House Financial Services Committee
Subcommittee on Oversight and Investigations
Hearing entitled, “Oversight of the Securities and Exchange Commission’s Proposed Climate Disclosure Rule: A Future of Legal Hurdles”
On January 18, the House Financial Services (HFS) Subcommittee on Oversight and Investigations held a hearing entitled “Oversight of the Securities and Exchange Commission’s (SEC) Proposed Climate Disclosure Rule: A Future of Legal Hurdles.”
Witnesses:
Mr. Charles Crain, Vice President, Domestic Policy, National Association of Manufacturers
Mr. Lawrence Cunningham, Special Counsel, Mayer Brown
Mr. Bill Schultz, Vice President, Schultz Fruitridge Farms, Inc.
Mr. George Georgiev, Associate Professor of Law, Emory University School of Law
Background
The SEC proposed rule changes in March 2022 “that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.”
The proposed rule changes called for public company reporting of direct greenhouse gas emissions (Scope 1), indirect emissions from energy consumption (Scope 2), and indirect emissions tied to upstream and downstream business practices (Scope 3).
Hearing Takeaways:
The hearing heard members question whether the SEC had the authority to regulate emissions reporting, as well as whether required reporting of Scope 3 emissions would prove burdensome to suppliers like small farms.
Republican committee members suggested that recent judicial rulings like West Virginia v. EPA and the 5th Circuit Court decision on the SEC’s stock-buy-back rule indicate that the SEC does not have jurisdiction to impose the climate disclosure rule. Republicans also highlighted the compliance costs associated with the proposal and the potential impacts on small and medium-sized businesses.
Democrat members, on the other hand, maintained the proposed rule will provide a valuable tool for investment analysis that has been sought by market participants.
How we see it:
Although the final rule continues to be delayed, its issuance appears inevitable as both states and foreign governments have already instituted similar requirements. The inclusion of Scope 3 emissions, however, appears unlikely.