OPINION:
If fully implemented, the Securities and Exchange Commission’s proposed greenhouse gas emissions disclosures for companies would debilitate investment in small businesses across the country.
This is not because these companies are breaking the law by any means, but because they can’t efficiently comply with a gigantic mandate crafted through the help of special interest entities that have defrauded green investment themselves. This problem is part of the larger disconnect between economic, social and governance, or ESG, policies pushed by a small group of consultants and investors versus the rest of the real U.S. economy.
Last month, SEC Chair Gary Gensler acknowledged that part of the mandatory emissions disclosures in the commission’s proposed 2022 climate rule wasn’t “well developed.” Due to these apparent shortcomings, the rule received public feedback from a record number of companies and constituents — more than 15,000 letters in total — many of which came from the agricultural industry. The rule would require publicly traded companies to disclose greenhouse gas emissions in three “scopes.”
The first scope represents direct emissions data, and the second scope represents direct emissions from energy purchases and usage. The kicker, however, is Scope 3. The now-notorious Scope 3 that Mr. Gensler bemoaned requires companies to disclose emissions across their entire supply chain, business partners, and other peripheral entities — such as those that small, private companies that do business with these larger corporations may produce.
This rule is borderline unlimited in scope. What qualifies as the farthest-flung part of a company’s supply chain? What if part of the supply chain is a privately owned business? What if it’s in a different country with different reporting procedures (or lack thereof)? How do you ensure that emissions for a supply chain firm aren’t counted tens if not hundreds of different times by its other partners? The SEC has spent the last year delaying and debating the rule because of its vagueness and these issues.
The cost of Scope 3 is picked up by the businesses, whose cost to comply nationwide will increase by an estimated $3.9 billion to $10.2 billion by the rule alone. Facing the brunt of this cost will be small businesses, such as farmers, 98% of which are independent and family-run and whose smaller budgets mean that compliance costs are a larger percentage of their budget. In fact, the companies that would be able to comply are large conglomerates that have the resources to stay compliant. The SEC rule favors the big and punishes the small.
All the while, the costs incurred for these companies through the SEC’s climate rule were created in part by the consultation of South Pole, a climate consulting firm exposed for selling fake carbon credits in Zimbabwe equal to 27 million tons of carbon dioxide in 2022. After the firm had miscalculated the carbon content of its forestry assets, it continued to sell the fraudulent credits anyway. Yet this firm was cited six times in the SEC climate rule, met with the SEC behind closed doors, and contributed to the cost of compliance estimations.
This example demonstrates the inherent hypocrisy of ESG. South Pole’s involvement undermines ESG as a comprehensive plan to move the economy toward sustainable and just goals. Instead, it exposes the currency framework as one crafted by and for investors, consultants, and other opaque entities to impose regulations on others while getting away with the same problems they’re punishing.
The contradictory posturing appears in ESG legislation from the SEC to private rankings. Exxon and BP, two oil companies that activists argue are the face of global warming and which one would expect to receive extremely low ESG ratings, are both ranked BBB by MSCI — that’s the middle of the pack in terms of ESG-investing firms. Bluebell Capital has called out BlackRock for heavily promoting ESG, yet opposing expanding the board representation for investors owning 90% of the company — that’s something contradictory to ESG’s umbrella idea of a healthy company structure.
Companies should pay attention to who has the ear of the SEC and who has the reins over ESG ratings. ESG is structured around transparency and good governance. So its major proponents should put their money where their mouth is rather than stripping it from the companies that serve as the backbone of the American economy.
• Ganon Evans is a policy analyst at Kansas Policy Institute and a contributor to Young Voices. His research focuses on state and local tax and spending, corporate welfare and rural development.
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