June 16, 2022

Senate Republicans Question SEC on Proposed Climate Disclosure Rule

Steven Lofchie Commentary by Steven Lofchie

Senate Republicans requested information on the SEC's proposed climate disclosure rule. The proposed rule would require publicly traded companies to include climate-related risk disclosures in financial documents and report global warming data.

In a letter to the SEC, the Senators — all members of the Banking Committee — criticized the proposal, stating that the "500-page proposed rule is unnecessary and inappropriate, exceeds the SEC's mission and expertise, will harm consumers, workers, and the entire U.S. economy at a time when energy prices are skyrocketing, and hijacks the democratic process in determining U.S. climate policy." They asserted that such disclosures would be detrimental to shareholders of publicly traded companies and cautioned that the required disclosures would have little effect on investment decisions while imposing unnecessary and burdensome costs on public companies.

Specifically, the Senators raised concerns that the proposed disclosure rule would (i) substantially increase reporting costs, (ii) discourage capital investment in oil and natural gas companies and (iii) as a result, create significant job losses. The Senators asserted that the proposal is an overreach and beyond the SEC's statutory authority and asked the agency to respond to questions on (i) the impact and costs the disclosure rule might have on energy prices, (ii) potential First Amendment implications and (iii) coordination with other federal agencies. The Committee requested that the SEC address these concerns by June 29, 2022.

Commentary

Even if the SEC declines to respond to the Republican Senators in this request for information, the letter should be viewed only as a first step. If Republicans gain control of the House or Senate in the next election, they will make enforceable demands for information. Separately, should the SEC go forward, it is likely that litigation will follow.

Either way, the process may reveal how the SEC performs its cost-benefit analyses. That would be good. Various commenters suggest that the SEC's cost-benefit analyses tend to understate likely costs, perhaps materially understating them. A full accounting of how the SEC estimates costs (in this or other significant rulemakings) would hopefully lead to a public evaluation of that process, which would either validate it, or, perhaps, reveal areas where improvements are needed.

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