Money Talks: SEC Closes the Door on Climate Change Denial

Environmental organizations and sustainable business groups are greeting the new disclosure rules proposed by the U.S. Securities and Exchange Commission (SEC) with enthusiasm, and for good reason. The proposed SEC rules validate the scientific consensus on climate change on a straightforward, bottom-line platform that leaves no room for doubt, skepticism or conspiracy theorizing. In effect, the proposal invalidates a decades-long effort to obstruct meaningful action on climate change, undertaken by fossil energy stakeholders and their political allies.

Money talks: Climate change is real, says SEC

SEC Chair Gary Gensler explained the proposed climate disclosure rules as an expression of the agency’s foundational mission. In doing so, he threw a giant monkey wrench into the machinery of the climate denial lobby.

“Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions,” Gensler said in a press statement this week.

"Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures,” he further explained.

That reference to the 1930s is a not-so-subtle reminder that the U.S. economy went into the Great Depression at the beginning of that decade, on the heels of a financial catastrophe touched off by the stock market crash of 1929.

As described by the Federal Reserve, a frenzy of speculation during the 1920s preceded the crash, propelled by new financial instruments that enabled everyday people to borrow money to invest. Without a meaningful risk disclosure platform, uninformed investors were almost literally throwing money into a black hole.

Follow the money, follow the science

As the SEC explains, Congress created the agency in 1934 because “our country decided that for capitalism to flourish, we needed to protect investors from fraud and unfair sales practices.”

The SEC also notes that its regulations have kept pace alongside the growth of the financial sector. Although U.S. securities regulations have changed over the years, the two underlying principles have stayed the same since 1934:

• People who seek your investment dollars must tell you the truth about their businesses. 

• People who sell securities must treat you fairly and honestly, putting your interests first.

In that context, the proposed rules provide governmental support for the many institutional investors that have followed the facts on climate science in recent years.

The rules also reward the many corporate leaders who have voluntarily pushed the market for renewable energy and other decarbonization technologies, partnered with local and federal decarbonization efforts, and participated in platforms for science based climate disclosures, such as the Science Based Targets initiative.

The new rules also validate the efforts of activist shareholders, who have worked to align stubborn corporate boards with the facts about climate science.

Next steps for climate action

The proposed rules are certain to elicit a storm of protest from fossil energy stakeholders and their allies.

However, they will have to create a new playbook. The denialism of the early 21st century won’t wash in 2022, now that the gears of climate change are fully in motion, just as scientists predicted.

Extreme heat, drought, wildfires, flooding, sea-level rise and damaging storms are never good for business, all the more so when the impacts grow more frequent and intense with every passing year.

The climate denial lobby will also have to reckon with consumer sentiment, which is far more sensitized to environmental issues than in years past.

In addition, the climate denial lobby will have to walk a fine line between defending fossil energy interests and accounting for the impact that Russia’s misbegotten war on Ukraine has had on global energy markets.

Tragically and horrifically, Vladimir Putin’s murderous rampage through Ukraine is yet another demonstration that the global fossil energy economy is inherently insecure and burdened with reputational risk.

Corporate leaders — including several major oil and gas stakeholders — have been quick to exercise their financial muscle to assist in the international effort aimed at pulling the pins out from Russia’s war machinery.  

As the comment period for the proposed SEC rules gets under way, the defenders of the fossil energy industry will find that the ground has shifted under their feet. The smart money is on climate science.

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