July 20, 2023

“We’ve got some work still to do,” said SEC Chair

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That’s what SEC Chair Gary Gensler said about the timeline for the final climate disclosure rules when asked on Monday (probably at the National Press Club), as reported by Reuters. (See this PubCo post, this PubCo post and this PubCo post.) According to the SEC’s most recent rulemaking agenda, the final climate disclosure rules have a target date for adoption of October 2023. (See this PubCo post.) Gensler, however, Reuters reported, “said this was not hard and fast. ‘We’ve got some work still to do,’ Gensler said. ‘I don’t have a time. It’s really when the staff is ready and when the Commission is ready.’” October? IMHO, nah….

Why the delay? Just speculating, of course, but the proposal has received a fair amount of pushback, with one House member contending that the climate proposal was a reflection of the “weaponization” of the SEC (see this PubCo post and this PubCo post). It was also the object of substantial condemnation in the interim report of the ESG Working Group of the House Financial Services Committee. And members of the Financial Services and General Government Subcommittee of the Senate Appropriations Committee, questioning Gensler at a hearing yesterday, were also critical of the proposed rulemaking. Opponents of the proposal have long been plotting their litigation strategies, and there is really no question that the rules will be challenged in court. Among other things, some contend that the proposal is beyond the SEC’s authority, especially in light of West Virginia v. EPA, in which SCOTUS gave its imprimatur to the major questions doctrine, invoked by SCOTUS again this term in Biden v. Nebraska (the student loan case). Although not directly addressing the SEC’s climate disclosure proposal, these cases will certainly be a key part of the arsenal used in attempts to block its implementation. (See this PubCo post.) In light of the extraordinary legal and political challenges expected from Congress and the business community over the controversial climate proposal, the SEC is likely attempting to do what it can to litigation-proof the final rules.

SideBar

At the subcommittee hearing, a few senators raised the now-familiar litany of criticisms: too many shareholder proposals (especially given that only five shareholders account for 50% of the proposals, per some studies), inadequate oversight over proxy advisors and little transparency with regard to their conduct, insufficient time for comment on proposals, and an excessively aggressive agenda—too many proposals introduced within too tight a time frame. Two senators read from a recent Inspector General report indicating that, because of the speed and volume of proposals, SEC employees complained of excessively short timelines for drafting of proposals, inadequate time for research and analysis, and difficulty managing resources. One senator characterized the ambitious agenda as a recipe for disaster. Gensler countered that, while the agenda was front-loaded, compared to his predecessors, the number of proposals was about the same. In addition to many concerns raised about a lack of clarity in crypto regulation, a number of senators raised issues about the climate disclosure proposal, including concerns that the requirement to provide Scope 3 disclosure would inadvertently implicate small private companies in the supply chains of larger public companies. Gensler replied that they were well aware of the issue from multiple comments received, that the staff was still working on the proposal, so he couldn’t prejudge the outcome. With regard to the proposal generally, Gensler reiterated that a large proportion of public companies already provide climate data in some form in response to investor demand; the SEC’s goal was to provide consistency and comparability. One senator contended that the SEC was operating well outside its authority, especially with regard to climate—shades of West Virginia v. EPA. How much funding would the SEC need, he asked, if it actually stayed within its mandate?

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