Republican Lawmakers Question SEC's Authority to Pursue Climate Disclosure Proposal

Steven Lofchie Commentary by Steven Lofchie

In a letter to SEC Chair Gary Gensler, House Financial Services Committee Chair Patrick McHenry (R-NC), Senate Banking Committee Ranking Member Tim Scott (R-SC) and Representative Bill Huizenga (R-MI) criticized the SEC for pursuing a climate agenda "outside the scope of its mission" and requested information on the proposed climate disclosure rule.

As previously covered, the SEC proposed rulemaking would standardize the inclusion and consistency of climate-related disclosures in registration statements and periodic reports (e.g., Form 10-K or Form 20-F). The information provided in these disclosures, impacting both domestic and foreign registrants, would include (i) climate-related risks that could have material impacts on business operations or financials, (ii) certain climate-related financial statement metrics, and (iii) disclosure of the registrant’s greenhouse gas emissions.

In the letter, the Republican legislators called the SEC's climate proposal statutory overreach. Citing the Supreme Court's 2022 decision in West Virginia v. EPA - which held that under the major doctrines question the regulatory agency needed explicit authority from Congress for its actions - the legislators stated that Congress did not intend for the SEC to be "the determining body for climate policies." They called the SEC's proposed climate disclosure rule "abuse of the rulemaking process" and an attempt to "circumvent the legislative process." The legislators also criticized the SEC under Mr. Gensler's leadership for shifting away from "its principals-based disclosure regime to a partisan, activist, and prescriptive approach."

The Republican legislators called on Mr. Gensler to provide information explaining the SEC's approach, economic analyses and legal justifications as to its climate-related disclosure proposal by March 8, 2023. Citing several similar such inquiries from other members of the House and Senate that were not answered, they renewed those previous information requests, included several new questions, and expressed concern over the agency's "lack of transparency and disregard for legitimate Congressional oversight inquiries."


Historically, the SEC has functioned as a reasonably non-partisan agency, with most rule proposals put forward and adopted by unanimous vote. A trend in partisan voting on regulatory rule proposals has accelerated under the chairmanship of Mr. Gensler, with the majority going forward in 3-2 party line votes. The tension resulting from the party line votes was compounded by the fact that in a good number of situations, the regulatory actions were criticized by the minority Republican commissioners as either exceeding the SEC's statutory authority or proceeding through an inappropriate process.

Over the past two years while both chambers of Congress were controlled by Democrats that either supported or did not object to Mr. Gensler's agenda, there was no legislative pushback against that agenda. With the Republicans now controlling the House, they should have the power to call on Mr. Gensler to provide a public defense of the legal authority of recent SEC rule proposals, as well as to attempt to justify their adoption both as a substantive and procedural matter. In many instances, this will not be an easy task.

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