Pushback Against ESG - What About the SEC Draft Rule?

No regulatory agency’s draft rule to address important issues can be expected to sail through and be warmly welcomed by all involved stakeholders. In March, the Securities and Exchange Commission released its draft rule for corporations to disclose climate-related information such as Greenhouse Gas Emissions (GHG). Some pushback by opponents of the rule is expected.

The open comment period typically runs for 60 days so that supporters and opponents of the proposed rule can weigh in with suggestions and perspectives. The SEC announced in May that the period was extended into June. What comments are coming to the SEC? We’ll see when the final rule is issued later in 2022, but a full-on assault on ESG and climate change issues is already underway.

The immediate targets: financial management firms and banks, especially those with policies on ESG investing who are most likely in favor of the SEC rule that would result in mandated climate disclosure with comparable, accurate, consistent data sets for investors to consider in evaluating risk.

The former vice president of the United States is a primary vocal opponent, recently attacking ESG in an energy policy speech in Houston, saying investment managers adopting a radical ESG agenda (especially BlackRock, headed by CEO Larry Fink). Headlined The Insurance Journal: “Republicans Have a New Enemy #1: ESG Investing” (see link to article in Top Stories below).

SEC Commissioner Hester M. Peirce (a Republican and Trump nominee) is on record opposing the rule. (“We are not the Securities & Environmental Commission”). At the state level, there is a coordinated campaign underway by Republican office holders to undermine financial firms’ embrace of ESG. Lining up in opposition to ESG:

• The treasurer of West Virginia, Republican Riley Moore, is targeting Wall Street firms that identify climate change as a financial risk and avoid investments in coal companies. He is reportedly drawing up a list of banks that will be asked about their position on coal and gas issues – the wrong answers may result is loss of license to do business in the state.
• Kentucky has a law now that requires asset managers to disclose policies that are negative about oil and gas and coal companies; banks could have their licenses lifted if they are negative on fossil fuel issues. Other states are considering similar legislation.
• The Texas legislature passed a law to prevent the state’s retirement fund from doing business with financial firms that reduce or eliminate investment in fossil fuel companies.
• Major credit risk agencies are being attacked by public officials in Idaho, Utah, and other states for their role in identifying climate risk issues when analyzing states’ finances and assigning lower ratings for creditworthiness. (Utah’s treasurer calls ESG “corporate cancel culture.” The West Virginia treasurer sees “woke capitalism.”)

The primarily Republican supporters of the American coal, oil and natural gas industries are aggressively targeting perceived opponents who are identifying climate change and other risks associated with fossil fuels.

The future of the SEC’s draft rule could be determined by this organized, full-on assault on “woke” capitalism. The G&A team will be watching closely to see what happens in fall months as the SEC considers the positions staked out by those responding to the draft. We will also keep you informed on the Washington Beltway response as well, with U.S. Senators and House members reacting to the pressures in a midterm election year.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.