Exclusive: Republicans introduce legislation to thwart ESG-related SEC disclosure requirements

Republican lawmakers wasted no time in making good on their promise to make life difficult for Wall Street’s top cop, Gary Gensler.

GOP lawmakers say the new rule proposed by the Securities and Exchange Commission chairman, requiring public companies to provide comprehensive information about how their operations impact the climate, exceeds the agency’s legal authority to protect investors from fraud and maintain fair and efficient markets. They also believe it will burden public companies with significant and unnecessary compliance costs, which will be passed on to consumers.

Congressmen Bill Huizenga (R-MI) and Andy Barr (R-KY), both senior members of the House Financial Services Committee, will introduce new legislation on Friday aimed at thwarting Gensler’s efforts and only allowing the SEC to impose disclosure requirements if the agency can demonstrate that the information is material to investors.

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The U.S. Securities and Exchange Commission (SEC) said Friday it would delay enforcing certain assets under a new disclosure rule for over-the-counter securities until Jan. 3, 2022. Photographer: Andrew Harrer/Bloomberg via Getty Images (Photographer: Andrew Harrer/Bloomberg/Getty Images)

The legislation will be a companion piece of legislation to the Senate’s Mandatory Materiality Requirement Act, which was introduced in October by Sen. Mike Rounds (R-SD) and Sen. John Boozman (R-AR). Both bills seek to amend the Securities Act of 1933 and the Securities Exchange Act of 1934 by inserting language requiring the SEC to determine whether certain information is material to investors before imposing new disclosure requirements will.

Despite a vote scheduled for the New Year, lawmakers expect the road to completion will take months — and face an uphill battle with Democrats, who control the Senate, and a likely veto from President Biden. But the bill heralds significant attention – and all but certain hearings and investigations – that the new GOP majority in the House of Representatives will give Gensler’s ambiguous agenda, including plans to overhaul capital market structure and aggressive cryptocurrency legislation.

In addition to the legislation, Gensler’s proposal for climate disclosure in comment letters has drawn significant backlash from large companies and is likely to face legal action if the SEC ultimately votes to approve the measure.

SEC

The US Securities and Exchange Commission (SEC) headquarters is seen in Washington, DC on January 28, 2021. – An epic battle unfolds on Wall Street as a cast of characters debate the fate of GameStop, a struggling chain of video g ((Photo by SAUL LOEB/AFP via Getty Images) / Getty Images)

The legal arguments against the rules center on what is known as the materiality standard, formulated by the Supreme Court in 1976, which states that a matter is “material” if “there is a significant likelihood that a reasonable shareholder would consider it important to decide how to vote.”

“The materiality standard is the investor-driven backbone of our capital markets. Intangible reporting requirements, such as those outlined in the Securities and Exchange Commission’s proposed climate-related disclosure rule, unduly burden corporations and small businesses and discriminately curb energy companies’ access to capital and threaten America’s energy security,” Congressman Andy Barr said (R-KY), the leading Republican on the House Subcommittee on National Security, Monetary Policy and International Development for Financial Services.

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The climate proposal rule, issued in March, would require public companies to disclose details of the greenhouse gas emissions they generate and to report the indirect emissions of their supply chain. The public comment period, which ended in June, has been opened up to November 1 for further contributions due to the controversial nature of the proposal.

SEC Gary Gensler

Gary Gensler, Chairman of the Securities and Exchange Commission (SEC), testifies during the Senate Committee on Banking, Housing and Urban Affairs’ hearing on oversight of the US Securities and Exchange Commission September 14, 2021 in Washington, DC. ( ((Photo by BILL CLARK/POOL/AFP via Getty Images) / Getty Images)

Republican lawmakers have repeatedly criticized the climate proposal for being “woke” and calling it an attempt to introduce liberal ESG policies into US financial markets. ESG is a broad term used to describe an investment technique that has become both popular and controversial in recent years, as some investors have called for corporate policies that consider societal needs and not just maximize shareholder value. It seeks to force public corporations to take action to protect the environment, create governance mandates that ensure diversity, and adhere to principles that improve society.

It’s not just Republicans who have criticized the SEC’s Democratic chairman for his proposed rulemaking. In October, a group of Senate Democrats led by John Tester (D-MT) wrote a letter to Gensler asking him to slow rulemaking and allow sufficient time for public feedback on his many new proposals.

According to the SEC’s inspector general, the SEC proposed 26 new rules in the first eight months of the year, twice as many as last year.

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“American job creators are under constant attack from the brutal regulatory approach of the Securities and Exchange Commission under Gary Gensler,” Rep. Bill Huizenga (R-MI) told FOX Business. “Nowhere is this more evident than in the SEC’s clear desire to massively expand disclosure requirements. Such expansion would not only hurt our economy, but would also negatively impact small businesses and make it harder for investors to exit with financial security.”

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