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Jun 1, 2025  |  
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Richard D. Kocur


NextImg:SEC Just Made Business Riskier With Woke Demands

Doing business as a public company or as a new public offering just became a whole lot riskier. Did the competitive business landscape get more crowded? Did the Chinese initiate tariffs? Did volatility in the stock market create more uncertainty?

None of the above.

The U.S. Securities and Exchange Commission (SEC) adopted new reporting rules mandating material climate risk disclosures by public companies and in public offerings. It’s yet another advancement of the environment, social, and governance (ESG) movement that has permeated the corporate world. Operating a business, large or small, has always required the assumption of risk; if there is anything that occupies the thoughts of corporate leadership, it is risk. Unfortunately, the recent SEC mandates will unnecessarily expand the amount of risk businesses must identify, assume, and mitigate — all in the name of the climate agenda. 

In a 3–2 vote, with Commissioners Hester Peirce and Mark Uyeda dissenting, the SEC adopted significant climate-related disclosure requirements for companies covering areas such as climate-related risks and their impact on business strategy and outlook, climate-related adaptation activities, climate-related goals, and climate-related risk oversight and governance. Pierce and Uyeda recognized the underlying flaw of the new rule and its negative impact on business. Peirce correctly noted that the new rules will now signal “that climate issues deserve special treatment and disproportionate space in commission disclosures and managers’ and directors’ brain space.”

In his dissent, Uyeda also sees the rules forcing “companies’ boards and management … to spend more time and resources to think about, assess, and discuss climate change, even if no disclosure is ultimately made.” As mandated disclosures for all publicly traded companies and new public offerings, climate-related information must be included in documents like a company’s annual report or 10-K filing with the SEC.

In addition to being yet another regulatory burden on American business (Walmart’s 2023 10-K filing is 84 pages long), the various categories of climate-related disclosures are required if they are determined to be “material.” Material according to whom? The determination of whether a particular climate-related risk is or is not “material” is as varied as the definition of “climate change” itself. The likely result of this overly broad reporting requirement will be for a business to assume the maximum amount of risk simply to cover all bases, thus increasing its risk mitigation activities and costs. In addition, the risk assumed by corporate leadership in C-suites and on boards of directors will also increase. An additional layer of corporate governance and control will now be required to ensure officers of the company can provide the necessary evidence of oversight of material climate-related risks and leadership’s role in managing such risk. While many SEC reporting requirements, including the new climate-related material risk, are considered forward-looking (i.e., used only for guidance) and thus provide a degree of insulation from litigation, does anyone really think that climate activists won’t initiate lawsuits resulting from a perceived lack of climate risk reporting on the part of businesses?

American business must now account for the risks resulting from the new SEC rules, but a longer-term risk must also be considered — and this one is far greater. As noted, environment is only one pillar in the ESG trifecta. At some point in the future, the other pillars, social and governance, could also be made subject to reporting rules. The social pillar of ESG is oriented to issues like social justice, employee diversity and representation, and supply-chain labor practices. The governance pillar focuses on issues such as shareholders’ rights, board diversity, executive compensation, and how that compensation is aligned with the company’s sustainability efforts. Uyeda identified the potential rule as having “created a roadmap for others to abuse the Commission’s disclosure regime to achieve their own political and social goals.” Requiring businesses to report climate-related risks is one thing, but mandated reporting on factors such as how the company mitigates the material risk of its business’ social justice impact or management’s role in handling material risk related to compensation and sustainability is another.

Operating a business, especially a large one, is fraught with risk. Uncontrollable external forces like competition, the economy, and geopolitics impact a business operation in measurable and material ways. It is important for investors to be made aware of such risks. The SEC’s new climate-related reporting mandates, however, will require businesses to assume risks that are less defined, difficult to measure, and tied to a political agenda. The rules increase the regulatory burden on public companies and add undue complexity to business strategy and decision making.

In other words, risky business is now riskier business.