Climategate: The SEC Takes On … Climate Change
The Securities and Exchange Commission (SEC) is a venerable agency. It was established in 1934, and Joe Kennedy was the first chairman. In the interest of full disclosure, my dad as a young lawyer worked for him and occasionally took the Kennedy kids for walks. I worked there one summer as an intern. I suppose there may be a soft spot in my heart for the SEC.
The function of the SEC “is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation”:
The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: All investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public. This provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions.
On January 27, the SEC announced new interpretative guidance requiring publicly traded companies to provide information about the impact on their businesses of “risks and potential impacts of climate change legislation, environmental regulation, and international climate treaties” in their periodic “10K” filings.
A February 27 press release by Elisse B. Walter, the commissioner of the SEC, which earlier appeared at the link cited immediately above, seems to have been replaced by a statement by SEC Chairman Mary Schapiro.
Commissioner Walter’s statement noted, among other things, that the possible impact or lack thereof of actual climate change did not have to be reported; instead, only the anticipated governmental response to it had to be reported. The text of the guidance is provided here. It does note reporting requirements as to “physical impacts of climate change,” so perhaps Walter misspoke.
Courts generally give substantial deference to agency interpretations of the laws such agencies enforce. While it continues to be up to the companies involved to decide upon the materiality of any impact, Walter noted (in her apparently no longer available statement):
The Supreme Court has already provided guidance to publicly held companies in TSC Industries when it said that “it is appropriate that these doubts be resolved in favor of those the statute is designed to protect.”
Here is the crux of what the Supreme Court said in TSC Industries:
An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. … It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, 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 made available.
It is perhaps significant that Schapiro said:
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.
It is also perhaps significant that since the Court in TSC Industries spoke in the context of proxy materials, the guidance offered by the SEC presumably applies to proxy materials, registration statements, quarterly reports, annual reports to stockholders, and the like as well.
“Here’s the potentially good part: The new interpretative guidance may, and probably should, encourage corporate entities to use their 10K and other SEC filings as bully pulpits to attack potentially harmful climate change legislation, treaties, and regulations.”
Public opinion is now on the side of these companies to exercise this option. A few years ago the radical environmentalists might have forced their victims to capitulate to their demands. They might not have dared to fight back. The threat of bad publicity alone could have intimidated them into silence. The polling results now clearly show that most Americans reject the leftist establishment’s fear mongering and dubious scientific arguments. These companies no longer have to be afraid. The consumers of their products and services also realize that any financial costs will ultimately be passed along to them.
Sounds like another good reason for U.S. companies to reincorporate offshore (maybe in India or China?). Here, I’d like to ask: How long will it be before all that’s left are non-profits? But then, Obama wants to eliminate the charitable deduction. So, I guess they’ll all dry up.
All we’ll have left here are state, local, and federal bureaucracies, and unions. But, the upside will be, if there are no more U.S. companies to regulate or work for, would not the bureaucracies have nothing to regulate (read: oppress), and the unions no one to work for (read: put out of business)? Maybe they’ll all dry up, too.
The last one out, turn off the lights.
Surely, in order to assess the impact of putative climate change upon a business, it is necessary to have access to reliable data, rather than falsified data or data which has been corrupted by people who have manipulated it in some untransparent and perhaps incorrect manner. Could any company demand access to all original, uncorrected temperature and proxy temperature data, in order to fulfill their obligation to assess the impact upon their busuness, of climate change, rather than potentially mislead their shareholders and other interested parties, by knowingly produucing assessments which are based upon data which has already been proven to be unreliable, or deliberately falsified.
If a company produced its assessment using data provided by individuals or agencies whose data is already proven to be unreliable, surely the assessment would fail to qualify under rules of due diligence and the company could face legal action from any potentially adversely affected party.
From the point of view of this meteorologist, the SEC’s ruling is nonsense on multiple levels.
1. As noted, it is impossible to predict what bureaucrats will do, especially since it will be influenced by future elections, the outcomes of which cannot be known in the future.
2. There is zero (and I mean zero) methodology for predicting future climate with any skill.
As a practical matter, no one is going to use their 10K to attack the SEC, as it is an invitation for government retaliation.
I see this ruling as for the benefit of lawyers only.
Earlier snow-melt?
With 18 accumulated inches,
and more coming that would be nice.
Maybe the SEC should be renamed the Securities and Climate Change Commission in keeping with these new mandates.
It is widely held that large corporations are powerful institutions able to bully anyone getting in their way. Nothing could often be further from the truth in a Democratic society. Race hustler Jesse Jackson or environmental whack job Robert Kennedy jr. can unfairly do enormous damage to their public image. The resulting financial losses could be staggering. That is why the top executives tend to place their wet finger into the air to see which way the political and cultural winds are blowing. Perception regrettably can be more important than the truth. These corporate leaders are getting a golden opportunity to combat the politically correct extremists. They would be best advised to do so.
Obama is all againast this. When he took over chrysler, for example. He didn’t have a legal board meeting to fire the Pres and declare bankruptcy. They also did NOT report in their financials that the secured bond holders and debt holderes were facing a total loss. This is fraudulent lack of disclosure of liabilities.
Solution:
“Obama may on a whim sieze the company and it’s futre as a viable firm is at risk.”
So the SEC is in charge of climate change. Were these not the same people who were watching Wall Street inflate the bubble and didn’t see it happening? Admittedly blowing bubbles is not the same as reading anal thermometers to take the world’s temperature while adjusting for the urban heat island effect. But If they couldn’t catch Madoff’s Ponzi scheme, I wonder how they would’ve done with detecting fraudulent scientists and Climategate? Wait, that’s it, they’re not supposed to catch quackery; they’re suppose to facilitate it and call it cap and trade.