The Left’s Latest 'Climate Change' Trojan Horse

A few weeks ago, I alerted readers to the top priority on the SEC’s new agenda: “ESG.”  For those who don’t know, “ESG” is the latest Orwellian doublespeak for “Environmental, Social and Corporate Governance.”  It’s the latest in Marxist trends going back to the 1950s, which you might previously know as “socially responsible investing” or “conscious capitalism.”

What is “ESG,” exactly?+

“E” stands for climate change, or course.  That includes things like pollution mitigation, waste management water usage, carbon footprints, greenhouse gas emissions, deforestation, energy efficiencies, and biodiversity (because diversity apparently must extend beyond humans).

“S” (Social) stands for all things labor, although one wonders why it isn’t “L.”  This includes some important things like privacy and data protection, health and safety, supply-chain management and human rights.  But it also includes labor standards, wages and benefits, and the dreaded workplace and board diversity, racial justice, pay equity, human rights, talent management, and social justice issues.  Maybe we should just substitute “W” for “woke.”

“G” refers back to how the “E” and “S” are governed within an organization.

All in favor of diversity clap your hands.

Up until recently, all of this nonsense was relegated to choices within the business and investing communities.  If your company or board of directors decided to make these issues relevant, they could vote to do so.   If you chose to invest in such companies, or do business with them, that was your business.

Now, however, the Leftist-Marxist crowd is planning to crack down in unspecified ways around public companies that make “ESG Disclosures.”  Like all things Marxist, this will begin with an apparently harmless enforcement agenda that just wants to make sure that companies are being honest when they claim to be sufficiently woke.

What we can expect is that the SEC will bring enforcement actions not merely with the intent to create such “honest” disclosure, but become the de-facto scarlet letter should a company fail to meet its un-exact and non-specific standards.

And to be sure, the SEC’s standards will be made up as it goes.  That’s because the less information there is regarding ESG disclosures, the more enforcement actions the SEC can bring, and the more money the agency can rake in from its one-sided enforcement procedures.

What few Americans realize is that federal agencies all operate the same way.  Congress passes laws, and agencies take years to develop “rules” that more specifically interpret the law.  There is a long public comment period, during which the agencies consider the input, then finalize the rules in the Federal Register.  This is a lengthy process, during which everyone who is regulated by the given agency operate in the dark.

This assumes the agencies even bother to make rules.  When something isn’t congressionally mandated, an agency doesn’t even have to formulate the rules.  They’ll take requests for rulemaking, but you can imagine how often those requests are fulfilled and when they are fulfilled, how long it takes.

Meanwhile, agencies like the SEC are free to engage in “rulemaking by enforcement.”  If the SEC sees something it doesn’t like, it can open an investigation and bring an enforcement action if it so chooses.  The terrifying thing about the SEC and other agencies is they can do whatever they want in this regard.  They can subpoena records of just about anything from any entity.  They can demand testimony.   If someone refuses and invokes their Fifth Amendment privilege, such an invocation is considered an “adverse inference” in any administrative or judicial process. In other words, judges and juries can assume that since the Respondent refused to talk, they are guilty or liable.

Verdict first, then trial -- maybe.

Because the process is so one-sided and expensive, individuals are often forced to settle and endure onerous fines because they cannot afford to go to trial.  Most companies will choose to settle so they can just get back to business, although some opt to litigate.

Oh, and should one choose to settle, standard SEC settlement language requires them to “neither admit nor deny” the charges, but they cannot ever make a public statement asserting innocence, or even make a statement that is tantamount to such!  Yes, the CATO Institute tried to litigate this matter, but lost in the D.C. Circuit for lack of standing.

Despite all the scams being perpetrated on investors on a regular basis, the Biden Administration wants the SEC to begin enforcement of… ESG?  It makes no sense in terms of fulfilling the SEC’s mission, which is allegedly to protect investors.

But that’s the point.  Protecting investors has nothing to do with the ideological Marxism behind ESG enforcement.  The point is to push climate change requirements into the public markets.  It begins with the new SEC chair Gary Gensler’s mandate that SEC develop a rule proposal on climate change specifically, which includes:

Funny how nothing else in the ESG agenda is up for rulemaking except climate change.

Gensler had long been eyed to take over the SEC, having been a Democratic operative for years.  He was a senior adviser to Hillary Clinton’s campaign, as well as an adviser to Obama, served as  party treasurer in Maryland, was on the staffs of Maryland’s top politicians, and was part of Biden’s transition team.

Gensler will do the Leftist’s bidding and establish onerous rules that will begin with “proper” disclosure.  There will be big fines for “misrepresenting” ESG (climate change) activity in the disclosures of many big companies.  There will then come requirements to either change disclosure or “remediate” climate change policies within the companies, with emphasis on the latter. Wouldn’t a company rather be given the “opportunity” for “remediation” than pay a fine?

This is the first step.   Soon, ESG – and climate change specifically – will become requirements.

Caveat Emptor: Ready for 'ESG Misconduct'?

The Securities and Exchange Commission is the ultimate double-edged sword.  On the one hand, it is a regrettably necessary federal agency that has a legitimate purpose for existing, and it has a decent track record of punishing financial fraud.

On the other hand, the SEC wields its disproportionate power far too readily.  The enforcement division often wrongfully targets minor offenders or innocents, puts them through the wringer, and even if they don’t bring litigation, end up bankrupting these unfortunates via legal fees.  The agency is also infamous for missing or ignoring warnings regarding massive fraud, such as that perpetrated by the late Bernie Madoff.

The SEC, particularly its enforcement division, should really be about protecting average investors.  They do very little in the way of educating the investing public, and instead engage in bureaucratic rigmarole more focused on deterrence -- which doesn't seem to work.

It's for your own good.

Regrettably, because it is a government agency, it is also subject to politics.  Theoretically, the agency is independent from any given administration, but it is highly unusual for the president to be on a completely separate page from the agency – unless you’re Donald Trump, and everyone is out to get you.

In the case of the Biden administration, the radical Leftist cabal propping up the doddering hair-sniffer is clearly dictating the SEC’s new priorities, and appointed a like-minded individual to run the show. Just look at the SEC’s new number one priority:  Climate change.  For real.

A March 4 press release trumpets an “Enforcement Task Force” focused on climate and ESG issues.  For those not up to speed, “ESG” means “environmental, social, and governmental" investing strategies. Just substitute “woke” and you get the same result.

But here’s the frightening thing: this “task force” is shaping up to be a climate change gestapo.  Per the release: “consistent with increasing investor focus and reliance on climate and ESG-related disclosure and investment, the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct.”

“ESG-related misconduct”?  What exactly does that mean?

Worse, what does this part mean? “The Climate and ESG Task Force will evaluate and pursue tips, referrals, and whistleblower complaints on ESG-related issues, and provide expertise and insight to teams working on ESG-related matters across the Division."

Is this as ominous as it sounds? As with anything involving politics, and especially anything involving Leftists, one must read between the lines to parse the meaning.  One must also examine the totality of information provided by not just one agency, but the power players inside the Beltway. That includes speeches by the acting SEC chair Allison Herren Lee before the Center for American Progress, a Leftist NGO, in which she said:

No single issue has been more pressing for me than ensuring that the SEC is fully engaged in confronting the risks and opportunities that climate and ESG pose for investors, our financial system, and our economy…this last year has helped to clarify why the perceived barrier between social value and market value is breaking down.

I'm from the government and I'm here to help.

So, yes, it is as ominous as it sounds because this appears to be the first step in moving the SEC away from its statutory mission of protecting investors, and instead pursuing the Marxist goal of dismantling capitalism via regulation.  It will begin with making certain that “ESG disclosures” adhere to some as-yet-undetermined criteria for which failure will lead to enforcement actions. This is also consistent with the SEC’s long-term strategy to expand its power.  That’s the very nature of government agencies.

Fortunately, it will take herculean efforts on the part of the Left and the SEC to make headway. The courts have generally ruled that it is preferable to let companies and investors interface on what matters are important enough to address and disclose.

In addition, the courts have traditionally given companies wide discretion regarding what is considered material information.  Attempting to expand the definition of “material information” to issues involving "climate change" stands far outside existing case law at the Supreme Court level.

For disclosures (or lack thereof) to be considered material, there must first be a duty to disclose.  It’s one thing for an energy or utility company to make (or fail to make) statements regarding climate or environmental issues.  It’s another for a company that has little or no adjacent exposure to those issues to have such a duty.

Even then, a landmark Supreme Court case, Matrixx Initiatives v. Siracaruso, made is clear that even failed to disclose material information may not be actionable.  The court wrote, “…it bears emphasis that [securities laws] do not create an affirmative duty to disclose any and all material information. Disclosure is required under these provisions only when necessary ‘to make…statements made, in the light of the circumstances under which they were made, not misleading’.”

In another landmark case in 2011, TSC Industries, Inc. v. Northway, Inc., the Supreme Court held that “there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information available.”  Specifically, the court refers to the mix of information that investors rely upon prior to buying or selling a security.

Believe it or not, that ruling was unanimous and the opinion written by Justice Sotomayor.  One area where the liberal justices surprisingly get it right (sometimes) is on securities fraud cases.

There’s also a constitutional issue at play, generally referred to as “fair notice."  Multiple Supreme Court cases have determined that laws must give people a reasonable opportunity to know and understand what it prohibited.  Otherwise, enforcement is arbitrary and discriminatory.  That’s why agencies publish “rules” so as to provide some element of fair notice.

In what may turn out to be the height of irony, the National Resources Defense Council sued the SEC in 1978 because it wanted more expansive disclosure of environmental matters that were not mandated by statute.  The SEC actually opposed this, saying that too much disclosure would be unmanageable and expensive.

Without congressional mandate or rulemaking, the SEC stands on very weak footing as far as filing securities fraud cases in ESG matters. That's the good news. The bad news is that this doesn't mean the agency won’t try to satisfy the Biden administrations’ Leftist puppetmasters.   Naturally, this just means more resources taken away from what the SEC should be doing – protecting regular investors from genuine cases of fraud.