We would prefer that the SEC focus on cracking down on fraud in its various permutations as opposed to forcing companies to report on carbon emissions and the like.
This forced climate reporting initiative by the Biden Administration not only adds zero value to the investment decision-making process for serious institutional investors, it acts as a flat tax on companies much like 2002’s Sarbanes Oxley Act. Sarbanes Oxley resulted in approximately $2 million of annual compliance costs for companies which hit small public companies hard.
Gary Gensler’s SEC has done some good things, but this climate reporting initiative is an example of government overreach which will cost jobs at the end of the day, especially as it relates to small public companies.
This climate initiative will provide incentive for many companies to stay private longer as Sarbanes Oxley did.
One cohort that will benefit are the software and services companies that specialize in climate reporting.
As it relates to ESG investing, far too much attention is applied to the “E” portion given the Biden Administration’s rhetoric around all things “climate” (Biden wonders why gas at the pump is so expensive). Investors should focus almost exclusively on the “G” in “ESG” as it is the Governance element – the people that lead companies – that drives operating results.
Read more about the SEC’s climate initiative HERE.