29 Jan 2010 Another Blow to Obama’s Agenda: New SEC Guidance on Climate Change Disclosure Will Force CEOs Who Lobby for Cap-and-Trade to Expose the Business Risk of Cap-and-Trade Legislation to Shareholders
Washington, DC – Corporate CEOs who have been actively lobbying for cap-and-trade climate legislation may soon find themselves in an embarrassing position thanks to a new Securities and Exchange Commission regulation, says Tom Borelli, Ph.D., director of the National Center for Public Policy Research’s Free Enterprise Project.
The SEC voted January 27 to provide public companies with interpretive guidance that encourages corporations to disclose the possible business and legal impact of climate change to shareholders. Full disclosure will require companies to assess and describe how cap-and-trade legislation can harm company earnings.
“Fully disclosing the business risk of cap-and-trade will embarrass many CEOs who are lobbying for emissions regulations. Shareholders will discover that these CEOs are pursuing legislation that will negatively impact their company,” said Borelli.
By issuing interpretive guidance on climate change, the SEC is encouraging companies to fully describe a wide range of business and legal risks posed by climate change on business operations. In these communications with shareholders about business risk, the SEC wants companies to address the following areas: Impact of Legislation and Regulation, Impact of International Accords, Indirect Consequences of Regulation or Business Trends, and Physical Impacts of Climate Change.
“Finally, the SEC is taking a position on the business risk of climate change regulation. Through Congressional testimony and participation at shareholder meetings over the past few years, I’ve been calling on CEOs to assess and disclose the regulatory impact of cap-and-trade to shareholders. While CEOs find it easy to ignore an individual shareholder, they can’t ignore the SEC,” said Borelli.
“Shareholders are going to discover that many CEOs have not been forthcoming about the business risk posed by cap-and-trade legislation and that they have failed to exercise their fiduciary responsibility by not assessing and communicating the impact of emissions regulations on their businesses.”
Borelli cites Caterpillar CEO Jim Owens as an executive who has arrogantly disregarded the business risk of cap-and-trade. At a shareholder meeting, Owens admitted he did not conduct a cost benefit analysis of cap-and-trade on his business before he joined the United States Climate Action Partnership – a lobbying organization pursuing these carbon dioxide emission limits.
In a subsequent Caterpillar shareholder meeting, when challenged by Borelli, Owens agreed that carbon caps could hurt heavy industry in the U.S., including Caterpillar. When Borelli asked how Owens could be held accountable if his lobbying course backfired on Caterpillar shareholders, Owens told Borelli to sell his stock.
Economic studies on the impact of cap-and-trade consistently report that capping emissions will lead to job losses and slower economic growth — developments that would negatively impact earnings of large cap corporations. “Caterpillar currently identifies general economic conditions and the amount of mining and manufacturing activity as key risk factors for its business, yet the company fails to warn investors that cap-and-trade will lead to a reduction in economic growth and a significant decrease in coal mining. Disclosure on climate change regulation will expose the conflict between cap-and-trade and shareholder interests,” added Borelli. “Armed with this information, Caterpillar shareholders will demand to know why Owens is lobbying for a law that will harm their investment. With the new disclosure detailing how cap-and-trade will harm Caterpillar, perhaps shareholders will follow Owens’ advice and sell the stock,” said Borelli.
The National Center for Public Policy Research is a conservative, free-market think-tank established in 1982. It receives less than 1% of its revenue from corporations.