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
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
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
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.