I. Introduction
I’ve got some ocean front property in Arizona
From my front porch, you can see the sea
I’ve got some ocean front property in Arizona
If you’ll buy that, I’ll throw the Golden Gate in free
— George Strait
The NYSE sought to establish a new listing standard for novel companies called “Natural Asset Companies,” or “NACs” for short. NACs would have the overriding purpose of “maximiz[ing] ecological performance” and could not earn revenues except through activities that “replenish natural resources.”
Ordinarily, listing a new type of company on the NYSE is a serious business. The NYSE’s manual for listed companies begins by declaring: A listing on the New York Stock Exchange is internationally recognized as signifying that a publicly owned corporation has achieved maturity and front-rank status in its industry—in terms of assets, earnings, and shareholder interest and acceptance. Indeed, the Exchange’s listing standards are designed to assure that every domestic or non-U.S. company whose shares are admitted to trading in the Exchange’s market merit that recognition.
NACs merit none of that recognition. The NYSE provided no evidence that NACs even exist or would be legal corporate structures. NACs have not achieved “maturity” with investors. They are not a promising class of private startups requiring minor tweaks to help class leaders go public. They have no track record of earnings or “shareholder interest and acceptance.” They have no record at all, as NACs don’t exist. Rather, they are a wholly experimental concept funded by environmental NGOs. NACs are untested, unproven, and abjectly unsuited for listing on a national securities exchange. By proposing a listing standard for NACs, the NYSE made a mockery of its vaunted listing standards. And by seeking approval, the NYSE sought the SEC’s endorsement of this unserious scheme.
Frequently, anti-growth environmental investing is presented as a different means for investors to pursue profits, clad, so to speak, in the sheep’s clothing of financial gain. Not so with NACs. “[T]his wolf comes as a wolf.”
The NYSE all but admitted other motivations. The NYSE’s goal was not to recognize companies that have “achieved maturity and front-rank status in . . . industry.” Instead, the NYSE’s goal was to “end[] the overconsumption of and underinvestment in nature” by “bringing natural assets into the mainstream.” In short, the NYSE thought elected governments are just not spending and regulating enough to protect the environment. Private investors, and the SEC, must step into the breach.
To remedy this “underinvestment” in “nature,” the NYSE wanted to create a comprehensive regime that would brand NACs with its (and the SEC’s) stamp of approval. NACs would have managed public and private lands and preserve “natural assets” such as forests and grasslands on these lands, giving investors “pure-play exposure to nature and climate.” Under the proposal,” lands could be used for “sustainable operations”—but not to mine, to extract “fossil fuel,” or to engage in “industrial agriculture.” The NYSE could not, by fiat, make the conservation of “natural assets” financially valuable. So instead, it did what unscrupulous managers have always done: game the accounting. The NYSE would have had NACs adhere to a new accounting methodology that would “capture the value of [] non-monetized ecosystem services.” NACs would report metrics based on “natural capital accounting standards” developed by the United Nations. But most of these accounting metrics measure public goods, such as a piece of land’s contribution to “climate stability,” that accrue to the public as a whole, not to investors. Several other proposed metrics are subjective and non-falsifiable.
“Unequal weights and unequal measures are both alike an abomination to the Lord.” But not to the NYSE. At best, listing NACs on the NYSE would have misled investors as to the actual economic value of their investments. At worst, it would have perpetrated an unmitigated fraud upon well-meaning investors.
The NYSE and its supporters justified this untested means of private regulatory control because they think know what’s good for the rest of the country, and for the world. That’s a dangerous conceit. As C.S. Lewis wrote: Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.
No doubt the consciences of NAC sponsors, managers, and auditors would have been stroked by their plans to “transition to a more sustainable, resilient, and equitable economy” and protect humanity from “threats to life on earth.” NACs would have made up for the inevitable cash losses with trumped-up accounting. The rule established both the motive and the opportunity for fraud. Think: Enron meets Greta Thunberg. Investors who wish to support green initiatives but make the reasonable assumption that a company listed on the NYSE must at least be a forprofit business would have been left holding the bag.
But investors would not have been the only immediate victims. NACs would be used to strip voters of control over public lands. They would be used to buy off corrupt foreign officials into keeping their lands fallow and their people poor. In exchange for valueless stock certificates, locals near rainforests would be forced out, and prevented from gathering firewood for cooking or heating, all while Wall Street investors electronically trade on the aesthetic value of lands they never visit, and boast about it.
* * *
As the legend goes, securities laws in the United States were famously first adopted to protect investors against stock promoters who were “so barefaced they would sell building lots in the blue sky.” With the NACs rule, the NYSE managed to outdo the metaphor, proposing to list the securities of companies who claim rights to the blue sky itself. Congress gave the SEC its role of reviewing stock exchange rules precisely to prevent reckless and poorly thought-through rules such as this one.
No statutory purpose would have been advanced by the NYSE’s proposal, and several would have been significantly hindered by it.
Re: Order Instituting Proceedings to Determine Whether to Approve or Disapprove a Proposed Rule Change to Amend the NYSE Listed Company Manual to Adopt Listing Standards for Natural Asset Companies
I. Introduction
I’ve got some ocean front property in Arizona
From my front porch, you can see the sea
I’ve got some ocean front property in Arizona
If you’ll buy that, I’ll throw the Golden Gate in free
— George Strait
The NYSE sought to establish a new listing standard for novel companies called “Natural Asset Companies,” or “NACs” for short. NACs would have the overriding purpose of “maximiz[ing] ecological performance” and could not earn revenues except through activities that “replenish natural resources.”
Ordinarily, listing a new type of company on the NYSE is a serious business. The NYSE’s manual for listed companies begins by declaring: A listing on the New York Stock Exchange is internationally recognized as signifying that a publicly owned corporation has achieved maturity and front-rank status in its industry—in terms of assets, earnings, and shareholder interest and acceptance. Indeed, the Exchange’s listing standards are designed to assure that every domestic or non-U.S. company whose shares are admitted to trading in the Exchange’s market merit that recognition.
NACs merit none of that recognition. The NYSE provided no evidence that NACs even exist or would be legal corporate structures. NACs have not achieved “maturity” with investors. They are not a promising class of private startups requiring minor tweaks to help class leaders go public. They have no track record of earnings or “shareholder interest and acceptance.” They have no record at all, as NACs don’t exist. Rather, they are a wholly experimental concept funded by environmental NGOs. NACs are untested, unproven, and abjectly unsuited for listing on a national securities exchange. By proposing a listing standard for NACs, the NYSE made a mockery of its vaunted listing standards. And by seeking approval, the NYSE sought the SEC’s endorsement of this unserious scheme.
Frequently, anti-growth environmental investing is presented as a different means for investors to pursue profits, clad, so to speak, in the sheep’s clothing of financial gain. Not so with NACs. “[T]his wolf comes as a wolf.”
The NYSE all but admitted other motivations. The NYSE’s goal was not to recognize companies that have “achieved maturity and front-rank status in . . . industry.” Instead, the NYSE’s goal was to “end[] the overconsumption of and underinvestment in nature” by “bringing natural assets into the mainstream.” In short, the NYSE thought elected governments are just not spending and regulating enough to protect the environment. Private investors, and the SEC, must step into the breach.
To remedy this “underinvestment” in “nature,” the NYSE wanted to create a comprehensive regime that would brand NACs with its (and the SEC’s) stamp of approval. NACs would have managed public and private lands and preserve “natural assets” such as forests and grasslands on these lands, giving investors “pure-play exposure to nature and climate.” Under the proposal,” lands could be used for “sustainable operations”—but not to mine, to extract “fossil fuel,” or to engage in “industrial agriculture.” The NYSE could not, by fiat, make the conservation of “natural assets” financially valuable. So instead, it did what unscrupulous managers have always done: game the accounting. The NYSE would have had NACs adhere to a new accounting methodology that would “capture the value of [] non-monetized ecosystem services.” NACs would report metrics based on “natural capital accounting standards” developed by the United Nations. But most of these accounting metrics measure public goods, such as a piece of land’s contribution to “climate stability,” that accrue to the public as a whole, not to investors. Several other proposed metrics are subjective and non-falsifiable.
“Unequal weights and unequal measures are both alike an abomination to the Lord.” But not to the NYSE. At best, listing NACs on the NYSE would have misled investors as to the actual economic value of their investments. At worst, it would have perpetrated an unmitigated fraud upon well-meaning investors.
The NYSE and its supporters justified this untested means of private regulatory control because they think know what’s good for the rest of the country, and for the world. That’s a dangerous conceit. As C.S. Lewis wrote: Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.
No doubt the consciences of NAC sponsors, managers, and auditors would have been stroked by their plans to “transition to a more sustainable, resilient, and equitable economy” and protect humanity from “threats to life on earth.” NACs would have made up for the inevitable cash losses with trumped-up accounting. The rule established both the motive and the opportunity for fraud. Think: Enron meets Greta Thunberg. Investors who wish to support green initiatives but make the reasonable assumption that a company listed on the NYSE must at least be a forprofit business would have been left holding the bag.
But investors would not have been the only immediate victims. NACs would be used to strip voters of control over public lands. They would be used to buy off corrupt foreign officials into keeping their lands fallow and their people poor. In exchange for valueless stock certificates, locals near rainforests would be forced out, and prevented from gathering firewood for cooking or heating, all while Wall Street investors electronically trade on the aesthetic value of lands they never visit, and boast about it.
* * *
As the legend goes, securities laws in the United States were famously first adopted to protect investors against stock promoters who were “so barefaced they would sell building lots in the blue sky.” With the NACs rule, the NYSE managed to outdo the metaphor, proposing to list the securities of companies who claim rights to the blue sky itself. Congress gave the SEC its role of reviewing stock exchange rules precisely to prevent reckless and poorly thought-through rules such as this one.
No statutory purpose would have been advanced by the NYSE’s proposal, and several would have been significantly hindered by it.