House GOP prepares CRA resolutions against Biden climate-risk rules, including SEC climate disclosure rule

Members of the House Financial Services Committee have passed four Congressional Review Act (CRA) resolutions targeting four Biden-era climate-risk rulemakings.

Among these is a CRA resolution proposed by Rep. Bill Huizenga (R-MI) aimed squarely at nullifying the Securities and Exchange Commission’s (SEC) recently finalized climate disclosure rule. The SEC’s rule is already in a precarious position, facing a consolidated set of lawsuits in the Eighth Circuit Court of Appeals. More and more organizations have filed suits pushing back against the SEC. This includes a recent complaint brought against the rule by the New Civil Liberties Alliance and Free Enterprise Project in the Third Circuit.

We are seeing a two-front battle play out in the courts and in Congress against the SEC’s unprecedented attempt to mandate corporate climate disclosures and spur climate change mitigation.

The SEC has already halted implementation of the rule as it responds to barrage of court challenges. This may push the clock back regarding when the rule’s scheduled compliance dates begin, assuming that the rule survives a protracted court battle. The SEC would also need to remove its pause for the rule to become effective.

Each of the four rulemakings were proposed by independent agencies—the SEC, the Federal Reserve Board of Governors (Fed), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—and are reflective of the Biden administration’s radical whole-of-government campaign to mitigate the effects of climate change.  

Each measure underscores the unified approach that federal agencies have taken to advance activist climate-change mitigation through regulation. Despite being “independent” agencies, the FDIC, the OCC, and the Fed teamed up last October to adopt joint rulemaking standards on climate-financial risk management principles.

The principles were designed to reinforce the private efforts of banks hedging against climate-related financial risks. These encompass physical risks from extreme weather events (wildfires, floods, drought, etc.) and transition risks associated with decarbonization efforts. The principles apply to institutions that manage at least $100 billion in consolidated assets.

Like many environmental, social, governance (ESG) policies, these joint principles are administratively redundant and largely unnecessary. The agencies acknowledge that most large companies already adopt internal mechanisms that hedge the many risks they may face, including potential losses from climate change scenarios. Despite the passive tone of the measure, the principles seem to be an indirect means of pressuring large financial institutions into adopting climate-related risk policies.

Similar to the SEC’s 2010 guidance to public firms on climate-related risks, the FDIC—OCC—Fed joint principles seek to direct firms into adopting a costly and complicated framework for mitigating climate risks. The principles are merely a vehicle for conscripting private firms into aligning with government standards on climate change reform, absent any congressional input.

This can be perceived as a form of ESG corporatism. Paul Mueller of the American Institute for Economic Research described this as government directing private industry to conform with ESG orthodoxy, while conferring benefits to favored firms through regulatory capture.

According to Mueller, ESG corporatists “seek to work with government officials to benefit themselves and hamstring their competition.” Large financial firms are herded into conformity with government standards on climate risk management while smaller firms are left more exposed to litigation risk if, and when, future ESG regulations go into effect.

The House GOP has prepared CRA resolutions that would terminate each of the three agency’s climate risk principles (H. J. Res. 124 for the OCC, H. J. Res. 125 for the Fed, and H. J. Res. 126 for the FDIC).

The SEC’s climate disclosure rule follows a similar, yet more financially devastating, corporatist approach. If implemented, the rule would force large and mid-size reporting firms to calculate and disclose their greenhouse gas emissions and quantify how climate change risks impact their business model, investment strategy, financial conditions, and operations.

Going beyond the guidance of the joint principles, the SEC supersedes its regulatory authority by imposing reporting requirements for corporate board oversight of climate risks. This requirement requires corporate directors to report to the SEC about what climate risks they oversee and how they direct their management team to address such risks. The SEC has no place to compel such information.

The rule undermines the discretion of board directors to simply disregard and not report on topics they consider immaterial. Climate risks may warrant very little consideration or impact when the board conducts oversight on the broader, more immediate financial objectives of the company.

Rep. Huizenga has targeted the SEC’s rule by advancing H. J. Res. 127 out of committee (28-22) to bring the resolution before the full floor.

The Senate has also placed the SEC’s rule in its crosshairs. Sen. Tim Scott (R-SC) is advancing a companion resolution to overturn the climate rule. There is a large likelihood that it will pass a Senate vote, as Sen. Joe Manchin (D-WV) joined 33 GOP Senators in sponsoring the resolution and may convince other moderate Democrats to support it as well. This includes Sen. Jon Tester (D-MT), who supported a CRA resolution to invalidate the Department of Labor’s ESG rule for fund managers.

The CRA represents a useful legislative check against regulatory abuse from agencies. While the CRA has existed since 1996, it had only been successfully used to disapprove of a rule one time prior to the Trump administration. It has been invoked more successfully since that time. President Donald Trump signed 16 CRA resolutions of disapproval into law and President Joe Biden has signed three CRA resolutions into law. President Biden set the record for the greatest number of vetoed CRAs at seven, surpassing all other presidents combined, including Trump (one) and Obama (five).

The current CRA deadline for when agencies must submit their rules to Congress is May 22^nd for the House and June 3^rd for the Senate. If an agency fails to do so by the window, then the rule will be vulnerable to invalidation by the CRA for the 119^th (next) Congress.

We may see future Biden era climate regulations become subject to invalidation by the CRA depending on the outcome of the November election. This is because the “lookback” mechanism of the CRA exposes certain rulemakings to congressional review in 2025 if they were submitted to Congress after the above deadlines and 60 legislative days prior to congressional adjournment. Such CRA resolutions of disapproval may avert a Biden veto if a new president is elected.

Even a vetoed CRA can signal to courts that a rule faces notable pushback from Congress and may be politically troublesome. Congress should move forward in passing its CRA resolutions against the SEC and joint guidance by the Fed-OCC-and FDIC.