Three additional thoughts on climate financial regulation, building on the last post about the SEC
1) A big question about SEC and related regulation. May the SEC regulate only on financial issues, i.e. “materiality,” or may it regulate with larger social, economic, or political objectives in mind?
The big squeeze now is to squeeze the latter in to the former. Disclose that the company doing something unpopular, even if it may have no financial effect, because someone might decide they don’t like it — either the twitter mob or future regulators — and cause you trouble. (I am deliberately not using legalize here.) The carbon rules are not entirely new ground here, but so deep into that territory that the question is now loud and clear.
2) “Disclosure” usually means revealing something you know. A perfectly honest answer to “disclose what you know about your carbon emissions” is, “we have no idea what our carbon emissions are.” Back that up with every document the company has ever produced, and you have perfectly “disclosed.” There is no asymmetric information, fraud, etc.
The SEC has already required the production of new information, and as Hester Peirce makes perfectly clear, the climate rules again make a huge dinner out of that appetizer: essentially telling companies to hire a huge number of climate consultants to generate new information, and also how to run businesses.
The fixed costs alone are huge. The trend to going private and abandoning public markets, at least in the U.S. will continue. The trend to large oligopolized politically compliant static businesses in the U.S. will continue.
I would bet these rules wind up in court, and that these are important issues. They should be.
3) The SEC’s timing relative to Russian sanctions makes an interesting one-two punch, as Walter Russell Mead points out. Suppose you’re Brazil. Hmm. When will the U.S. decide to impose financial sanctions on Brazil for not following our ideas of climate policy, or the SG (social, governance) part of ESG? Maybe we should find alternative financial channels, pronto.