President Joe Biden promised the most ambitious green agenda ever, ending fossil fuels, pushing renewables, and forcing businesses to toe the line. As Earth Day 2022 arrives, the Washington Examiner offers alternative coverage in light of record energy prices and widespread criticism of the administration’s incoherent policy approach.
The Biden administration, in addition to pursuing major climate legislation and regulation aimed at curbing climate change, is pushing for rules that would put indirect pressure on businesses to reduce emissions.
Biden commenced a “whole-of-government” effort to mitigate climate-related financial risks just months after being sworn into office when he signed an executive order pushing for economy-wide net-zero emissions by 2050.
By requiring that businesses disclose emissions, the administration would subject them to pressure from activists and environmentally motivated investors, a development worth noting ahead of Earth Day Friday.
Biden’s order called for disclosures from agencies, government contractors, and private businesses, where applicable. The most significant effort, though, comes from the Securities and Exchange Commission. The SEC voted to propose a rule compelling companies to disclose climate-related risks.
The long-awaited proposal, which was released last month, dictates that companies must report direct and indirect greenhouse gas emissions. Those reports would then be audited by an outside party. While self-reporting of climate data is already commonplace among many companies, the SEC proposal, if approved, takes it a step further by requiring the practice.
Corporate emissions are placed into three categories by the SEC, known as scopes. Scope 1 refers to direct emissions, Scope 2 includes indirect emissions, and Scope 3, the most controversial of the scopes, gauges the emissions of other entities, such as customers or suppliers along a company’s value chain. Scope 3 emissions, for example, would include the emissions released by users of natural gas produced by a fracker.
BIDEN LOOKS TO PRESSURE INVESTORS AWAY FROM FOSSIL FUELS VIA CLIMATE DISCLOSURES
As part of the proposal, which was approved in a 3-1 vote with the sole Republican SEC commissioner voting against it, Scope 3 disclosures would only apply to companies that consider those emissions to be “material” to their investors. The Scope 3 strictures would also include carve-outs based on a company’s size and would be phased in.
While the proposed rule wouldn’t force companies to change their current business practices or mandate they curb the use of fossil fuels, the rule can be seen as a way to exert pressure on businesses through shareholders.
For instance, after being required to disclose climate data, a company might receive pushback from investors because of the climate information that it was required to make available. Those investors could demand that the company change its business practices in response and thus affect the trajectory of its business model and profitability.
“Setting climate policy is the job of lawmakers, not the SEC, whose role is to facilitate the investment decision-making process,” argued Rep. Patrick McHenry, the top Republican on the House Financial Services Committee, and Jay Clayton, who served as SEC chairman under former President Donald Trump, in a recent op-ed.
“Companies choose how best to comply and thrive under those policies, and investors decide which business strategies to back,” they added. “Taking a new, activist approach to climate policy—an area far outside the SEC’s authority, jurisdiction, and expertise—will deservedly draw legal challenges.”
While Democrats like Sen. Sherrod Brown, the chairman of the Banking Committee, have heaped on the praise for the proposal, Republicans have balked and accused the SEC of sidestepping Congress in pushing for the plan.
Sen. Pat Toomey, Brown’s GOP counterpart on the committee, called the effort a “thinly-veiled” attempt to allow regulators to set climate policy, something that he said is the responsibility of lawmakers.
The American Securities Association has also pushed back on the proposed rule. ASA CEO Chris Iacovella said in a statement that the “administrative state” should not be involved in such matters.
“Before any rule is finalized, the American public must understand exactly how the SEC plans to empirically prove its disclosures will impact global temperatures, our national security, and the cost of food, gas, heat, and other goods and services American citizens need to live,” Iacovella said.
The SEC isn’t the only government entity dipping its toe into the waters of corporate climate policy.
Last year, the Federal Reserve mentioned the climate for the first time in its financial stability report. It didn’t include an indication about future action on the matter but did hint that risks associated with climate change are on the minds of central bank officials.
“Federal Reserve supervisors expect banks to have systems in place that appropriately identify, measure, control, and monitor all of their material risks, which for many banks are likely to extend to climate risks,” the report read.
Lael Brainard, Biden’s pick for vice chairwoman of the Fed, was grilled by Republicans on the Senate Banking Committee about her thoughts on what the Fed’s role should or should not be in addressing climate change.
Brainard testified that the Fed shouldn’t be trying to influence bank lending by sector, but she did say climate change is a risk that the central bank should be monitoring.
“We would not tell banks which sectors to lend to or which sectors to not lend to, but we do want to make sure that they are measuring, monitoring, and managing their material risks,” she said.
Government aside, some private companies have already faced pushback from Republican-led states over their corporate environmental, social, and governance standards. Texas Gov. Greg Abbott signed a bill that banned state investments in businesses that sever ties with fossil fuel companies, and West Virginia’s Legislature has taken similar action.
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“We’re not going to do business with banks that don’t want to do business with our critical industries here in West Virginia,” West Virginia State Treasurer Riley Moore told the Washington Examiner this week.
“Coal and gas generate hundreds of millions of dollars in tax revenue,” he added. “We’re not going to hand over those dollars then to a financial institution that is trying to destroy those industries and diminish those funds.”
