SEC Climate Rule Hearing: Statutory Overreach and Financial Burden Remain Top Concerns
The House Financial Services Committee held a hearing on Wednesday, April 10, titled “Beyond Scope: How the SEC’s Climate Rule Threatens American Markets.” The hearing focused on the 900-page climate disclosure mandate for publicly traded companies that was recently adopted by the Securities and Exchange Commission (SEC).
Concerns about the rule came from both sides of the aisle. House Republicans, led by Committee Chair Patrick McHenry, raised concerns about the SEC overstepping its authority as well as the financial implications of such action. In his opening remarks, Chair McHenry stated that “[t]he SEC is not a climate regulator, nor should it be. Congress has never authorized it to act as one. The final rule clearly exceeds the commission’s statutory mandate.” He also said that the rule would be “disastrous for American markets.”
Ranking Member Maxine Waters (D-Calif.) expressed concern from a different angle: “I’m disappointed that the SEC under immense pressure from MAGA and their corporate donors didn’t muster the political courage to adopt a bolder rule.” An interesting statement, given that the rule’s political nature (from a supposedly non-political agency) is one of the main complaints from Republicans and others opposed. Waters also mentioned insurance coverage issues in her state, blaming them on climate change. However, R Street’s own commentary and research shows that the majority of California’s insurance issues stem from the state’s insurance regulation and wildfire mitigation policies.
The cost and complexity of the rule’s implementation was a chief concern among many of the hearing’s witnesses. By the SEC’s own estimates, the rule will increase public companies’ costs by about 20 percent. Joshua T. White, a professor of finance at Vanderbilt University, echoed several members of the committee when he said these estimates are likely far too low. Other concerns were downstream from implementation costs, including reducing the number of public companies, shrinking employment, and limiting investment opportunities for everyday investors.
Legal issues were also a top concern. Witness Robert Stebbins, former counsel for the SEC, pointed to several rules struck down by the courts under the SEC’s current chair, Gary Gensler. According to Stebbins’ experience and expertise, the climate rule will be difficult to defend in court because it represents a clear overreach of the agency’s authority. He pointed to the major questions doctrine as a serious issue for the SEC rule, as attempting to deal with climate-related issues is out of their scope as an agency.
Interestingly, there appeared to be confusion among the rule’s proponents regarding the nature of free markets. Congressman Brad Sherman (D-Calif.) called opposition to the rule “an attack on capitalism,” stating that “investors want the information—and under real capitalism, we get it for them, and we make sure that it’s reliable and comparable.” However, capitalism hardly promotes major government mandates on private companies. A true capitalist and free-market approach would show an investor demand for the information, with companies responding to this demand in order to strengthen and broaden their investment base.
Professor Jill E. Fisch from the University of Pennsylvania law school spoke on this very topic. Advocating for the rule, she mentioned—both in her opening statement and in response to questioning—that many public companies are already providing this information due to investor demand. If that is the case, it begs the question of why government is needed to mandate its disclosure.