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SEC’s Climate Rule Would Harm Small Businesses


The Securities and Exchange Commission’s (SEC) proposed rule, “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” mandates new climate-related disclosures. While well-intentioned, this new proposal is an overreach of the SEC’s authority and is fraught with problems that will impact everyday Americans. 

The proposed rule seeks to require both US companies and foreign private​ issuers to capture and report greenhouse gas emissions. The rule requires businesses to report:

  • Climate-related risks and their actual or likely material impacts on the business, and its strategy;

  • The registrant’s governance of climate-related risks and relevant risk management;

  • The registrant’s greenhouse gas (“GHG”) emissions, which depending on the organization would be subject to audit;

  • Certain climate-related financial statement metrics; and

  • Information about climate-related targets and goals.

By the SEC’s own estimates, this new ruling will cost businesses at least $10.2 billion to comply, which is adjusted from their initial estimate of $3.9 billion. Based on that estimate, the new rule would cost smaller companies $420,000 and up to $640,000 for larger organizations to capture and report the climate related information annually. Further, the SEC assumes that companies already have the internal personnel to support compliance and the estimates do not include the costs associated with hiring additional employees or implementing new internal processes. This additional cost to business operations will no doubt yield increased costs of goods and services across all sectors during a time when inflation is at a 40 year high. 

These new reporting requirements will have a harmful impact on small businesses across America who are still struggling to recover from the disruption caused by the COVID-19 pandemic and increased costs associated with supply shortages and ever increasing inflation. 

The SEC’s own words clearly show that the proposed changes would create significant government burdens with unclear benefits:  “In many cases, however, we are unable to reliably quantify these potential benefits and costs.” Despite the SECs’s own admission that the benefits and total costs cannot be accurately measured, they are moving forward with the rule. Ongoing challenges to the nation’s economic recovery posed by inflation, supply chain constraints, high gas prices, and shortages, do not suggest businesses can sustain the additional burden this rule demands of them.

In the weeks since the proposed rule was released, many legal experts have challenged the SEC’s authority to require climate related data. The SEC has authority to require only material information pertinent to investment decisions and is relying on a decades-old Supreme Court ruling, TSC Industries v. Northway, Inc., that dictated information is material if there is a substantial likelihood that a reasonable shareholder would consider it important. Based on the federal Clean Air Act of 1970, which assigns climate-disclosure regulation to the Environmental Protection Agency (EPA), the EPA’s authority supersedes the SEC’s loose interpretation of that Supreme Court ruling. 

This unnecessary measure will prolong the economy’s recovery and will add no actual value to consumers while potentially harming small businesses and expanding the SEC’s authority outside its bounds set by Congress.

Alex Milliken is a Policy and Government Affairs Manager for National Taxpayers Union.