Earlier this month, the Securities and Exchange Commission (SEC) passed a final climate disclosure rule that forces publicly traded firms to disclose climate-related risks to their business. Compliance costs are estimated to double for publicly traded companies, which will help independent auditors and opportunistic AI startups increase their business, but hurt smaller companies who cannot afford these added costs.
Moreover, if the cost of compliance becomes too high, firms may find it advantageous to merge and consolidate—similar to the massive regulatory response after the financial crisis. Research shows that small firms with high regulatory costs are more likely to be acquired by firms in the same industry.
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