Gensler Agenda at SEC Bears Close Watching

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President Biden has chosen former head of the Commodity Futures Trading Commission Gary Gensler as his nominee to be chair of the Securities and Exchange Commission (SEC), and reactions are pouring in. My Competitive Enterprise Institute colleague John Berlau and myself fired off a news release on January 12 titled “Biden’s SEC Pick Should Focus on Commission’s Core Mission, Not Political Causes.” My part of that statement focused on the prospect of the SEC wading into environmental, social, and governance (ESG) regulations:

Critics have faulted the Commission for not imposing uniformity on ESG disclosures, but here, as in other facets of American life, diversity is a strength. Deciding what qualifies as a “social” goal for corporations and what side of a particular issue should be considered the morally acceptable one is inherently beyond the scope and ability of any particular government agency, or, indeed, of government itself. Punishing serious corporate misbehavior is the duty of the courts. Balancing the competing interests of a firm’s stakeholders is the responsibility of its directors and, ultimately, the firm’s owners—the shareholders themselves.

That statement has happily received some traction, including mentions in The Washington Post, Forbes, and Traders Magazine. The worry that the SEC could throw its imprimatur behind politically motivated investing is significant, as many observers have already predicted that Biden, administration-wide, will be pushing ESG initiatives, in particular in regards to climate change. In December I wrote for National Review on how initiatives like the Department of Labor’s two 2020 rules on protecting pension beneficiaries will likely be under attack soon:

… Team Biden is widely expected to ignore or actively undermine the enforcement of both of those rules. Because formally repealing a published regulation can be time-consuming and legally complex (as the Trump administration found out on more than one occasion), it will be much easier to simply publish a new interpretation of what the rules mean. Jon Hale of Morningstar predicted in November that “the Biden [Department of Labor] will look at ways to clarify if not reverse the [ESG pension-fund] rule. We expect subregulatory guidance such as FAQs and advisory opinions to help bring things back toward the old status quo.”

We’ll have to give the incoming chairman time to get his feet under him and announce his policy priorities, but the direction of his “corporate social responsibility” policy bears close watching.