The Biden administration is pushing a range of policies across various regulatory agencies to force companies, pension fund managers, and portfolio funds to account for and divulge climate-related risks, in their disclosure statements, stock offerings, annual reports, and other public documents.
This push reminds me of a passage from the brilliant children’s book for adults, Tom Smith and His Incredible Bread Machine. In the stanzas in question, a bureaucrat explains why he is qualified to run Tom Smith’s business:
Let others take the chances, and I would go along
Then I would let them know where they all went wrong!
I avoided all of commerce, at whatever costs—
And because I never ventured, I also never lost!
With this unblemished record then, I quickly caught the eye
Of some influential people, ‘mongst the powers on high.
And so these many years among the mighty I have sat
Having found my niche as a bureaucrat!
For to be a merchant prince has never been my goal,
For I’m qualified to play a more important role:
Since I’ve never failed in business, this of course assures
That I’m qualified beyond dispute to now run yours!
Egged on by climate scolds, government-dependent academics, the woke activist community, and the press, the Biden administration is in essence telling companies, fund managers, and investors that they know better than businesses and fund owners and managers themselves what risks they should take account of while pursuing profit. According to President Joe Biden and Vice-President Kamala Harris, the most important issue for businesses and funds to consider from a financial perspective and with respect to their investors should be climate change.
President Donald Trump, having a successful business background, knew that what Biden and Harris are claiming is untrue. ESG investing, the Great Reset, and the Green New Deal are nothing more than warmed-over socialism. Business owners and investors have the best understanding of the factors likely to have the most impact on their success. The Trump administration sought to minimize political interference, political correctness, wokeness, and the influence of bureaucrats and political appointees with socialist or climate alarmist views on companies’ operations and investment decisions.
Biden and Harris are actively working to reset the relationship between government and business by insisting their radical constituencies’ views on environment, climate change, corporate governance, and sustainability inform every business decision corporate officers and fund managers make.
Considering one example of this, Jane Shaw writes at Liberty and Ecology,
The Biden administration is working to bring down the Trump Labor Department ruling that insisted financial probity override commitment to anti-fossil fuel (“sustainable”) investments.
In July , the Trump administration’s Labor Department secretary Eugene Scalia said retirement plans “are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan. Rather, ERISA plans [pension plans operating under the Pension Reform Act of 1974] should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”
But now … Biden is pushing Labor to avoid “climate-related financial risk.” His executive order on Climate-Related Financial Risk, signed May 20:
“… mandates that Labor Secretary Marty Walsh submit a report to the director of the National Economic Council and the White House national climate advisor within 180 days that identifies actions taken by the agency ‘to protect life savings and pensions of U.S. workers and families from climate-related financial risk,’ and required the same of the Federal Retirement Thrift Investment Board, which administers the Thrift Savings Plan for federal employees.”
With marching orders from Biden and Harris in hand, the U.S. Securities and Exchange Commission (SEC) has created a 22-member Climate and Environment, Social, and Governance (ESG) Task Force to enforce the administration’s social justice and climate change goals. Simultaneously, the SEC issued a call for public comments for a rule requiring publicly traded corporations, investment management firms, and mutual funds under its regulatory purview to disclose the climate-change-related risks and opportunities they might face. This public disclosure would include a thorough description of how their business operations, legal proceedings, management discussions and decisions, and financial conditions might be affected by climate change and how the companies are responding to any potential risks uncovered.
The Competitive Enterprise Institute (CEI) assembled and submitted formal comments in response to the SEC’s climate risk disclosure proposal. Multiple organizations endorsed and signed on to CEI’s comments, including the Caesar Rodney Institute, the Committee for a Constructive Tomorrow, the CO2 Coalition, the Energy and Environment Legal Institute, FreedomWorks, The Heartland Institute, The Heritage Foundation, the National Center for Public Policy Research, 60Plus, and the Texas Public Policy Foundation. The coalition’s comments provide a thoroughgoing refutation of the idea that companies can realistically anticipate and accurately report the magnitude and probability of the financial losses they could incur due to the physical impacts of climate change.
“[O]bjective quantification and measurement of such risks is often impossible,” writes CEI. “Climate risk assessments typically depend on multiple assumptions fraught with uncertainties. Speculative risk guestimates are of little financial value to investors.”
FreedomWorks offered a standalone comment on the SEC’s climate risk disclosure proposal. Among the issues FreedomWorks raises is this:
Companies that wish to disclose information related to climate change to their investors already have a federally approved mechanism to do so. Moreover, this voluntary system established by the Obama administration is already being used by numerous companies. Mandating climate change disclosures does little to inform investors of risks and opportunities, and will only impose additional compliance costs on firms that would otherwise have no need to track and disclose such information.
Companies whose investors request greater transparency about emissions and other environmental issues have a plethora of voluntary options for disclosure. Creating a sweeping new federal mandate would merely impose costs on firms whose investors are less concerned about such information, particularly small businesses that are less well equipped to meet the increased regulatory burden.
On behalf of The Heartland Institute and myself, I also drafted a standalone analysis and submitted it to the SEC. Here are my comments in their entirety:
The factors which are likely to materially impact the success or failure of publicly traded companies, investment management firms, and mutual funds are best known to the officers and managers of the firms and funds themselves, not the Securities and Exchange Commission (SEC), other regulatory agencies, politicians or self-appointed stakeholders, including climate activists, not actively involved in the business.
The direction and impacts of climate change 20, 30, 50, and 100 years from now are unknown and, indeed, unknowable. The projections climate-simulating computer models make of future conditions cannot be trusted. They have consistently overstated past and present temperatures, the most basic projection they make. The models have also consistently misidentified the kinds of climate conditions and weather events the Earth should have already experienced, thus any projections of the future should be taken with a huge grain of salt by companies and their investors.
Political decisions will, of necessity, impact business decisions and success or failure. But, to be fair, companies and fund managers can’t know what direction future political elections will take the country on climate matters. The farther into the future businesses and funds try to anticipate political decisions, as with economic forecasting, the less likely their projections are to be correct. Policies, regulations, and laws, imposed by one Congress and Presidential administration, may be withdrawn or changed by the next. Businesses and funds should operate within the current law and set of regulations, while anticipating to the extent possible what political changes are most likely to impact their business fortunes and how, and how they are positioning themselves to respond to changes. They should report such considerations transparently.
While private companies and businesses may be formed for any number of non-business related reasons unique to their owners’ personal desires and proclivities, publicly traded companies are formed to make a profit for their owners, although the managers may also list other reasons for a company’s or mutual fund’s formation in its statements of incorporation and disclosures. As such the managers of publicly traded companies and funds should endeavor to maximize the returns [for] their investors. Employee pension fund managers typically have fiduciary responsibilities to do just that, and to not undertake investment decisions based on non-business related considerations with a high likelihood of reducing portfolio returns. The politics of a company’s or a fund’s managers should not enter into its business or investment decisions, unless the mangers explicitly state in their articles of incorporation and public disclosures that business and investment decisions will be driven by a particular ideological point of view or set of political concerns.
If regulators, politicians, and activists wish a company or fund to consider climate change risks, impacts, and opportunities in their business or investment decisions, they can purchase stocks or bonds issued by the company, as every other investor does. Then, at annual board meetings or other periodic company events, as co-owners they can express their desire. They can try to convince company or fund managers to consider climate change risks and potential rewards. Failing at that, they can introduce climate related resolutions and offer candidates for the board of directors concerned about climate change, and try to convince a majority of stock owners to support these resolutions, directives, and slate of candidates. Thousands of climate related resolutions, and candidates for board positions focused on climate concerns, have been offered over the past few decades. Most have been soundly rejected by a majority of investors. This, not regulation or legislation, is the appropriate way to have companies and funds take climate concerns seriously.
Absent this, persons and portfolio fund managers concerned about climate or sustainability matters can form their own companies and funds, complete with public stock offerings, to compete directly with the businesses they believe are not taking climate, corporate governance, environment, equity or sustainability concerns seriously enough. Thousands of such green or socially conscious companies and funds have been formed. This lets the public express their concern for the environment directly through their purchases and the investment decisions they make.
The SEC’s role in this should be limited to ensuring “truth in advertising,” a policing function.
The SEC should not attempt to develop or enforce uniform standards for what it means for a company to take the climate or sustainability issues seriously. Rather, for those companies and funds professing to be green, climate friendly, sustainable, or committed to reducing their energy use, waste flow or greenhouse gas emissions, as a business strategy and a way to attract investors, the SEC should require transparency. In publicly available documents and disclosures, the companies and funds should be required to state specifically what practices they are undertaking to be green, climate friendly, sustainable, and how and on what timeline their efforts to reduce energy use, waste, and greenhouse gas emissions should be judged.
Beyond ensuring the transparent disclosure of supposed climate friendly practices and operations, the SEC should, as part of its normal course of business and public mandate, monitor and police businesses claiming to embrace climate friendly policies as they do other businesses. [The SEC should] respond to complaints from investors about the companies failing to carry out their mission as stated and, working with the Department of Justice, to ensure the companies’ officers, employees, and investors are not involved in or undertaking illegal business practices.
In short, the SEC should have no role in requiring businesses [to] account for climate risks in their business and investment decisions. However, if a publicly traded company or fund does say climate change will materially affect their business and they are taking steps to respond, the SEC maintains its legal mandate to ensure the company’s statements on its response are transparent and its practices correspond to its public statements on the matter, and that, in all cases, the law is followed.
Businesses face myriad challenges, risks, and opportunities. Every year, businesses fail, often but not always because of the owners’ misunderstanding of the risks they face and the effects they will have on their business. There is no evidence whatsoever that these businesses would have succeeded if only they were managed by woke activists or government bureaucrats.
For the vast majority of businesses, climate change is unlikely to be a significant factor in their profitability or continued operations for the reasonably foreseeable future, if ever. Corporations and fund managers disagreeing with my assessment, who think climate change or government responses to the supposed threat of climate change will materially affect their business, are free to inform their investors of this concern and their responses to it.
Government has no business telling every corporate officer, fund manager, and investor in America that climate change should be of concern to them, much less an overriding concern driving their operations and disclosures. Now as always, markets respond better to the concerns and motivations of their participants than politicians or regulatory czars do.
— H. Sterling Burnett
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