House Financial Services Committee Leans on SEC’s Gensler for More Transparency
Republicans on the House Financial Services Committee and some allies in the Senate are stepping up pressure on Securities and Exchange Commission chairman Gary Gensler regarding his agency’s proposed climate change rule. Financial Services Committee chairman Patrick McHenry of North Carolina, along with Senate Banking Committee ranking member Tim Scott of South Carolina, have sent a letter to Gensler requesting documents relating to the climate disclosure rule that the SEC has, so far, refused to provide. The letter states:
Congress created the SEC to carry out the mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation—not to advance progressive climate policies. Instead of pursuing its clear statutory mission, the SEC, under your leadership, has chosen to flout the democratic process and pursue its progressive social agenda through the promulgation of this extraordinarily expansive climate disclosure rule.
The members signing the letter are right to be concerned. I wrote a study of the rule that was published last June, and it details several problems with the SEC’s climate rule in particular and its rulemaking agenda under the current administration in general. First off, as the McHenry and Scott letter explains, the Commission simply lacks the statutory authority to enact the rule. That opinion is shared by a lot of legal analysts, including Andrew Vollmer, the agency’s own former deputy general counsel. It also requires subjective and disparaging disclosures by public companies, which federal courts have previously found to be unconstitutional. The proposed disclosures are also climate policy masquerading as materiality – that is, they’re an obvious backdoor attempt to smuggle in substantive policymaking on environmental topics under the pretense of financial regulation.
Additionally, whatever legal basis it might have, it also doesn’t pass any possible cost-benefit test. The SEC’s own estimates suggest that the overall cost of disclosure and compliance for public companies will rise from approximately $3.8 billion per year to over $10.2 billion—a more than 250 percent increase, based on this rule alone. Finally, the rule’s assumptions about future climate change and climate impacts on the real economy are wildly exaggerated and based on the most extreme theoretical scenarios that have already proven not to be accurate. See the comment letter submitted by my colleague Marlo Lewis and the late Patrick Michaels for a wealth of details on that point.
Given this most recent letter, we’re now seeing a bit of a showdown between respective chairmen McHenry and Gensler. If the agency turns over documents they didn’t previously, they’re essentially admitting they were in the wrong to withhold them in the first place. But if they continue stonewalling, they risk escalating the fight with the committee that is charged with their oversight. Regardless, it seems likely that Oversight and Investigations Subcommittee chairman Bill Huizenga of Michigan is already planning the public grilling he’ll deliver to Gensler in televised hearings. We’ll keep you up to date when that happens.
We also covered this topic on Episode 10 of the Free the Economy podcast. The SEC segment starts at 4:52.