In likely his final appearance before the Senate Banking Committee, SEC Chairman Jay Clayton received warm wishes Tuesday on his future endeavors and some pointed criticisms from Democrats on issues like climate change risk disclosures.
One of the more contentious moments of the two-hour hearing came when Mr. Clayton, who announced Monday that he will step down from his post at the end of the year, was pressed by Sen. Elizabeth Warren, D-Mass., on how the agency has approached climate change during his tenure.
Ms. Warren asked several times if the SEC has established a "mandatory, uniform standard for reporting on climate risk so that investors can compare companies head-to-head?"
While Mr. Clayton said there is no uniform standard, he said to "the extent that climate-related risks are material to the company's performance and prospects they have to be disclosed."
The senator took issue with the SEC not requiring all publicly traded companies to report on their climate-related risk, even if those companies have nothing to report. "Right now we've got these huge gaps in the SEC's disclosure rules that basically allow a company either to conceal or to downplay climate risks to their investors," Ms. Warren said.
Mr. Clayton, who said that he spoke with his colleagues at the International Organization of Securities Commissions earlier on Tuesday about how to tackle climate change-related issues, said "what people want is decision-useful information" when it comes to corporate disclosures.
In closing, Ms. Warren said that climate change is an existential risk. "We need a new SEC chair who will put this climate crisis at the top of the agency's agenda," she said.
In a different line of questioning from Sen. Brian Schatz, D-Hawaii, Mr. Clayton said there will be better climate-related disclosures if a safe harbor is created so that those companies aren't the subject of lawsuits if they miss their forecasts.
"We need to try to get disclosure that people recognize as … forward looking; it gives you an assessment of the risks, but people aren't going to be held to precision," Mr. Clayton said.
On a different subject, Sen. Mike Rounds, R-S.D., asked Mr. Clayton for his thoughts on financial transaction taxes. Lawmakers in New Jersey are currently considering a proposal that would levy a tax on all stock trades that occur in New Jersey, where the major exchanges house their processing centers. Exchanges like the New York Stock Exchange and Nasdaq and groups like the Securities Industry and Financial Markets Association oppose the proposed tax and exchanges have floated moving their operations if the tax were to pass.
"If we do have a piecemeal approach to transaction taxes, you're going to have critical infrastructure moving in response — tax policy causes adjustments — and if we have our critical infrastructure moving from one jurisdiction to another for more favorable tax treatment, from my perspective that creates operational issues that we need to think about," Mr. Clayton said.
Republicans on the committee broadly praised the SEC's recent rule-making initiatives, particularly its expansion of investors eligible to participate in private markets by adopting amendments to its "accredited investor" definition, and its raising of the requirements for investors who wish to submit a shareholder proposal and approving higher thresholds for resubmitting shareholder proposals in subsequent years.
"Clearly, the SEC has been busy, and I commend you for balancing emergency COVID-19 responses while advancing critical rule-making initiatives, risk-based inspections, enforcement actions and issuer and fund filings," said Mike Crapo, R-Idaho, the committee's chairman.
