Lawmakers spar over prospects for SEC’s climate disclosure rule

The Securities and Exchange Commission’s (SEC) new “climate disclosure” rule was the latest flashpoint in the GOP’s battle against government overreach in a House hearing Thursday.

Republicans say the rule is not only a threat to enterprise but will be struck down in court, with the Supreme Court this week signaling it will claw back federal agency power. Democrats say the SEC is protecting investors and isn’t subject to restrictions that could soon be placed on other government agencies.

The SEC seeks to require publicly traded companies to report direct and indirect emissions, as well as all emissions generated through their business supply chains and partners. Additionally, it would require companies to detail the “actual or likely material impacts” of climate change on their business strategy, and any plans to move toward cleaner energy.

Republicans think the SEC is out of its lane.

“Congress has not delegated the authority to the SEC to require climate disclosures,” Rep. Bill Huizenga (R-Mich.), chair of the House Financial Services Subcommittee on Oversight and Investigations, said.

Huizenga’s Republican colleagues indicated they believe the courts will continue to curtail the rulemaking abilities of agencies after West Virginia v. EPA, a landmark Supreme Court case that limited the Environmental Protection Agency’s (EPA) ability to restrict emissions.

Lawrence Cunningham, professor emeritus at Georgetown and special counsel to law firm Mayer Brown, called the SEC’s proposed rule an “undemocratic power grab” during his witness testimony, agreeing with Republicans that West Virginia v. EPA would invalidate the rule.

Cunningham said the Supreme Court is “going to be careful to not allow administrative agencies to exceed their grant of Congressional authority.” He then offered that while Americans “need the SEC’s protection,” it is authorized to protect the interests of investors, not the climate.

Democrats such as Rep. Rashida Tlaib (D–Mich.), however, point to a 1979 D.C. Circuit Court of Appeals decision that granted the SEC “broad discretionary powers to promulgate or not promulgate rules requiring information beyond that specifically required by the statute.”

As Tlaib pointed out, the SEC’s ability to adjust its disclosure requirements on publicly traded companies has never been challenged by a court in its 90-year history.

Early in the discussion, Huizenga admitted that Congress awaits further Supreme Court consideration of Chevron deference — the policy to defer to agency interpretation of an ambiguous statute — to properly understand agency rulemaking powers.

In the SEC’s case, the language used by the D.C. Court of Appeals in its ruling amplifies that uncertainty.

The so-called climate disclosure rule claims climate change presents companies with material risks that affect investors — the necessary validation for any SEC action.  

George Georgiev, Emory University School of Law associate professor and a witness at the hearing, said that “disclosure regimes” are the “hallmark” of successful markets, and that the updating of disclosure requirements by the SEC is a lawful “process of calibration and tailoring” to economic realities. 

“Just because an issue involves climate change doesn’t mean that only the EPA and [National Oceanic and Atmospheric Administration] can touch it,” he said. “All agencies in the federal government have to make allowances for climate change.”

Rep. Sean Casten (D-Ill.) pointed to the flight of large corporations from areas vulnerable to climate change’s immediate effects, and a National Oceanic and Atmospheric Administration study that found the cost of climate-related disasters was $617 billion between 2018 and 2022. Casten also cited a 2022 survey from Environmental Resources Management, which found the average corporation is spending $500,000 a year to assess the risks posed to their operations.

“This hearing is really about whether we’re going to protect investors’ rights to access information or protect company’s rights to withhold information from investors,” Casten said.

The survival of the SEC’s climate disclosure rule could predict the fate of other Biden administration efforts to use the agency to meet climate objectives.