As small farming and ranching operations struggle to bounce back from the COVID-19 pandemic and supply-chain disruptions, the federal government is preparing to throw another hurdle their way.
In March, the Security and Exchange Commission (SEC), a governmental outfit purporting to “promote a market environment that is worthy of the public's trust,” proposed a new Environmental, Social, and Governance (ESG) rule. Billed as the “Enhanced and Standardization of Climate-Related Disclosures for Investors,” it would require registrants who do business with small operators “to include certain climate-related disclosures” called Scope 3 Emissions—indirect (upstream or downstream) emissions occurring in the value chain of the reporting company.
Farmers and ranchers, however, aren’t public companies nor “registrants” reporting to the agency. But the aforementioned provision will adversely affect their operations and impose steep costs and liabilities.
First, the agency’s new rule is unenforceable as it cannot regulate non-financial goals like ESG—including Scope 3 greenhouse gas (GHG) emissions goals. Why? Political goals fall outside their purview.
As spelled out in Section 13(a) of the Securities Exchange Act of 1934, the SEC can only create rules deemed “necessary or appropriate for the proper protection of investors and to insure fair dealing in the security.” ESG principles, as understood, don’t make businesses more secure—just more vulnerable to politicization.
Unelected SEC staff cannot compel registrants to disclose information of their business partners. Only Congress is constitutionally authorized to craft bills relating to climate and environmental regulations—not the SEC. The Mercatus Center notes, “The SEC has therefore concluded that it is generally not authorized to order disclosures relating to environmental, sustainability, or other social goals except in response to ‘a specific congressional mandate.’”
Small owners and operators are already subjected to onerous regulations by local, state, and federal laws. Why put more strains on struggling businesses that feed and nourish us? It wouldn’t be fair.
Demanding these smaller producers adopt more rigorous reporting regimes in this manner would also invite massive privacy concerns.
Unlike corporations, small and medium-sized agribusinesses typically run their operations out of their personal residences. For instance, disclosing data regarding individual operations and day-to-day activities—if made public— could invite threats by agriculture industry opponents and make them the target of radical environmentalists and animal rights activists intent on disrupting and stopping their operations altogether.
Unfortunately for the SEC, the courts have previously ruled against governmental agencies that force disclosure of sensitive personal data. The Eight Circuit Court of Appeals ruled in American Farm Bureau Federation v. EPA (2016) that the Environmental Protection Agency (EPA) disclosing spreadsheets containing personal information of farmers invites “substantial privacy interest of the owners while furthering little in the way of public interest that is cognizable under FOIA” and would “constitute a clearly unwarranted invasion of personal privacy.”
If the agency goes down this route, registrants working with small companies won’t trust them to handle disclosures containing sensitive information going forward. And they shouldn’t.
Given constraints already placed on small agribusinesses, disclosing personal data would place an enormous financial strain on them. To meet new demands, farmers and ranchers would have more time dedicated to collecting data and less time on their food products.
Farm management software (FMS), for instance, isn’t cheap nor heavily utilized by most farmers and ranchers. It’s reported software would cost these small businesses an additional $1,200 annually. Moreover, a 2018 survey of nearly 1,500 farmers found 69 percent still use non-computerized tools for their day-to-day operations compared to 16.5 percent who chiefly rely on FMS systems.
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Ultimately, adopting a rigorous reporting data regime would make it impossible for these small businesses to focus on their bottom line: feeding, fueling, and clothing the U.S. and beyond.
If this rule proceeds, the SEC will betray its mission to “protect investors, facilitate capital formation, and foster fair, orderly, and efficient markets.” Worse, the Scope 3 considerations would result in the closure of small businesses and force SEC registrants to seek food products from businesses outside the U.S—making our nation highly vulnerable to food insecurity.
In response, a bipartisan group of 118 House members, including swing district Democrats Reps. Elaine Luria (D-VA) and Elise Stlokin (D-MI), have demanded the agency scrap the rule altogether ahead of its comment period deadline on June 17th, 2022. Trump-appointed SEC Commissioner Hester M. Piece has also voiced her opposition to the proposal because it would undermine the agency’s disclosure regime and harm the economy.
Farmers and ranchers are conservationists who are mindful of their environmental footprint. They don’t need to heed SEC directives to steward their lands properly.
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What they are trying to do (whether innocently or with malice aforethought) is force small farm holders (or rather the children of small farm holders) to sell out to mega-corporations whose bottom line is their quarterly bottom line, not the love, care, and protection of their land - their inheritance and heritage for generations yet unborn.