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Wall Street and big businesses have always been in the crosshairs of Democratic presidential candidates. Now with new discussions about climate change and risk disclosure, the issue is becoming more attractive to their activists.
And as one of the top three Democrats seeking their party’s nomination, Sen. Elizabeth Warren is working overtime to define herself as a progressive opponent to business-as-usual. In fact, the most prominent promise on the Warren campaign’s web site is her promise to “end Washington corruption,” a rallying cry for anti-establishment candidates on the left and the right alike (including, of course, Donald Trump himself).
Yet whatever Warren’s aims, her approach is distinctly politics-as-usual if you just look at her proposed Climate Risk Disclosure Act of 2019.
Climate change is a serious challenge, and, in the absence of effective federal policies, it is increasingly becoming a serious problem.
Setting aside climate scientists, some of the people most troubled by climate-change risks are insurance executives who need new models to calculate premium payments, and keep their companies solvent over time, as climate-related damages grow.
From this perspective, greater transparency and standardization in reporting the risks that public companies face would clearly benefit insurance companies as well as those who rely upon insurance (which is almost everyone else).
Where firms have not adequately assessed their own vulnerabilities to climate change, the analysis necessary to produce such disclosures could also contribute to needed strategic planning and prudent preparations.
Similar conclusions
In early 2018, the Securities and Exchange Commission came to broadly similar conclusions in managing the risks from another significant threat — cyberattacks — and issued new guidance urging public companies to examine their policies and calling for public disclosure of cybersecurity risks and incidents.
Whether climate-risk disclosure is best pursued through new legislation or through regulatory guidance based on existing law, as in the case of cybersecurity risks, is an appropriate topic for public-policy debate.
The SEC has already issued climate-risk guidance in 2010 to explain that regulations mandating disclosure of “material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading” applies to climate-related risks.
SEC officials have more recently emphasized the continuing relevance of this earlier guidance and stated that, while that it did not specifically address the role of boards of directors in managing risk, corporate disclosures “should discuss” board oversight of material risks.
Political assault on fossil fuels
Unfortunately, Warren’s Climate Risk Disclosure Act goes well beyond the constructive objective of improving transparency and standards surrounding climate risks; it is at heart a political assault on fossil-fuel producers and consumers.
The text makes clear that it is a so-called “messaging bill,” intended to send a political signal rather than to produce meaningful results. This is hardly surprising during a presidential campaign, yet it is unequivocally politics-as-usual rather than representing something new.
One example of this is the bill’s requirement that the SEC fix a “social cost of carbon” within two years of passage, something that neither congressional Republicans nor even some moderate congressional Democrats are likely to accept, especially through a back-door SEC rule rather than open debate in the Senate and the House of Representatives, where decisions of such consequence belong.
Likewise, the bill requires companies to estimate and disclose “direct and indirect greenhouse gas emissions,” with indirect emissions defined broadly to include emissions “that occur in the value chain” of a reporting company or that are attributed to “assets partially owned or managed” by the company.
In practice, preparing such estimates seems wholly impractical; requiring them seems intended to persuade investors to throw up their hands and divest—especially since the bill would also mandate firms to use the SEC’s social cost of carbon and their reported greenhouse gas emissions to calculate the total cost of their direct and indirect emissions.
Cost thousands of jobs
It is difficult to see such provisions in the bill as anything other than an effort to shame a large share of America’s energy, manufacturing and construction sectors—something that could cost many thousands of jobs if pursued to its fullest extent.
Indeed, where proposals like the Green New Deal or the Climate Risk Disclosure Act may be most helpful is in drawing a line between those who seek realistic and practical solutions to America’s problems and those who don’t.
Realism and practicality are more important in addressing a significant and time-sensitive problem like climate change, where delays can not only produce costlier impacts, but also require costlier policies.
From this perspective, Warren’s divisive politics-as-usual climate bill may be worse than no bill at all.
Paul J. Saunders is president of the Energy Innovation Reform Project, a non-profit organization promoting efforts to develop advanced energy technologies. He was a senior advisor at the Department of State in the George W. Bush administration. His organization accepts no corporate donations.
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