Resolution Opposing Securities and Exchange Commission and White House Mandates on Climate-Related Financial Matters

Summary

This model resolution opposes efforts by the Securities and Exchange Commission (SEC) to adopt mandates related to climate change risk disclosure or environmental, social, and governance (ESG) as well as the 2021 Executive Order on Climate-Related Financial Risk. It urges states to challenge these one-size-fits-all mandates and calls on SEC to ensure that the rulemaking process is open and transparent.

Resolution Opposing Securities and Exchange Commission and White House Mandates on Climate-Related Financial Matters

Model Resolution

WHEREAS, in March 2021, the Securities and Exchange Commission (SEC) sought “public input is requested from investors, registrants, and other market participants on climate change disclosure” and explored imposition of new rules for climate change risk disclosure as well as broader disclosure standard related to environmental, social, and governance (ESG) matters that may apply to publicly traded and privately held companies; and

WHEREAS, the SEC intends to propose and finalize regulations to “enhance registrant disclosures regarding issuers’ climate-related risks and opportunities” in 2021 and early 2022; and

WHEREAS, in May 2021, the White House issued an Executive Order on Climate-Related Financial Risk, directing a suite of federal agencies to develop and implement a government-wide strategy on climate-related financial risk that may impact a variety of public and private companies; and

WHEREAS, in 2021, the SEC sent threatening letters to a number of companies claiming that “information related to climate change-related risks and opportunities may be required in disclosures related to a company’s description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations”; and

WHEREAS, climate change risk and ESG disclosures, as well as other elements of the federal government’s climate-related financial risk strategy, are inconsistent with the First Amendment, constituting compelled speech or, in the case of some elements of the Executive Order on Climate-Related Financial Risk, unconstitutional conditions; and

WHEREAS, these efforts are inconsistent with SEC’s mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation; and

WHEREAS, SEC Commissioner Hester Peirce has warned that an SEC climate or ESG disclosure regime would result in public shaming of certain firms based on nebulous, incomplete, arbitrary, inconsistent, and political information; and

WHEREAS, Congress has not provided statutory authority for the SEC to adopt mandates related to climate change risk or ESG disclosures (with the Congressional Research Service recognizing in 2021 that “Federal securities law does not explicitly require disclosure of specific climate-related risks”), nor has Congress authorized any of the activities directed under the Executive Order on Climate-Related Financial Risk. Paul G. Mahoney and Julia D. Mahoney of the University of Virginia School of Law explained that “The SEC has neither the expertise nor the political accountability to pursue climate, diversity, or other public policy goals”; and

WHEREAS, these mandates will substantially increase costs for a wide variety of businesses; and

WHEREAS, previous national rulemakings on climate change have included multiple public hearings around the United States, including outside of Washington, DC and in areas with significant energy production; and

NOW, THEREFORE, LET IT BE RESOLVED that (state legislature) hereby urges the (state) to:

Use all tools at its disposal, including filing public comments and exploring legal challenges to forthcoming SEC regulations as well as implementation of the Executive Order on Climate-Related Financial Risk, to oppose these top-down, one-size-fit-all mandates; and

Demand that the SEC and other agency rulemakings on climate change risk disclosure, ESG, and climate-related financial risk be open and transparent, including abiding by the Administrative Procedure Act and striving to hold multiple public hearings to receive feedback directly by people most impacted by these mandates (including outside of Washington, DC); and

Provide a copy of this resolution to the U.S. House Committee on Financial Services, U.S. Senate Committee on Banking, Housing, and Urban Affairs, SEC and other regulatory bodies considering mandates related to climate change risk disclosure, ESG, and climate-related financial risk.