Gary Gensler, President Joe Biden’s pick for SEC chairman, signaled support for launching disclosure rulemakings on corporate political spending and climate risk, longtime priorities of Democratic lawmakers, institutional investors, and progressive activists.
In his testimony during the March 2, 2021 Senate Banking Committee confirmation hearing, Gensler reinforced expectations that his agenda as the next SEC chairman will focus heavily on environmental, social, and governance (ESG) issues.
Gensler, former chairman of the Commodity Futures Trading Commission (CFTC), during the hearing repeated the mantra that he would be guided by the concept of materiality – whether a particular disclosure would be significant to the mix of information available to a reasonable investor – but at other points staked out specific areas where the commission should issue rules.
Asked by Sen. Bob Menendez, a New Jersey Democrat, about his plans surrounding a corporate political spending disclosure rule, Gensler replied that “without prejudging a specific issue I can assure you that I’ll be grounded, if confirmed, in the materiality standard that drives all those decisions on disclosure.”
But Gensler went on to cite the 2011 petition to the SEC from a group of academics, including former Commissioner Robert Jackson, asking for the rule, which has since garnered some 1.2 million public comments. He also cited a flurry of shareholder proposals on the issue during the last proxy season.
“They want to see what the companies they own are doing in the political arena,” Gensler said. “If confirmed, it is something that I think the commission should consider in light of the strong investor interest.”
Academics, activist groups, and Democratic lawmakers have sought the rule for years. As they see it, investors have a right to know how companies use corporate funds on political activities. They say the disclosure is especially critical following the Supreme Court’s 5-4, 2010 decision in Citizens United v. Federal Election Commission, which lifted restrictions on independent political expenditures by corporations and unions.
Former Justice Anthony Kennedy, who wrote the majority opinion in Citizens United, wrote that “with the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.”
Critics say those disclosures have not consistently manifested across public companies, depriving investors of information on how corporate funds are being spent.
The SEC has for years been blocked from launching the rulemaking through a rider in the Financial Services and General Government budget measure that funds the commission. Democrats are pushing forward on a bill in both the House and Senate, the For the People Act, that would lift the rulemaking ban.
Gensler, during the hearing, also voiced support for new climate risk disclosure rules, in response to questions from Sen. Sherrod Brown of Ohio, the panel’s chairman.
Brown and other Democratic lawmakers have renewed their push in 117th Congress to find ways to require public companies to make greater disclosures on both their contributions to climate change, and of the risks posed by more frequent extreme weather events and other consequences of a warming planet.
Investors increasingly want to see climate risk disclosures, Gensler said.
“I think issuers would benefit from such guidance, so I think through good economic analysis, working with the staff, putting out to the public to get public feedback on this, this is something that the commission, if I’m confirmed, I’d work on,” he said.
The SEC last issued climate guidance in 2010 in Release No. 33-9106, Commission Guidance Regarding Disclosure Related to Climate Change. In the guidance, the commission said companies should inform investors about the risks they face from climate change, including lawsuits, business problems, regulatory supervision, or international treaties. The significant effects of climate change, such as severe weather, rising sea levels, loss of farmland, and the declining availability and quality of water, have the potential to affect a public company’s operations and financial results and should be disclosed.
Acting SEC Chair Allison Herren Lee, in a February 24 statement, said SEC staff will begin work on updating the 2010 guidance in Release No. 33-9106, and will more closely scrutinize climate disclosures companies are already making.
“As part of its enhanced focus in this area, the staff will review the extent to which public companies address the topics identified in the 2010 guidance, assess compliance with disclosure obligations under the federal securities laws, engage with public companies on these issues, and absorb critical lessons on how the market is currently managing climate-related risks,” Lee said in the statement. “The staff will use insights from this work to begin updating the 2010 guidance to take into account developments in the last decade.” (See SEC Increases Focus on Climate Change Disclosures, Plans to Update Guidance in the February 26, 2021, edition of Accounting & Compliance Alert.)
This article originally appeared in the March 3, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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