The Biden administration faces a fresh environmental setback after its signature climate initiative flopped in Congress, this time as a Democratic rift on the U.S. Securities and Exchange Commission stalls efforts to bring corporations into the fight against global warming.
At issue is a planned SEC rule that could force public companies to disclose details such as the amount of energy they buy and how they manage risks posed by rising temperatures.
The regulation is a top goal for the White House, and SEC Chair Gary Gensler had pledged to unveil a proposal by the end of last year. Now, the timeline has likely slipped to March or even later, people familiar with the matter said.
The conflict, which pits Gensler against his two fellow Democrats on the commission, is largely over how much information the agency can force companies to divulge without losing an almost certain legal challenge brought by Washington’s business lobby or a Republican-led state.
Another flashpoint involves whether auditors should sign off on the disclosures, ensuring they would be vetted by the same independent watchdogs who review corporations’ financial statements.
Adding pressure is last year’s collapse in the Senate of another centerpiece of President Joe Biden’s climate agenda, some $550 billion in tax credits and spending for clean energy.
Democratic activists are counting on the SEC to fill that void and give the president a significant policy victory heading into November’s mid-term elections.
A proposal can only move forward by majority vote, and with the SEC’s lone Republican opposed, all three Democrats need to support it.
But the SEC faces a dilemma. If its rule lacks teeth, progressives will be outraged. On the flip side, an aggressive stance makes it more likely the regulation will be shot down by the courts, leaving the Biden administration with nothing.
Either way, someone is going to be disappointed.
Politicized Issue
“Climate is an issue that for a lot of people is politicized,” said Matt Orsagh, senior director of capital markets policy at the CFA Institute who focuses on environmental, social and governance (ESG) issues. “You are going to have some people who are thrilled and some people who think it’s terrible.”
The internal debate over how tough the rule should be is rare among the SEC’s Democrats, who are aligned on most policies, including pushing for a clampdown on cryptocurrencies, boosting oversight of Wall Street, and levying steep fines on corporations accused of wrongdoing.
Underlying the climate dispute is a legal quandary over “materiality”— a term that dictates what companies must disclose to shareholders.
The definition for the concept is vague under securities laws, and federal judges have never established a clear guideline.
The SEC has been no better, saying material information is that “which there is a substantial likelihood that a reasonable investor would attach importance.”
Gensler, 64, has been cautioning agency staff to make sure the climate proposal adheres to a legally defensible definition of materiality. He contends that only this approach can survive a legal challenge.
The SEC chief isn’t alone in believing a lawsuit is inevitable. Most Republicans insist that regulating global warming is outside the agency’s jurisdiction, and business groups have already been discussing a litigation strategy.
The attorney general for West Virginia, the heart of U.S. coal country, sent the SEC a clear warning last March vowing to defeat the agency in court if it pursues “a president’s political agenda.”
Read rest at Bloomberg
