ESG Besieged

Things have been rough lately for those high-minded asset management services promoting ESG investment practices. The Right is dragging ethical investment into its culture war, accusing the ESG world of promoting “woke capitalism.” In a recent op-ed in the Wall Street Journal, former Vice President Mike Pence went so far as to state that “the next Republican president and GOP Congress should work to end the use of ESG principles nationwide.”

Unfortunately, the ESG world has left itself vulnerable to such attacks. Its criteria for deciding which corporations deserve a seal of approval are often less than rigorous and may be based on unverified data produced by the companies themselves.

The problems of ESG have reached the point that the Securities and Exchange Commission recently proposed rules that would impose stricter disclosure standards on ethical investment funds and require them to meet somewhat stricter criteria in order to use ESG or related terms in the name of the fund.

Yet perhaps the biggest embarrassment for the ESG world just occurred in Germany, where dozens of agents from the Frankfurt public prosecutor’s office and the financial regulatory agency BaFin raided the offices of Deutsche Bank and its asset management subsidiary DWS. In the wake of that action, the chief executive of DWS resigned.

The investigators were reported to be seeking evidence that DWS defrauded clients by exaggerating the extent to which its green investment products were actually based on sustainable practices. In other words, the Deutsche Bank subsidiary appears to be under criminal investigation for engaging in greenwashing. The case is said to be related to a probe that the SEC has reportedly been conducting of the matter—though without any dramatic raids.

Without pre-judging the outcome of the investigation, I find it difficult to believe that DWS is innocent. After all, it is part of a corporation with a long history of engaging in misconduct. As shown in Violation Tracker, it has racked up more than $18 billion in fines and settlements for cases involving the sale of toxic securities, manipulation of interest rate benchmarks, promotion of fraudulent tax shelters, violations of anti-money-laundering laws, foreign bribery, and more. This is all on top of Deutsche Bank’s questionable business dealings with Donald Trump and Jeffrey Epstein.

I’ve always found it odd that a bank with a reputation such as this could put itself forth as a practitioner of ethical investing. Yet that is a big part of the problem with ESG. Rap sheets such as that of Deutsche Bank are often ignored, and companies are deemed worthy based on some specific practice that is far from representative of its overall behavior.

The Deutsche Bank case is not the only example of an ESG investment adviser being held to account. Recently, the SEC charged BNY Mellon Investment Adviser for misstatements and omissions concerning the ESG criteria used in some of its mutual funds. The company agreed to pay $1.5 million to resolve the matter.

Cases such as these signal that the ethical investing world is going to have to get a lot more ethical—and rigorous—if it is going to survive.

A Legacy of Corruption

According to conventional economic thinking, commodity prices are governed by impersonal market forces. That’s how oil companies, for instance, are able to claim they are not to blame for soaring petroleum prices even as they rake in record profits.

What these corporations conveniently leave out of their narrative is the fact that markets can be manipulated. This reality is made abundantly clear in a multinational criminal case involving the Swiss commodity trading and mining company Glencore.

Law enforcement officials in the United States, the United Kingdom and Brazil have just announced that Glencore will plead guilty and pay more than $1 billion in penalties for a case that involves, among other things, manipulation of fuel oil prices in the United States over a period of eight years. According to the U.S. Justice Department, Glencore created phony transactions in order to effect changes in benchmark rates that benefitted the company’s trading positions. As punishment for this behavior, Glencore will pay a criminal fine of $341 million and criminal forfeiture of $144 million.

The charges against Glencore also include allegations of widespread bribery. The DOJ stated that over a decade the company violated the Foreign Corrupt Practices Act by making more than $100 million in improper payments to government officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of the Congo (DRC).

After using these bribes to gain improper business advantages, Glencore was said to have concealed the payments by entering into sham consulting agreements and paying inflated invoices. In other words, it falsified its own records in an effort to cover up its corruption. For these offenses, Glencore was hit with a criminal fine of $428 million and disgorgement in the amount of $272 million.

It is unclear to what extent Glencore’s market manipulation behavior affected overall fuel oil prices in the United States and what harm its bribes may have caused in those African and South American countries.

What is undeniable is that Glencore has now joined the list of large corporations whose ethics policies have turned out to be a sham. As of this writing, the company’s website still touts its code of conduct, which is spelled out in a 59-page document. It includes statements such as: “We act honestly and with integrity and are accountable for everything we do.” And: “We do not engage in corruption and we never pay bribes regardless of who we’re dealing with or what the local custom or practice is.”

It actually should come as no surprise that Glencore would fail to live up to those high-minded ideals. After all, the company was originally created by the notorious Marc Rich, who in 1983 was indicted in the United States on dozens of criminal counts relating to racketeering, income tax evasion, wire fraud, and violation of economic sanctions against Iran.

Facing the possibility of many years in prison, Rich fled the country and spent years eluding a team of U.S. marshals tasked with bringing him back to face trial. While he was a fugitive, his companies paid millions in civil penalties. Not only did Rich avoid being extradited but he received a highly controversial pardon from Bill Clinton on his last day in office.

Glencore’s dubious behavior could even be seen in its press release announcing the resolution of the criminal cases. In it, the company stated that Glencore cooperated with the investigations, whereas the DOJ release emphasized “the company’s failure to voluntarily and timely disclose the conduct to the department.” In other words, Glencore is trying to take credit for having cooperated only after it was caught. It is appropriate that the resolution of the case includes a requirement that the company retain an independent compliance monitor for three years.

The Glencore case comes on the heels of DOJ’s multi-billion-dollar resolution of a case involving the financial services company Allianz, which was accused of engaging in a massive scheme to lure pension funds into complex investments that ended up generating massive losses.

These two resolutions have not attracted a lot of attention in the U.S., where neither Allianz nor Glencore is a household name. Yet the cases are indications that the Biden DOJ may very well be making good on its promise to get tougher on corporate crime after the lax enforcement during the Trump years. I look forward to seeing the book thrown at some large domestic companies as well.

The Biden Administration’s First Corporate Crime Mega-Case

Observers of the corporate crime scene have been waiting to see when the regulators and prosecutors of the Biden Administration would announce a mega-case of the sort that had largely disappeared during the lackluster enforcement period of the Trump years. That case has arrived, and the target is not exactly a household name in the United States: the German financial services corporation Allianz.

The Justice Department and the Securities and Exchange Commission have announced that Allianz and its investment management arm, Allianz Global Investors (AGI), will pay more than $6 billion to resolve criminal and civil allegations relating to what the SEC called a “massive fraudulent scheme.” The victims of that scheme included public employees participating in pension funds that were misled about the riskiness of complex financial products marketed by AGI. The true extent of the risk became evident during the COVID-related market volatility of 2020, when the pension funds and other investors suffered catastrophic losses.

The $6 billion settlement ranks among the 20 largest penalties recorded in Violation Tracker for the period since January 2000. More than half of those cases involve financial services corporations.

Allianz, whose Violation Tracker penalty total until now was $182 million, joins the 30 banks and other financial services companies that have each paid more than $1 billion in aggregate penalties. These include 13 European banks, among which are two from Germany: Deutsche Bank and Commerzbank.

There are a couple of encouraging aspects of the AGI case that go beyond the substantial monetary penalty. First, the SEC announced that AGI, because of its guilty plea in the DOJ case, will be disqualified from providing advisory services to US-registered investment funds for the next ten years, and will exit the business of conducting these fund services.  This contrasts with other cases in which financial services companies have avoided these sorts of consequences in criminal cases by arranging for the guilty plea to be submitted by a minor subsidiary—or by getting a waiver.

In addition, criminal charges were brought not only against the company but also against several individuals, including Gregoire Tournant, the chief investment officer of AGI. Tournant was charged with securities fraud and investment fraud as well as obstruction of justice. The latter related to allegations that Tournant and the other defendants made multiple, ultimately unsuccessful, efforts to conceal their misconduct from the SEC, including, the agency stated, “false testimony and meetings in vacant construction sites to discuss sending their assets overseas.”

The charges against Allianz were all the more appropriate in that the company’s U.S. operations have been involved in several other investor deception cases. For example, in 2004, three of its subsidiaries were fined $50 million by the SEC. Another subsidiary paid $18 million to settle a case with the New Jersey Attorney General. Yet another unit was fined $5 million by the industry regulator FINRA. Allianz’s U.S. insurance subsidiaries have also been fined numerous times by state regulators.

Let’s hope that the Allianz matter is a sign that the Biden Administration is serious about cracking down on corporate crime and that recidivists will be made to pay a significant price for their ongoing transgressions.

A New Kind of Corporate Watchdog

Large companies prone to misconduct usually have to contend with three main kinds of watchdogs: government regulators and prosecutors, class action lawyers, and activist institutional investors. These parties have, respectively, the ability to impose fines, extract settlements, and bring about policy changes through shareholder resolutions.

Now it turns out that corporations are increasingly being scrutinized in another way. According to a recent article in Law360, insurance companies are paying more attention to business conduct. This is especially the case for ESG (environmental, social and governance) practices that big firms tout as evidence that they are good corporate citizens.

Underwriters providing coverage for liability claims against directors and officers are taking a more aggressive posture in two respects. First, they want to be sure any company they insure is not behaving in a way that could hurt the financial situation of the firm or damage its reputation, either of which could lead to costly shareholder lawsuits. Second, they are taking a closer look at the ESG reporting of the companies to see whether it is accurate.

Since corporations have to stay in the good graces of their insurers if they want to maintain their coverage, this trend toward stricter risk management could have significant positive consequences. For too long, insurers took a passive position toward questionable corporate conduct. They covered claims without doing much to get clients to change that behavior.

It is especially significant that more insurers are no longer taking the statements of firms at face value. The Law360 article quotes an official at insurance broker AON as saying that when it comes to ESG, “some companies just checked the box and said they have a policy in place, but that was never implemented.”

This gets to the heart of the problem with ESG policies: they are voluntary and largely unenforceable, while outcomes are often unverifiable. This makes them attractive to corporations: they can make grandiose claims about the good they are doing, and outsiders have to take their word for it.

Insurers have come to realize, Law360 reports, that “underlying litigation risk and uncertainty will continue to grow in the absence of clear definitions and common standards and regulations applicable to ESG.”

It remains to be seen whether insurers can get companies to establish clearer definitions. It may be that ESG is inherently fuzzy and that serious standards can only come from government regulators. Yet the new posture of the insurers could help discourage the most unsubstantiated ESG claims.

Hopefully, insurers will come to see that the most valid measures of business behavior should be based on metrics assembled outside the companies themselves. That is what my colleagues and I attempt to do with Violation Tracker.

The data we collect is all from regulatory agencies and court records. We ignore the statements of corporations, including those—such as the Legal Proceedings sections of 10-K filings—in which firms are supposed to own up to their transgressions. Those disclosures are almost always incomplete.

In the end, meaningful change in corporate behavior will only come about through outside pressures, not boardroom enlightenment. If insurers are serious about contributing to those pressures, so much the better.

The Phony Feud Between Republicans and Big Business

When Florida Gov. Ron DeSantis struck back at Disney for declining to support his culture war demagoguery, some observers were quick to see this as evidence of a supposed rift between the Republican Party and big business.

The Washington Post ran a front-page story declaring that “growing numbers of state and federal Republican leaders today seem eager to clash with the country’s biggest corporations.” The article portrayed the Disney dispute and a few other examples, such as criticism of Delta Air Lines for opposing restrictive voting law changes in Georgia, as “cracks in the once-sturdy relationship between companies and a business-friendly GOP.”

A similar article in the New York Times was headlined “Rebuke of Disney is Sign of a Shift by Republicans Away from Big Business.”

Reading these pieces gave me a strong feeling of déjà vu. I was reminded of the commentaries that were published about Donald Trump during his first presidential race and after his election in 2016. Much was made of his supposed attacks on big banks, military contractors and pharmaceutical companies. This continued when Trump went after Amazon.com for its supposed sweetheart deal with the postal service.

It eventually became clear that all of purported conflict amounted to nothing of substance. Trump never followed through on any actions that would negatively impact large corporations. In fact, he pursued a thoroughly pro-business agenda of lavish corporate tax cuts and a relentless attack on regulation. The latter made life easier for payday lenders, brazen polluters and employers engaged in wage theft. While some major corporations expressed misgivings about Trump’s style or his rhetoric on other issues, they were thrilled to watch him fulfill their most ardent policy desires.

Trump’s evil genius was his ability to give his working-class supporters the impression he was promoting their interests while actually catering to the corporate elite.

I have no doubt that DeSantis and other Republicans now attacking big business are engaged in the same kind of political theater. The only difference is that, while Trump pretended to be an economic populist, today’s rising GOP stars find it more advantageous to spar with corporations over social issues. It is true that DeSantis got Disney’s special taxing district rescinded, but he will probably get it reinstated once he no longer needs the company as a political foil.

The GOP spats with corporations are made easier by the fact that much of big business these days is engaged in its own posturing. Under the rubric of corporate social responsibility or ESG, many large companies are speaking out on social and environmental issues, often depicting themselves as the vanguard of change. They may do this on their own initiative, or, as in the case of Disney, are pressured by employees.

Trump-style Republicans and politically correct corporations are both engaged in a kind of kabuki dance. DeSantis et al. are pretending to be moral crusaders when they simply pursuing their political ambitions. Large companies are pretending to be moral crusaders of another sort when they are simply burnishing their commercial image.

Reporters looking for serious corporate critics are not going to find them anywhere in the Republican Party—nor among most Democrats. The mark of a serious challenger to big business is someone willing to support efforts to curb corporate power. That means strengthening worker organizing rights, consumer protection laws, environmental oversight, antitrust laws and the like—not concocting phony disputes with companies to advance a misguided culture war agenda.

The Dubious Rehabilitation of the Arms Industry

War always creates business opportunities, and the brutal Russian invasion of Ukraine is no different. Some of those opportunities are direct: producers of military hardware stand to benefit from increased orders from the Pentagon to replenish stockpiles of weapons being shipped to help the Kyiv government survive. Some are indirect: petroleum companies are profiting from the rise in world oil prices brought on by the war.

We are now seeing another kind of boon: corporations previously regarded as pariahs are now being viewed by some in a new light. Chief among these are the weapons producers. In addition to the new orders, these corporations are enjoying the fact that some investment advisors and analysts who previously shunned their shares are now arguing for their rehabilitation.

After the war began, two analysts at Citigroup led the way with the claim that “defending the values of liberal democracies and creating a deterrent” meant that weapons makers should be included in funds with the ESG—environmental, social and governance—label. Sweden’s Skandinaviska Enskilda Banken is allowing some of its funds to buy shares of military companies, reversing a position it adopted just a year ago.

Many ESG advocates are pushing back on this effort, but the fact that it is happening is an indication of the inconsistency in the motivations for ethical investing. Some ESG investors simply want to dissociate themselves from companies they find objectionable. Others hope that companies denied ESG approval will feel pressured to change their practices. A third category believe that firms such as fossil fuel producers are susceptible to legal risks that will undermine the value of their shares. And yet others may hope that disinvesting in odious companies will ultimately put them out of business.

These different categories are further complicated by the distinction between companies that are shunned because of their own practices and those which are part of an industry that is problematic.

One thing made clear by the war in Ukraine is that big military contractors are not headed for oblivion, as some hoped after the end of the Cold War. That applies not only to producers of conventional weapons that are now in great demand. Russia’s claims that it just tested a new intercontinental ballistic missile could spark a new nuclear arms race.

All this is not to say that we should be pinning a halo on the likes of Northrop Grumman and Raytheon Technologies. Even if some of their products are currently needed for the legitimate cause of helping Ukraine, much of what that do is still inherently objectionable. A long-term, large-scale build-up of weapons spending is not what we need.

Moreover, the major military contractors have long rap sheets involving repeated violations of the False Claims Act in their dealings with the Pentagon as well as bribery, export control transgressions and other offenses. None of them are model corporate citizens.

The sad truth is that the decisions of ethical investors will make little difference in the future of the military contractors. With or without an ESG seal of approval, they are riding high and will continue to prosper as international conflicts intensify. We can only hope that the world calms down, and we can go back to treating weapons producers with the same disdain we direct toward coal and tobacco companies.

Getting Tough with Corporate Privacy Violators

Privacy violations, which used to be a relatively minor compliance issue for large corporations, have now become a much more serious concern. And a recent Federal Trade Commission case could be a sign of more aggressive enforcement practices to come.

Back in the early 2000s, privacy cases consisted mainly of actions brought by state regulators against fly-by-night operations that ran afoul of Do Not Call rules by placing large numbers of unwanted marketing robocalls. The data in Violation Tracker indicate that aggregate federal and state privacy penalties across the country were only a couple of million dollars per year.

Over the past decade, total agency privacy penalties have grown substantially, exceeding $50 million each year since 2016. The blockbuster cases fall into two major categories. The first involves corporations that were fined for allowing major breaches of their customers’ data to occur. For example, in 2018 Uber Technologies had to pay $148 million to settle a case brought by state attorneys general for a breach of data on 57 million customers and drivers—and for attempting to cover up the problem rather than reporting it to authorities.

The other category consists of cases in which corporations were directly responsible for the privacy violation. In 2019, for instance, Google and its sister company YouTube agreed to pay $136 million to the FTC and $34 million to New York State to settle allegations that the companies violated rules regarding the online collection of personal data on children.

This category also includes the largest privacy penalty of all—the $5 billion paid by Facebook to the FTC in 2019 for violating an earlier order by continuing to deceive users about their ability to control the privacy of their personal information.

Also in this category is a recent case handled by the FTC and the Department of Justice against WW International (formerly Weight Watchers International Inc.). The agencies are collecting $1.5 million in civil penalties from the company for violating the Children’s Online Privacy Protection Act in connection with their weight management service for children, Kurbo by WW. The government had alleged that WW collected personal data such as names and phone numbers as well as sensitive information such as weight from users as young as eight years old without parental consent.

In addition to the monetary penalty, the FTC took the unusual (but not unprecedented) step of requiring WW to delete their ill-gotten data and destroy any algorithms derived from it. As a blog post from the law firm Debevoise & Plimpton points out, this kind of punishment can have a major impact, given that a single tainted dataset may require the destruction of multiple algorithms.

Requiring corporate miscreants to destroy intellectual property is in line with the ideas recently proposed by Consumer Financial Protection Bureau director Rohit Chopra for using measures beyond monetary penalties in regulatory enforcement. Chopra called for forcing misbehaving companies to close or divest portions of their operations—and, in the most egregious cases, to lose their charters.

The moves by the FTC and the CFPB are signs that regulators are recognizing that aggressive new enforcement tools are needed to shake up large corporations that have grown too comfortable paying their way out of legal jeopardy.

Reviving the Ultimate Corporate Punishment

Big business has despised the Consumer Financial Protection Bureau since its creation, and now the director of the agency has provided additional basis for that enmity. Rohit Chopra recently delivered a speech to the University of Pennsylvania Law School that amounted to one of the most aggressive statements on corporate misconduct ever made by a federal regulatory official. And he put forth some bold ideas for dealing with the problem.

Chopra began with the observation that the CFPB, which has been in operation for only about a decade, has had to take action against some major financial institutions on multiple occasions—five times in the case of Citigroup and four times against JPMorgan Chase, for example. These cases have resulted in billions of dollars in penalties and consumer redress.

The CFPB’s experience is not unique. “Repeat offenses – whether it’s for the exact same offense or more malfeasance in different business lines,” are, Chopra stated, “par for the course for many dominant firms.”

This conclusion is reinforced by the data collected in Violation Tracker. Over the past two decades, the commercial banks in the Fortune 100 have paid over $190 billion in fines and settlements. More than 100 corporations across all sectors have each paid over $1 billion in penalties.

The central question, as Chopra put it, is: “How do we stop large dominant firms from violating the law over and over again with seeming impunity? Corporate recidivism has become normalized and calculated as the cost of doing business; the result is a rinse-repeat cycle that dilutes legal standards and undermines the promise of the financial sector and the entire market system.”

Chopra’s address was remarkable in that it also put forth a vision for solving the problem. In addition to more prosecutions of individual executives, he calls for a focus on structural remedies, including putting restrictions on the ability of rogue corporations to grow.

This idea is not unprecedented; in fact, as Chopra notes, it was implemented by regulators in the case of Wells Fargo. In 2018, following revelations that the bank had created two million bogus customer accounts to generate illicit fees, the Federal Reserve took the unusual step of barring it from growing any larger until it cleaned up its business practices.

Chopra proposes to take even more aggressive measures. He wants to see misbehaving corporations forced to close or divest portions of their operations. He would deny such companies access to government-granted privileges. For example, pharmaceutical violators could lose their patents; lawless banks could lose access to FDIC deposit insurance.

Chopra indicated he is also exploring the most remedy of all: putting corrupt corporations out of business entirely. He warned that the CFPB will be deepening its collaboration with officials at the state level, where corporations are chartered, “to ascertain whether licenses should be suspended or whether corporate assets should be liquidated.”

In other words, Chopra is proposing greater use of what is often called the corporate death penalty (he doesn’t used that phrase). Such punishment is applied by some states in dealing with bad actors, but they are usually small, fly-by-night operations.

Talk of putting a large company out of business has been largely taboo since the case of accounting firm Arthur Andersen, which shut down in 2002 after being prosecuted for offenses relating to its role as the auditor of the fraudulent energy company Enron. There was a strong backlash in the business world against the prosecution, especially after the conviction was later overturned by the U.S. Supreme Court.

Chopra is no longer daunted by that episode. He argues that terminating corporate charters and licenses “should be considered for institutions of all sizes when the facts and circumstances warrant it.”

His speech may be a turning point in the prosecution of corporate crime. The two decades since the Enron/Arthur Andersen case have seen a tsunami of misconduct. Violation Tracker, whose mission is to document the phenomenon, is now up to more than 500,000 cases with fines and settlements of $786 billion.

While the penalties continue to accumulate, there is no evidence that corporate behavior is improving.  Another approach is needed. Chopra’s roadmap is a good place to start.

Policing the Grid

State public utility commissions are most frequently in the news in connection with their role in setting rates for electricity, gas and other regulated services. Yet they have another responsibility: protecting the interests of utility customers by monitoring the safety and consumer protection practices of the corporations under their jurisdiction.

As part of the latest expansion of Violation Tracker, the Corporate Research Project has collected data on more than 2,000 enforcement actions brought by PUCs around the country over the past two decades in which a penalty of at least $5,000 was imposed. Policing the Grid, a new report authored by freelancer Adam Warner and myself, analyzes what we discovered in those cases.

We found that a total of $13 billion in fines and settlements have been collected since 2000 by the PUCs and by state attorneys general in related cases brought against regulated companies. This amount is not evenly distributed among the states.

California has by far the latest share, $8 billion, or well over half of the national total. This is largely the result of cases brought against Pacific Gas & Electric, which has been hit with $5 billion in penalties, primarily for the role its poor power-line maintenance has played in causing devastating wildfires in the state. Southern California Edison has paid $842 million in wildfire cases as well as for other offenses such as submitting falsified data to the California Public Utilities Commission.

New York ranks second in penalties, with a total of $896 million. More than half of that figure is linked to Consolidated Edison, which has paid $528 million for offenses such as failing to prepare adequately for severe storms.

Five other states—Missouri, Massachusetts, West Virginia, Arizona and Illinois—have penalty totals in excess of $100 million. Texas has the largest number of cases, at 365, but it has collected only $67 million. Another $2.9 billion in penalties resulted from joint actions brought by groups of state attorneys general.

Other states have done much less in the way of utility safety and consumer protection enforcement. Twenty-nine states collected less than $10 million in penalties since 2000, including four– Alabama, Alaska, South Carolina and Wyoming—for which no cases with penalties of at least $5,000 could be found.

Some large corporations paid penalties in multiple states. For example, power generator NRG Energy, which ranks third among the parent companies with $1.2 billion in fines and settlements, faced cases in five states along with a multistate attorneys general lawsuit.  AT&T has paid penalties in 20 states and the District of Columbia, along with five multistate AG cases.

The Spanish energy company Iberdrola has, through its U.S. subsidiaries in the Northeast, faced the most enforcement actions (96), but most of the fines were relatively modest in size, keeping its penalty total to $27 million.

With the new utility cases, Violation Tracker now contains 512,000 entries from more than 400 federal, state and local agencies with total penalties of $786 billion.

Getting Corporations to Own Up to Their Climate Impact

The Securities and Exchange Commission, according to various media reports, is getting ready to issue a rule requiring publicly traded companies to disclose their greenhouse gas emissions in a standardized way for the first time. The rule, which the Commission has been working on since last year, would also oblige firms to detail the financial risks associated with those emissions.

Some business advocacy groups are already raising concerns about the policy, arguing it would be better to let companies decide on their own whether and how to divulge the information. An official at the U.S. Chamber of Commerce told the Washington Post that putting the data in an SEC filing would open corporations to lawsuits.

This ignores the fact that climate litigation is already happening—and the cases are often based on the failure of companies to inform investors about climate risks. Including the risk disclosures in SEC filings might actually reduce potential liability.

It is true that many firms are voluntarily making data on their greenhouse gas emissions public. The problem is with the voluntary nature of that process. In fact, this is the case for all the disclosures firms produce as part of their ESG initiatives.  

Leaving it up to individual firms to make transparency decisions creates a host of problems. First is the issue of consistency. If each company can choose to release the information in whatever format it chooses, it may be difficult or impossible to make comparisons across corporations.

Whether as part of a deliberate attempt to conceal bad performance or just laziness, companies may publish information with gaps in terms of time periods, types of emissions, locations of emissions, etc.

It is unclear what recourse stakeholders have if they believe a corporation’s voluntary disclosures are incomplete or inaccurate. Such lapses in an SEC filing are a much more serious matter. In that regard, the Chamber official is correct about liability—but only in cases in which the corporation seeks to deceive.

What makes the arguments against the SEC rule even less legitimate is that the federal government is already collecting data on CO2 emissions from companies through the EPA’s Greenhouse Gas Reporting Program. The difference is that the EPA is obtaining the data on individual facilities—some 8,000 of them—rather than for each company as a whole. For the largest emitters, this limitation is rectified by the Greenhouse 100 Polluters Index, produced by the Political Economy Research Institute at the University of Massachusetts, which aggregates the data by parent company.

These resources are valuable, but there is still a need for mandatory corporate-wide reporting by all publicly traded companies—ideally including the amounts contributed by each firm’s different facilities as well as by its supply chain.

There is also a need for such reporting by larger privately held companies, such as Koch Industries, which is number 23 on the Greenhouse 100 list.

Standardized and comprehensive greenhouse gas disclosure is all the more important at a time when fossil fuel advocates are using the war in Ukraine as a pretext for rolling back initiatives to address the climate crisis.