House lawmakers at odds over SEC, final climate disclosure rule

Partisan differences were clear as House lawmakers examined the scope and pace of the SEC’s rule-making, including its climate disclosure rule, at a hearing March 20.

“The SEC’s aggressive and burdensome regulatory approach reveals the urgent need for sensible reforms,” said Rep. Ann Wagner, R-Mo., chair of the House Financial Services Capital Markets Subcommittee, in her opening statement.

Republicans at the hearing, titled “SEC Overreach: Examining the Need for Reform,” strongly criticized SEC Chair Gary Gensler and the commission overall, while most Democrats defended the SEC and its recent rules.

”The SEC is finally doing what we told them to do by law, in (the Dodd-Frank Wall Street Reform and Consumer Protection Act,) in 2010. We are not watching a NASCAR race; we are watching a turtle race,” said Rep. Brad Sherman, D-Calif., who serves as the top Democrat on the subcommittee.

Wagner touted her bill, the SEC Regulatory Accountability Act, as a way to improve the quality of analyses included in SEC proposals and final rules, which she said is severely lacking.

The bill, which Wagner similarly advocated at a hearing in June, would require the SEC to take a number of steps before issuing a proposal, including “clearly (identifying) the nature and source of the problem that the regulation is designed to address,” and would require the agency to utilize its chief economist to conduct a cost-benefit analysis of any proposal or final rule, according to the bill text.

Wagner and other Republicans also attacked the SEC’s recently finalized climate disclosure rule, which requires public companies to disclose an array of climate-related information in their periodic reports and registration statements.

“Materiality is the watchword and the most recent disclosure rule that the SEC has issued is not material,” said Rep. Bill Huizenga, R-Mich., who reintroduced a bill in June to block the rule.

“The SEC is not an environmental regulator nor was it given clear authority to finalize climate-related regulations that will only burden American businesses with serious costs,” Wagner said.

However, several Democrats defended the rule, including Reps. Juan Vargas, D-Calif., and Sean Casten, D-Ill., who co-chair the Congressional Sustainable Investment Caucus.

“We know that climate risk is a financial risk. I applaud the SEC for considering feedback from investors, businesses and academics, industry experts and Congress,” Vargas said.

Casten asked Alexandra Thornton, senior director of financial regulation for inclusive economy at the Center for American Progress, to explain why climate disclosures should be standardized if many companies are disclosing the information already.

“That information needs to be in a format where an investor can compare it one year to the next … so the investor can see whether the company is making progress on the commitment that it made about reducing its emissions or (something similar),” Thornton replied.

Sherman also defended the rule, contending that “we need climate disclosures because they are material.”

Since its finalization earlier this month, the SEC’s climate disclosure rule has already faced pushback from both sides. The U.S. Chamber of Commerce and other local business groups filed a lawsuit to overturn the rule, as they said it micromanages how companies make decisions about materiality, while the Sierra Club and the Sierra Club Foundation filed a lawsuit stating that the rule didn’t go far enough in protecting investors and therefore doesn’t meet the agency’s statutory mandate.