Letter to John Kerry, Special Presidential Envoy for Climate - Lummis, GOP Banking Members Demand Fairness in Banking

Letter

Dear Mr. Kerry,

We are concerned by reports you have been pressuring banks to make extralegal commitments
regarding energy-related lending and investment activities.1 These commitments would result in
discrimination against lawful U.S. energy companies and their employees, higher energy costs
for American consumers, and slower economic growth. In addition, we are equally concerned by
the Biden administration's related effort to create and impose new global warming disclosure
requirements on companies without any explicit statutory authorization from Congress.
Regardless of the policy merits, such requirements misuse financial regulators to achieve
environmental goals and harm investors by undermining the quality and reliability of both
accounting standards and the Securities and Exchange Commission's (SEC) existing corporate
disclosure framework.

One of the main causes behind America's economic success has been that our government is
based on the rule of law. Only Congress through the enactment of laws can decide what activity
is permissible or prohibited, thereby protecting one's property from a whimsical and capricious
administrative state. Your recent comments about President Joe Biden's forthcoming global
warming executive order suggest a government that is not based on law, but on coercion. On
April 7, 2021, at an event hosted by the International Monetary Fund, you stated the executive
order will seek to "change allocation of capital."2 Beyond the poor track record associated with
central economic planning, this apparent attempt to prevent energy companies from obtaining
capital disturbingly resembles the Obama administration's notorious "Operation Choke Point"
scandal, in which financial regulators attempted to coerce banks into denying services to legal
yet politically-disfavored businesses.

Misusing government power to influence bank lending and investment practices will distort
capital allocation, raise energy costs for consumers, and slow economic growth. Without readily available bank financing, energy companies will need to retain high levels of unproductive
capital on their balance sheets--capital that otherwise could be invested in their employees,
facilities, and communities. As marginal funding costs rise, energy companies will have two
choices: raise the cost of their products or cut expenses, including by laying off employees.
Eventually, they may be forced to do both. Unsurprisingly, these effects are likely to be borne by
working class Americans. Contrary to claims that consumers can move to alternative energy
sources, fossil fuels continue to represent approximately 80 percent of U.S. energy production
and consumption.3 As one energy policy expert put it, "[t]hose pushing to end fossil fuel
production now are missing the point that fossil fuels will still be needed for some time."4
Perhaps most disconcertingly, this self-harm will diminish America's strategic advantage in
fossil energy over adversaries but not meaningfully reduce global carbon emissions given that 90
percent of total emissions come from outside of U.S. borders, as you have recognized yourself. 5

Finally, we are troubled by the Biden administration's efforts to politicize oversight of financial
disclosure, especially at the SEC. Your recent comments indicated President Biden's executive
order will "require disclosure."6 This statement is concerning because, under federal securities
law, all public companies--including banks--are already required to disclose material
information, including climate-related risks. This point bears repeating: if a climate-related risk
is material, a public company must already disclose it. Your comments suggest the White House
and SEC may misuse the current disclosure framework to advance a liberal political agenda on
global warming, rather than provide the public with material information. Given that material
climate-related risks must already be disclosed, any new disclosure requirement would force
companies to disclose non-material climate-related information, including information based on
highly speculative data and inconsistent sustainability standards.7 Inundating investors with such information would undermine the quality and reliability of the SEC's disclosure framework,
which is intended to provide investors with information that is objectively important for making
an investment decision. Moreover, imposing expensive reporting regimes like "scope 3 reports,"
which require companies to calculate greenhouse-gas emissions from activities by their suppliers
and customers, will only further deter firms from going public and raise additional competitive
barriers to new market entrants. The apparent objective of this effort is not to protect investors,
but to punish lawful energy companies by deterring lending to, and investment in, such firms.

If the administration wants to ban or diminish fossil energy production to achieve environmental
policy outcomes, it should not misuse financial regulators. Instead, it should come to Congress
and seek to have the law amended. Until then, we strongly urge the Biden administration to refrain from abusing government power--via executive order, regulatory or supervisory
overreach, or informal pressure--to steer lending and investments away from lawful energy
businesses.

Thank you for your consideration of our views on this matter.

Sincerely,