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US Securities and Exchange Commission

Updated SEC Agenda Continues to Show Ambitious Rulemaking Efforts, Including Climate Disclosure

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

SEC Chair Gary Gensler is continuing with his ambitious, fast-paced rulemaking agenda.

The commission still has more than 50 projects on the agenda, which was unveiled on June 22, 2022.

The SEC provides a semi-annual update on rulemaking activities, and the agenda reflects the priorities of the current chairman. When Gensler took the helm in April 2021, he put 49 items on the agenda. (See SEC Chair Gensler Puts Almost 50 Rulemaking Items on Near-Term Agenda in the June 15, 2021, edition of Accounting & Compliance Alert.)

But over time a few more projects got added.

“The U.S. is blessed with the largest, most sophisticated, and most innovative capital markets in the world,” Gensler said in a statement. “But we cannot take that for granted. As SEC alum Robert Birnbaum and his team said decades ago, ‘no regulation can be static in a dynamic society.’ That core idea still rings true today. When I think about the SEC’s agenda, I’m driven by two public policy goals: continuing to drive efficiency in our capital markets and modernizing our rules for today’s economy and technologies. Doing so will help us to achieve our three-part mission: protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.”

Full Steam Ahead with Climate Change Disclosure Rulemaking

Of note is the SEC’s plans to finalize the much-discussed rulemaking on climate change disclosure in the fall of this year, according to the latest update.

The SEC discusses an effective date of December 2022 as an example in its landmark proposal on corporate disclosure of climate change risks in Release No. 33-11042The Enhancement and Standardization of Climate-Related Disclosures for Investors, published in March 2022.

If the SEC moves to adopt the rule, it will arguably be the most consequential rulemaking of the market regulator under Gensler’s tenure. But it is likely to be difficult for the commission to be able to finalize the rules by the end of the year given the sheer volume of comment letters it is getting.

Moreover, while the semi-annual update was revealed last week, the SEC had drafted the update in April before the commission in May extended the comment deadline to June 17 for Release No. 33-11042.

This takes more time for the SEC staff to thoroughly analyze all comments received. So far, the commission has gotten almost 10,600 form comment letters, the majority of which support the commission’s proposal. Almost 4,200 unique comment letters are filed. (See Will SEC be Able to Finalize Climate Proposal By Year-End? in the May 23, 2022, edition of ACA.)

Lawsuit on the Horizon?

Moreover, this is a controversial rule as many critics—mainly business organizations, conservatives, and even SEC Commissioner Hester Peirce—questioned whether the SEC even had the authority to prescribe extensive rules that they view are intended to manage the economy and businesses. The commission’s remit does not include business management or climate policy.

Peirce, in her dissent, said “we are not the Securities and Environment Commission—at least not yet.”

In response, Gensler has been defending the SEC’s authority at various public events. (See Gensler: SEC Has Authority to Write Prescriptive Climate Disclosure Rules in the April 14, 2022, edition of ACA.)

To back him up, the Working Group on Securities Disclosure Authority—which includes 15 former senior SEC officials, 17 senior scholars, and leading practitioners who advise companies on their disclosure obligations under the SEC’s rules—wrote in a comment letter that the commission has the authority to write the rule.

“Some have argued that, because the Nation’s approach to climate change is politically contested, and since these matters affect major policy questions over which Congress has not granted the SEC new, explicit powers, the Commission lacks authority to require disclosure in this area,” they wrote on June 16. “The Commission should disregard these claims, focusing instead on the challenging policy choices that any finalization of the proposal would require.”

The former SEC officials include four chairs, five commissioners, five general counsels, and four directors of the Division of Corporation Finance which is charged with drafting the rule. Former chairs are Arthur Levitt, Harvey Pitt, Mary Schapiro, and Elisse Walter. At least for chairs, Pitt’s inclusion makes the group bipartisan as he was named to the SEC by Republican President George W. Bush.

Among other reasons, the working group described SEC’s rulemaking history in environmental-related matters; thus, this is not a brand new undertaking.

In the meantime, during a June 16 press call, a U.S. Chamber of Commerce representative said the group has not made a decision about a lawsuit. The business organization has a history of suing, and often winning, the SEC on rules they believe are unduly burdensome.

“We are way, way, way off to any sort of determination like that… This is the end of the first half,” said Tom Quaadman, executive vice president of the Center for Capital Markets Competitiveness of the U.S. Chamber. “We will probably be filing additional information with the SEC; we are going to have discussions with the commissioners, with the chair, with staff. So, I think, you know, you have to wait until the ink is dry on a final rule before you can even start to think about that. We’re way off from that.”

Moreover, during a recent advisory group meeting of the PCAOB, former SEC chief accountant Lynn Turner said he believes there will be two rulemakings.

The PCAOB is closely monitoring the SEC’s rules as the climate change disclosure proposal contains financial statement requirements as well as an attestation requirement outside the financial statements.

“I think [climate] rulemaking is going to be done twice. Once by the SEC, and based upon the comment letters I have seen, including the legal professions, which are all over the place, both ends of the spectrum, I suppose the court [would] then … have a crack at this,” Turner said on June 15. “And so it can be some period of time before we ever see a rule, whatever that might be, go into effect.”

 

This article originally appeared in the June 30, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.

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