SEC’s new climate guidelines make no sense

Thoroughly embarrassed, the SEC has since decided that enough is enough. Gullible investors of the future must be protected in the wake of its failure to detect a $50 billion crime being committed by the charming Mr. Madoff, so it’s time for the commission to finally get serious about global warming.

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That unusual choice of priorities surprised many, but delighted a few, as you can see in their reactions:

• “Investors have a right to know which companies are planning to be part of the clean energy future and which are lagging behind.” — The Environmental Defense Fund

• “Investors have a fundamental right to know which companies are well-positioned for the future and which are not.” — The socially activist California Public Employees Retirement System

• “This is a big step forward.” – The Democratic state treasurer of Maryland

I think it was SEC Commissioner Kathleen Casey, however, who put her finger on the less savory reality: “I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection. … This release today sends a curious signal to the investment community about what we view as the most pressing issues facing the commission.”

I hope lingering memories of the Madoff scandal will serve to illuminate the inconvenient truth driving the SEC’s misuse of its broad statutory authority. In the Madoff case, six substantive tips went for naught until the Madoff empire publicly imploded one day when it finally ran out of other people’s money. After the SEC’s colossal failure to notice anything wrong as a swindler collected $50 billion, few could be surprised that the commission wants to change the subject. Coincidentally, the collapse of the Copenhagen climate conference has left other parts of the Obama administration with a burning need to change subjects, too.

Here’s the problem: The “interpretive release” that was approved by the SEC is more than just friendly advice. It is an enforcement mechanism aimed squarely at companies who are subject to regulation and punishment by the commission.

It is true that an interpretive release does not have the force of law, but a company ignores the SEC’s guidance at its peril. Unlike a rule, “guidance” is set in place with no formal rulemaking process and none of the usual standards for collecting, reading or considering of what the public might think. If you’re in a rush, it carries the added advantage that it can appear for the first time on a Wednesday and be voted into effect in time for lunch the very next Wednesday. From start to finish, this process was a case of insider dealing, but it was thoroughly legal since the SEC applies a prohibition against that sort of thing only to others.

Securities law stipulates disclosure of information material to the financial performance of publicly traded companies, but the tortured logic that blends securities law and the notoriously inexact business of climatology makes a mockery of the commission’s serious financial responsibilities. It is no secret that mammoth reinsurance outfits in Europe have been hyping the risk of global warming for the purpose of creating a lucrative new product to sell, but to call the SEC’s dive into the debate transparently political and a breathtaking waste of resources is an understatement.

Rep. Greg Walden (R-Ore.) and I sent SEC Chairman Mary Schapiro a letter asking some questions about how all this came to be:

• On Oct. 2, Commissioner Walter stated that the SEC is “not an agency populated with climate experts.” How many environmental scientists are currently employed at the SEC?

• Do you anticipate that registrants will be subjected to civil lawsuits for non-compliance with a global warming interpretive release?

• Do you anticipate that registrants will be subjected to criminal penalties for non-compliance with a global warming interpretive release?

Most of what we’ve heard since our letter went out is the sound of crickets, although the SEC does admit that it has no climatologists on staff yet.

On the day the vote was taken, Chairman Schapiro tried to comfort critics with the notion that official guidance from the SEC is no big deal. “The commission is not making any kind of statement regarding the facts as they relate to the topic of ‘climate change’ or ‘global warming,’” she said.

“And, we are not opining on whether the world’s climate is changing; at what pace it might be changing; or due to what causes. Nothing that the commission does today should be construed as weighing in on those topics.”

Please excuse every activist, lobbyist, journalist, bureaucrat and politician in Washington for knowing better.

Barton is the ranking Republican on the House Energy and Commerce Committee.