As small farming and ranching operations struggle to bounce back from the COVID-19 pandemic and supply-chain disruptions, the federal government is preparing to throw another hurdle their way.
In March, the Security and Exchange Commission (SEC), a governmental outfit purporting to “promote a market environment that is worthy of the public’s trust,” proposed a new Environmental, Social, and Governance (ESG) rule. Billed as the “Enhanced and Standardization of Climate-Related Disclosures for Investors,” it would require registrants who do business with small operators “to include certain climate-related disclosures” called Scope 3 Emissions—indirect (upstream or downstream) emissions occurring in the value chain of the reporting company.
Farmers and ranchers, however, aren’t public companies nor “registrants” reporting to the agency. But the aforementioned provision will adversely affect their operations and impose steep costs and liabilities.
First, the agency’s new rule is unenforceable as it cannot regulate non-financial goals like ESG—including Scope 3 greenhouse gas (GHG) emissions goals. Why? Political goals fall outside their purview.
As spelled out in Section 13(a) of the Securities Exchange Act of 1934, the SEC can only create rules deemed “necessary or appropriate for the proper protection of investors and to insure fair dealing in the security.” ESG principles, as understood, don’t make businesses more secure—just more vulnerable to politicization.
Unelected SEC staff cannot compel registrants to disclose information of their business partners. Only Congress is constitutionally authorized to craft bills relating to climate and environmental regulations—not the SEC. The Mercatus Center notes, “The SEC has therefore concluded that it is generally not authorized to order disclosures relating to environmental, sustainability, or other social goals except in response to ‘a specific congressional mandate.’”
Read More: SEC Uses ESG Requirements To Target Small Farms
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