GOP state treasurers, auditors and comptrollers in 21 states are urging the Security and Exchange Commission (SEC) to drop proposed rules that would require funds marketing investments that are labeled as environment, social and governance (ESG) to disclose additional information to investors.
The proposed rule aims to combat the practice of “greenwashing,” or using deceptive marketing to claim a company is environmentally friendly, which could potentially mislead marketing investments under the ESG label.
The Republican state financial officers, including those from Texas, Arizona and Georgia, argue the agency is overstepping its boundaries and acting as a climate regulator, according to a letter sent to the SEC last week from the State Financial Officers Foundation, a group of state treasurers and auditors.
The proposed changes would require companies to report more information about the nonfinancial impact of their operations, with proponents arguing investors deserve to have as much information as possible about how issues like climate change could affect a company’s future.
Louisiana State Treasurer John Schroder, one of the officials who signed the letter, said in an interview with The Hill the new regulations attempt to steer how investors spend money and have “nothing to do with economics.”
“With everything that’s going on, I don’t want to hear about the diversifying of energy when it takes the average person $100 to fill a tank of gas,” said Schroder. “We’re going to force the average person in this country to start picking between gasoline and their blood pressure medicine.”
Schroder said the SEC regulations circumvent the legislative process and take power away from the states to dictate their own economic future.
“What do we need the state houses for anyway if the federal government is going to weigh in on every single thing in your life?” Schroder said.
The state officials in the letter also argue the rules violate the First Amendment, forcing issuers to speak extensively about their impact on climate change and hold that the new regulations will drive up energy prices.
The state-level pressure on the SEC to drop the new potential changes coincides with national GOP figures railing against the agency on the matter.
Last week, Rep. John Rose (R-Tenn.) said at a summit related to ESG put on by The Hill that he expects GOP lawmakers to fight to overturn the agency’s rules if the party takes control of the chamber in the midterms, as some projections predict.
The rule proposals come as the SEC has started to crack down greenwashing which can occur when fund managers use misleading information to attract investment from ESG funds.
ESG investing is the increasingly popular inclination of investors to make capital decisions based not only on likely financial return, but also with an eye on the company’s impact on the environment, wider society and its own employees.
Democrats have defended the proposed changes, pointing to the urgency that climate change has placed on the government to act. At The Hill event last week, Rep. Andy Levin (D-Mich.) said investing in ESG funds is becoming more important because of the “five-alarm emergency” that climate change poses to the planet.
“We want plans to offer ESG options, we want there to be clarity about some guardrails so we can’t have this greenwashing, we can’t have these phony claims,” Levin said at the event. “I’m glad the SEC is stepping up … but I think Congress should also act.”
The SEC has extended the public comment period on its proposed reporting rules through mid-June.