for ESG funds are, on average, 43% higher than non-ESG funds. Stocks in many

ESG-related exchange traded funds trade at elevated price-to-earnings multiples because

investment returns are sacrificed for non-pecuniary policy objectives like social justice, diversity

quotas and lower carbon emissions.

As SEC Commissioner Hester Peirce pointed out in her statement opposing the proposal, the

rule, rather than giving investors material information, “forces investors to view companies

through the eyes of a vocal set of stakeholders, for whom a company’s climate reputation is of

equal or greater importance than a company’s financial performance.”

Retail investors will lose under this new reality, as resources are diverted away from corporate

earnings toward skyrocketing compliance and litigation costs. As disclosure mandates have

grown in volume and complexity over time, prohibitive costs have deterred many growing

companies from going and staying public. Injecting even more ambiguous, subjective, or

otherwise ill-defined metrics into securities filings will only increase these costs, giving

enterprising plaintiffs’ lawyers plenty of ammunition to file frivolous lawsuits. Under these

circumstances of liability uncertainty, companies will err on the side of over-reporting rather

than under-reporting to ensure all information is captured, regardless of its materiality or how

well it serves the investing public.

Justice Thurgood Marshall established the materiality standard for SEC disclosures in TSC

Industries v. Northway. In his opinion, Marshall wrote that information is material for purposes

of disclosure if there is a substantial likelihood that a reasonable investor would consider the

information important in deciding how to make an investment decision. He further opined that

“[m]anagement’s fear of subjecting itself to liability may cause it to simply bury the shareholders

in an avalanche of trivial information—a result that is hardly conducive to informed decision

making.”

If this rule is finalized in its current dizzyingly complex form, the threat of lawsuits will force

public companies to inundate shareholders with a torrent of information that a reasonable

investor would find wholly irrelevant to the financial return of the investment. Ironically, it

would also discourage firms from making emissions reduction commitments or forward-looking

statements about their sustainability efforts for fear of being sued.

SEC Chairman Gary Gensler argues that disclosure is needed for both institutional and retail

investors to make more informed investment decisions. But risks from changing weather

patterns are not new, and companies have been managing them for years. Given that public

companies are already required to disclose information that is material to investors, risks

associated with changing weather are already disclosed.

In 2020, 92% of S&P 500 companies voluntarily published “sustainability” or “ESG” reports.

These reports, which are easily accessible to investors and the public via companies ’websites,

outline information such as emissions, sustainability policies and various workforce initiatives.

The government does not compel public companies to publish these reports—they result from

the company’s independent initiatives, or requests from activist stakeholders.

Gensler responds that a top-down, SEC-directed disclosure mandate is needed to substantiate

companies’ ESG claims, and that the agency has “broad authority to promulgate disclosure

requirements that are ‘necessary or appropriate in the public interest or for the protection of

investors.’” But neither the Constitution nor Congress has conferred to the SEC the authority to

redefine materiality to mandate disclosure of every granular detail of emissions data that non-

investor climate alarmists want, no matter how attenuated to the actual business of the publicly

traded company. Furthermore, it is unclear how mandating disclosure of disparate emissions

data—including data unconnected to the actual operations of the firm in question—would

enhance the consistency, comparability or reliability of company climate disclosures.

In addition to harming investors, the SEC’s proposal would stifle capital formation and produce

uneven, unfair and inefficient markets. It would weaponize disclosures to name and shame

politically incorrect companies, pick winners and losers in the capital markets and starve

American energy firms of the capital they need to create jobs, produce affordable and reliable

energy and deliver returns to investors. And it would do so at a time when it’s estimated that the

American oil and gas industry needs an additional $500 billion in annual financing just to keep

up with existing demand.

Let’s be clear. This proposal is not about disclosing financial risk. It’s about creating financial

risk for energy producers unpopular with the political left. By wading into environmental policy

through a top-down, one-size-fits-all climate disclosure rule, untethered to the longstanding

standard of materiality, the SEC has veered beyond its statutory authority and expertise, reduced

its credibility, and prioritized politics over investor returns. That’s why, in the coming months, I

will be fighting to block this rule, protect everyday shareholders from regulators acting on behalf

of non-investor stakeholders, and preserve access to capital for energy producers so they can

lower the price at the pump and restore American energy dominance.