Abstract
This study examines the highly controversial “environmental, social, and governance” (ESG) rules that were adopted by the Securities and Exchange Commission (SEC) in 2024. Those rules require large public companies to disclose their policies for dealing with climate change and report their greenhouse gas emissions. Critics charge that those rules are the product of a “deep state” administrative agency that is operating outside the checks and balances imposed by the Constitution on other government actors. The study relates the background for these deep state concerns and the constitutional and statutory restraints that were intended to prevent the development of such unaccountable government agencies. The study then turns to the SEC and describes how it was created by Congress to act as a professional, non-partisan “administrative” body with the mission of requiring “full disclosure” of financial information for the protection of “retail” investors. The study shows how, at the behest of progressive activists and with the support of large institutional money managers, the SEC used the full disclosure concept to promote “green” investing strategies through its ESG rulemaking that led to widespread “green washing” fraud. The study concludes that, while recent Supreme Court decisions have strengthened judicial review of the SEC’s rulemaking, the agency is likely to continue to use its full disclosure mandate as a pretext to promote social programs that have little to do with investor protection. In order to prevent such overreaching, the study recommends that Congress require its prior approval of “major” SEC rules and proposes a practical approach for that process.
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