The Biden–Harris administration is attempting to force companies, pension fund managers, and portfolio funds to account for and disclose climate-related risks in their stock offerings, annual reports, and other public documents.
According to the Biden–Harris administration, climate change is the most important issue businesses and funds should consider from a financial perspective. For Biden–Harris, any corporate officer, board member, and fund or portfolio manager who doesn’t recognize this as a fact is either stupid or a Neanderthal climate denier and can’t be trusted to make financial decisions on behalf of their companies’ investors.
Environmental, social, and governance (ESG) investing, the Great Reset, and the Green New Deal are nothing more than warmed-over socialism. Recognizing this, the Trump administration sought to minimize political interference, political correctness, and the influence that bureaucrats and political appointees with socialist or climate-alarmist views held over companies’ operations and investment decisions.
The current administration is actively working to reset the relationship between government and business by insisting that every business decision made by corporate officers and fund managers conforms to the views of their radical constituencies on climate change, corporate governance, and sustainability.
The factors likely to materially affect the success or failure of publicly traded companies, investment management firms, and mutual funds are best known to the officers and managers of the firms and funds themselves, not the SEC, other regulatory agencies, politicians, or self-appointed stakeholders, including climate activists, who aren’t actively involved in the business.
The effects of climate change 20, 50, and 100 years from now are unknown and, indeed, unknowable. Computer models have consistently overstated past and present temperatures, and the most basic projection they make, and have also consistently misidentified the kinds of climate conditions the Earth should have already experienced. Any projections of the future are fraught with uncertainties and are untrustworthy.
Although political decisions will undoubtedly impact business decisions and success or failure, companies and fund managers can’t know what direction future political elections will take the country on climate matters. The further into the future businesses and funds try to anticipate political decisions, the less likely their projections are to be correct. Policies, regulations, and laws imposed by one Congress and presidential administration may be withdrawn or changed by the next.
Businesses and funds should operate within the current law and set of regulations while anticipating, to the extent possible, what political changes are most likely to affect their business fortunes and how best they can position themselves to respond to changes. They should report such considerations transparently.
Publicly traded companies are formed to make a profit for their owners. Accordingly, the managers of publicly traded companies and funds should endeavor to maximize the returns for their investors. Employee pension fund managers typically have fiduciary responsibilities to do just that, and to not undertake investment decisions based on non-business-related considerations with a high likelihood of reducing portfolio returns. The politics of a company’s or a fund’s managers shouldn’t enter into its business or investment decisions, unless the managers explicitly state in their articles of incorporation and public disclosures that business and investment decisions will be driven by a particular ideological point of view or set of political concerns.
If regulators, politicians, and activists wish a company or fund to consider climate change risks in their business or investment decisions, they can purchase shares of the company, as other investors have. Then, at annual board meetings, as co-owners, they can express their desires. They can try to convince company or fund managers to consider climate-change risks. They can introduce climate-related resolutions and offer candidates for the board of directors concerned about climate change, and try to convince a majority of stock owners to support these resolutions and candidates. Thousands of climate-related resolutions, and climate-focused candidates for board positions, have been offered over the past few decades. Most have been soundly rejected by shareholders.
Absent this, persons and portfolio fund managers concerned about climate or sustainability matters can form their own companies and funds to compete directly with the businesses they believe aren’t taking climate, equity, or sustainability concerns seriously enough. Thousands of such green or socially conscious companies and funds have been formed. This lets the public express concerns about the environment directly through their purchases and investment decisions.
The SEC has no legitimate role in requiring businesses to account for climate risks in their business and investment decisions.
However, for those companies and funds professing to be green, climate-friendly, or sustainable as a business strategy and a way to attract investors, the SEC should require transparency. In publicly available documents and disclosures, the companies and funds should be required to state specifically what practices they are undertaking to be green, climate-friendly, and sustainable, and how and on what timeline their efforts should be judged.
In addition, the SEC should—as part of its normal course of business and public mandate—monitor and police businesses claiming to embrace climate-friendly policies as they do other businesses: to respond to complaints from investors about the companies failing to carry out their practices as stated and, working with the Department of Justice, to ensure the companies’ officers, employees, and investors aren’t involved in or undertaking illegal business practices.
Climate change is unlikely to significantly affect the profitability of the vast majority of businesses for the foreseeable future. Corporations and fund managers disagreeing with my assessment—who think climate change or government responses to the supposed threat of climate change will materially affect their business—are free to disclose this concern and their responses to it to their investors.
Markets always respond better to the concerns and motivations of their participants than politicians, woke activists, or regulatory czars ever do.
