The SEC Goes Green

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SEC just voted, 3-2, to offer "interpretive guidance" to companies on making public the threats posed to their business by climate change.  This sounds marvelous: we love transparency and the environment.  But though one hates to be the dour libertarian voice panning some feel-good consensus measure . . . well, this is deeply silly.

Rising sea levels are not a good thing (IMHO), but they are a slow-moving disaster, which companies will have ample time to disclose as they actually happen. (And aside from the owners of beachfront hotels or real estate in Manhattan's downtown financial district, I'm hard pressed to think of companies that are at material risk from the rise).  The other sorts of predicted disasters are far more speculative--no one really knows, for example, what effect this is going to have on hurricanes, because the science isn't that good yet.  Any disclosures would involve taking a wild assed guess at what the outcomes of global warming might be, something that most business executives are probably not qualified to do.

One could disclose risks related to the imposition of a carbon trading regime--but that's regulatory risk, not global warming risk.  Which business executives also aren't particularly qualified to assess.

Indeed, a cynical friend who does securities-related work suggests that "if climate change fails to materialize as expected, said public companies will be at risk of the SEC going after them for misleading disclosure." That's a little too cynical for me--the guidance should provide safe harbor.  But it does highlight the fact that in conditions of radical uncertainty, such disclosures could as easily be misleading as useful.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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