BONNER COHEN: Trump SEC Will Not Defend Biden

In a widely expected move, the Trump administration will not defend a Biden-era Securities and Exchange Commission (SEC) climate disclosure rule under challenge by a slew of red-state attorneys general and industry groups.

The White House’s hostility to the “Enhancement and Standardization of Climate-Related Disclosures for Investors” rule, and to the broader Biden climate agenda of which it was a part, was never in doubt.  ”This rule is deeply flawed and could inflict significant harm on the capital markets and our economy,” said Mark Uyeda, acting chair of the SEC, in a statement issued in February.

Under the sweeping regulations issued last year, companies regulated by the SEC would be required to disclose climate-related emissions, risks, and spending.  Though the March 6, 2024 final rule had been scaled back somewhat from the SEC’s original 2022 proposal, it still would have required an estimated 7,000 domestic publicly traded companies and 900 foreign firms to make climate-related disclosures.  Issued during the height of the push by the Biden administration and some Wall Street investment firms to adopt ESG (environmental, social, and governance) investing practices, the SEC climate disclosure rule was meant to enlist more companies in the green-energy transition.

“The importance of climate-related disclosures for investors has grown as investors, companies, and the markets have recognized that climate-related risks and its current and longer-term financial performance and position,” the Biden SEC’s fact sheet stated.

Though the SEC rule certainly captured the spirit of the climate-centric regulatory thrust of the Biden era, its complexity, loose language, and potential for liability for companies caught up in its web were bound to trigger resistance.  The paperwork burdens for companies forced to comply were enormous, and made even more onerous by the rule’s use of nebulous language, such as requiring companies to make climate-related disclosures that “have materially impacted or were reasonably likely to have a material impact on, its final business strategy.”

While the Biden rule claimed it had created “a safe harbor” for climate-related disclosures, the liability shield covered only actions companies undertook during the transition to more “climate friendly” practices.  “The liability shield will not extend to historical facts and will only shield companies from litigation pertaining to future disclosures,” ESG Divepointed out.  In other words, companies could be on the hook from lawsuits alleging whatever past climate transgressions their mandatory disclosures revealed.

Questions were also raised about whether the SEC had the legal authority to go beyond its narrowly defined mission and become a de facto climate regulator.  This point was made by three Republican House members who sit on committees with jurisdiction over capital markets and financial services.  In a statement welcoming the SEC’s decision to abandon defending the Biden rule, Republican Reps. French Hill of Arkansas, Ann Wagner of Missouri, and Bill Huizenga of Michigan said, “Rather than focusing on its core mission – protecting investors, maintain fair and efficient capital markets, and facilitating capital formation – the Commission. under former Chair Gensler, pursued a radical climate agenda that stretches the law and imposes costs on public companies and investors.”

The lawsuits challenging the Biden SEC rule were consolidated into one case, which was pending before the U.S. Court of Appeals for the Eighth Circuit when the Republican majority on the SEC voted to abandon the rule’s defense.  No longer defended by the agency that gave birth to it, the climate disclosure rule’s only hope of a reprieve is being upheld by the Eighth Circuit.  Such a contingency would doubtless trigger an appeal to the Supreme Court by the Trump administration.

By attempting to insert ESG into the traditional regulatory realm of the SEC, the Biden administration may have inadvertently contributed to ESG’s fading fortunes.  In addition to its corporate climate disclosure requirements, the Biden administration proposed a separate rule that, in the words of the Harvard Law School Forum on Corporate Governance, “would require investment advisers and registered funds to provide standardized ESG information to the SEC and their investors.”  This rule, too, is likely to be abandoned.

As ESG investment funds continue to experience a net outflow globally due to poor performance, the elaborate structure put in place through government mandates and Wall Street cronyism to redirect capital in support of green priorities is unraveling.  The Trump White House has created a National Energy Dominance Council, focusing on the development of fossil fuels and nuclear energy.  In this world, sacrifices on the alter of green orthodoxy have no place.,

Bonner Russell Cohen, Ph. D., is a senior policy analyst with the Committee for a Constructive Tomorrow (CFACT).

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