Texans Get Toasted on new ESG Rules

Congress is holding hearings this week looking into the Securities and Exchange Commission’s (SEC) new climate disclosure rule. Yesterday (March 18^th), the House Financial Services Committee held one entitled, “Victims of Regulatory Overreach: How the SEC’s Climate Disclosure Rule Will Harm Americans.” Tomorrow, the committee will hold yet another entitled, “SEC Overreach: Examining the Need for Reform.” Even the names of these hearings reveal the seriousness of the impact of the issue at hand.

The new rule by the SEC would mandate private companies create reports about their impact on the climate. Projects like the Taxpayers Protection Alliance Foundation’s (TPAF) SEC Mission Creep have well-detailed the costs of such a rule, were it to be implemented. It would cost American companies $10.2 billion to produce such reports. Further – over the long term – it is estimated this will result in $5 trillion of lost stock value.

Conservatives have rightly derided this move by the SEC as a usurpation of authority in service of a partisan agenda. However, in some states, conservatives have decided to try their own hand at politicizing investments. Unfortunately, those efforts are doomed to suffer similar economic consequences at the state level.

In the 87^th Session of the Texas state legislature (that started on January 21, 2021), lawmakers passed two bills barring municipalities from contracting with banks that restrict funding to oil and gas companies. This is part of a broader effort to counter the influence of progressive environmental, social, and governance (ESG) criteria. Given that Texas, on its own, would be the world’s 8^th largest economy and is home to more Fortune 500 headquarters than any other state, such a regulation on contracting decisions will have wide-ranging impacts.

According to a recent report, the results have already been pretty devastating for Texans. The legislation resulted in $668.7 million lost in economic activity; $180.7 million in decreased annual earnings; and $37.1 million in losses to state and local tax revenue.  Beyond the fiscal impact, there have been 3,034 fewer full-time, permanent jobs;

The report found, as any well-versed observer ought to have discovered by now, “When government attempts to mandate values, no matter what kind to businesses, the market loses.”

Actions like those being taken by the SEC are concerning for many reasons. The rise of political bureaucracies acting as partisan agents, regardless of their actual mandate, is potentially devastating to the rule of law. Executive agencies are meant to execute existing laws, instead of creating new ones in service of an agenda.

The proper response ought to be to fight back against such politicization. It should be to fight for the freedom of all Americans – of all political stripes – to be able to invest their money as they see fit. Those companies with a fiduciary duty to shareholders or – in the case of public investments – to taxpayers, should hold that as their priority.

Any action that places political or special interest consideration above that – whether it be the SEC or the Texas legislature – will leave taxpayers holding the short end of the stick and bearing the costs. The temptation to repay unwise regulation with equally unwise regulation must be resisted.