SEC Chair Addresses ESG Disclosures at House Financial Services Committee Hearing
October 12, 2021
On October 5, Securities and Exchange Commission (SEC) Chair Gary Gensler was the sole witness at a House Financial Services Committee hearing, Oversight of the U.S. Securities and Exchange Commission: Wall Street’s Cop Is Finally Back on the Beat. The hearing covered a wide range of topics, including cryptocurrency regulation, market structure, payment for order flow, and ESG disclosure.
Earlier this year, the SEC issued a Request for Input on potential climate disclosures (see here for CREFC’s response) and has been reviewing comments over the past several months. Gensler expects that a proposal, which will seek to ensure that climate disclosures are consistent, comparable, and decision-useful, will be issued “in the next handful of months.” In response to concerns about burdens on smaller companies, Gensler said that the SEC will likely phase in requirements by size of issuer and by type of disclosure, noting that disclosure requirements will be both qualitative and quantitative (e.g., data on greenhouse gas emissions) in nature.
As expected, Gensler faced push-back from a few Republican committee members, who emphasized the need for disclosure requirements to pass the “materiality test.” Gensler maintained his position that investors are demanding higher quality and comparable climate disclosures. However, both Gensler and Republican members agreed that standards need to be set to prevent investment funds from inaccurately labeling themselves as green, also known as “greenwashing.”
Two days after this hearing, on October 7, Representatives Andy Barr (R-KY), French Hill (R-AR), and Bill Huizenga (R-MI) sent a letter to Gensler expressing their dismay that the SEC’s Request for Input had included a question on whether climate transparency rules should apply to private firms:
What climate-related information is available with respect to private companies, and how should the Commission’s rules address private companies’ climate disclosures, such as through exempt offerings, or its oversight of certain investment advisers and funds?
The legislators stated that the “SEC does not have the statutory mandate and therefore lacks the authority and jurisdiction to compel privately-held businesses, not otherwise subject to the SEC’s registration and periodic reporting requirements, to publicly disclose, directly or indirectly, data of any sort.” They added that the SEC should focus on its mandate; i.e., fair and orderly capital allocation and the operational efficiency of our capital markets, emphasizing that the agency lacks the mandate to be a “roving, at-large regulator of climate or environmental policies.”