House Republicans float bill to block SEC climate disclosure proposal

Two House Republicans have introduced a bill that would limit the Securities and Exchange Commission's ability to establish additional disclosure requirements on public companies, including ones laid out in the agency's proposed public company climate disclosure rule.

The Mandatory Materiality Requirement Act of 2022, introduced Dec. 2 by Rep. Bill Huizenga, R-Mich., and Rep. Andy Barr, R-Ky., would insert statutory language into the Securities Act of 1933 and the Securities Exchange Act of 1934 to require that when imposing a disclosure obligation, the SEC must determine that "there is a substantial likelihood that a reasonable investor of the issuer would consider the information disclosed to the commission under the requirement to be important with respect to an investment decision regarding the issuer."

The bill mirrors legislation introduced in the Senate by Mike Rounds, R-S.D., in September.

The SEC unveiled its highly discussed proposal, which has broad backing from institutional investors and asset managers, in March. The proposal would require public companies to disclose a host of climate-related information in their registration statements and periodic reports, including the oversight and governance of climate-related risks by the company's board and management, and how any identified climate-related risks have affected or are likely to affect the company's strategy, business model and outlook, among other requirements.

The requirement that received the most significant debate in the proposal's comment period, which ended in June, centers on greenhouse gas emission disclosures. Under the proposal, public companies would be required to disclose the greenhouse gas emissions they generate or purchase, and the indirect emissions generated from a company's supply chain, if material, though smaller companies would be exempt from the latter requirement, referred to as Scope 3.

Republicans on Capitol Hill have particularly taken issue with the Scope 3 requirement.

"American businesses should not be used as a gateway to advance climate change policy," Mr. Rounds said in a news release when announcing his bill. "The heavy-hand of government is hampering the growth of our businesses and economy. This legislation would seek to prevent the SEC from requiring reporting of unnecessary information and instead focus on protecting investors, maintaining fair and efficient markets and facilitating capital formation."

In a separate statement, Mr. Huizenga, ranking member of the Investor Protection, Entrepreneurship, and Capital Markets Subcommittee, said the SEC's proposal "would not only damage our economy, it would negatively impact small businesses and make it more difficult for investors to retire with financial security. The SEC has a long, established history of using the materiality standard when proposing new disclosure requirements and it should continue to do so. The Mandatory Materiality Requirement Act would codify this standard into law and prohibit the SEC from expanding beyond securities law and the authority granted to it by Congress."