Securities and Exchange Commission Chairman Gary Gensler still has yet to finalize or revise a rule proposed by the SEC in April 2022. This is the “Enhancement and Standardization of Climate-Related Disclosures for Investors” proposed rule . It elicited many thousands of public comments because it was poorly conceived, replete with legal problems, and economically destructive.

The rule is fundamentally sloppy because it reflects ideological imperatives rather than careful policy analysis. Its central purpose is not the disclosure of climate “risks.” It is instead the use of SEC regulatory powers as a vehicle with which to insert the SEC (and Gensler) into the center of the climate policy debate, thus increasing the political and regulatory power of the SEC and Gensler hugely, and also eliciting loud applause from leftist circles.

Gensler pursued this course even though it always was obvious the proposed rule, if finalized, would impose massive costs on the investor-owned business sector as well as private businesses that are not subject to SEC jurisdiction as a legal matter. The hugely adverse effects on the U.S. economy writ large? Apparently not Gensler’s problem.

Thus has Gensler trapped himself. The rule cannot be finalized as proposed because its legal weaknesses would yield highly visible embarrassment for the SEC, and the ensuing congressional hearings would not be friendly. A substantial revision of the proposed rule would require a second lengthy round of public notice and comment, perhaps dragging the process into or past the 2024 election. And depending on the details, the ultimate legal outcome would be far from certain.

But simply abandoning the rule altogether — the proper course — is unthinkable. Gensler cannot admit that there actually is no important set of firm-specific climate “risk” parameters of substantial importance to investors in public companies, or that the relevant statutes do not give the SEC legal authority to play the climate game, or that he has botched this effort so thoroughly. Such are the fruits of pursuing political power rather than sound policy.

SEC disclosure requirements for public companies are supposed to be limited to information that is “material” — relevant — in terms of the ability of investors to make informed investment decisions. Disclosure of material information increases the efficiency of capital investments and therefore capital productivity, labor productivity and wages, and economic growth. A requirement for disclosure of irrelevant information would increase the difficulties confronting investors choosing among alternative investments, thus reducing economic productivity.

Firm-specific greenhouse gas emissions are not material information because firm-specific emissions would yield impacts on climate phenomena and investment returns effectively equal to zero. (Greenhouse gas emissions from the entire U.S. economy have global climate impacts that are virtually undetectable .)

The requirement that “Scope 3” emissions — from the given firm’s suppliers (except energy) and customers — be reported is preposterous. A supplier to a given firm presumably is a supplier to many firms; how are the supplier’s GHG emissions to be allocated among its various customers? The large number of alternative ways to make those measurements guarantees a politicized regulatory process, and double or multiple counting. That the supplier’s customers themselves, in many cases, are suppliers to others illustrates the enormous complexity of this proposed requirement. Moreover, many of the suppliers and customers will be private firms not subject to SEC oversight, yielding a highly inappropriate extension of SEC reporting requirements to firms not legally subject to them.

And how are the individual companies even supposed to estimate climate “risks"? The Intergovernmental Panel on Climate Change is unable to do so even on a global basis, illustrated by profound disagreement in the peer-reviewed literature. (The mainstream climate models, on average, have overestimated the actual temperature record by a factor of more than two ).

No public company is in a position to evaluate climate phenomena. The number of factors affecting complex climate parameters is staggering, as is the range of alternative assumptions about those parameters. Therefore, the evaluation of firm-specific climate “risks” would be arbitrary, providing no material information for investors.

Unbelievably, only now is Gensler recognizing that U.S. companies operate both domestically and overseas. After more than 2 1/2 years, Gensler has announced that the SEC “intends to work with the [European Union] to ease climate disclosure burdens for companies facing separate US and European rules to report greenhouse gas emissions.” Did Gensler actually not understand this when the proposed rule was being written?

SEC regulations already require disclosure of all material information, and public companies have powerful incentives to preserve their credibility by offering full and truthful information to the capital market, in the interest of reducing the long-term cost of obtaining capital.

Unfortunately, Gensler cannot back off. Doing so would be hugely embarrassing, and the adverse effects of plowing ahead will be borne by others, including the investors Gensler pretends to defend. This is the climate agenda continuing to run amok.

Benjamin Zycher is a senior fellow at the American Enterprise Institute.