Equilibrium & Sustainability

SEC chair spars with senators over climate rules

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Securities and Exchange Commission (SEC) Chairman Gary Gensler faced a grilling on Capitol Hill on Thursday, with the agency head defending the SEC’s approach to issues including climate disclosure and cryptocurrency regulation.

The SEC’s proposed climate disclosure rules — which it released in March — would require publicly traded companies to calculate and publish the risks that climate change poses to their operations and what they are doing to address it.

Republicans have criticized the rules as onerous, arguing they are an example of the SEC conducting policy beyond its mandate. Gensler joined two other Democratic commissioners in voting for the proposed rules in March, while the SEC’s lone Republican commissioner, Hester Peirce, voted no.

GOP lawmakers on the Senate Banking Committee on Thursday attempted to paint SEC climate disclosure policy as a backdoor and likely ineffectual attempt to reduce global temperatures.

“What bothers me is why we’re spending trillions of dollars of scarce resources while China gets 60 percent of its energy from coal,” Sen. John Kennedy (R-La.) said. “We spend all this money and world temperatures are not reduced.”

Gensler sidestepped the line of questioning, saying he refused to accept the premise that the SEC is attempting to influence global temperatures — a key tenet of broader Republican charges that the agency is pursuing policymaking beyond its mandate.

He stressed that neither he nor his deputies were “motivated” by the drive to reduce global temperatures.

“It’s about actually helping investors get more consistent information, even if they want to invest in what might be ‘brown’ assets rather than ‘green’ assets,” Gensler said, referring to fossil fuels and other carbon-intensive investments.

Such investors “will get more consistent information and will probably avoid some of the greenwashing that’s out there,” he added, referring to misleading marketing of unsustainable investments.

In a later exchange with Sen. Catherine Cortez Masto (D-Nev.), Gensler steered away from a question about whether the purpose of environmental, social and governance disclosure was to help newer investors who are focused on “going green.”

“There are also investors that are just thinking that because of climate risk, it could affect the financial performance of a company. It could affect their supply chain, it could affect their competition, it could affect regular future regulation, Gensler said.

“So they’re thinking about how to value today that future transition risk,” he added, referring to the financial risk that the transition from fossil fuels could pose to a company’s bottom line.

He emphasized that the SEC’s primary immediate goal is to ensure “truth in advertising.”

There are asset managers managing trillions of dollars that are saying to the public, ‘We will invest your money, your money in something that’s carbon neutral, or green and the like,’” he said. 

“And so we put out some proposals earlier this year to address what is what stands behind a name — literally the name of a fund. And are you living up to the obligations that you made or commitments you’ve made to investors when you ask for their money?”

During the hearing, Gensler weighed in on the concept of “materiality” — the idea that the SEC should only require the disclosure of information that is relevant to an investor’s decision to buy or sell. He argued that climate risk is material because investors consider it material.

“Many investors are considering it — and why are they considering it? Because there’s a future chance of transition risk. [Companies] might have changed their operations. Competitors might change their operations. Laws might change. These companies that are listed here in the U.S. operate around the globe.” 

Gensler said that “the Supreme Court says investors get to decide what risks they take,” adding that 14,000 investors had written the SEC in support of the proposed climate disclosure rule.

“If you look at the top 300 or 400 of the investors, the big asset managers, that adds up to $50 trillion of assets under management that have come in mostly supportive of this,” he added, arguing many are looking for “the ability to make an informed choice.”

The SEC head also addressed cryptocurrencies, another issue where the agency has taken fire from the GOP for pursuing new financial tools that Republicans argue go beyond its mandate.

Gensler countered that most cryptocurrencies are “securities” that fall well within the agency’s purview.

“It’s a fairly straightforward, because of these 10,000 crypto tokens — without prejudging any one of them — I believe that the vast majority are securities, because there’s a somebody in the public is betting on a better future. They are betting on anticipating profits on a common enterprise with a group of entrepreneurs in the middle.”

He noted that such middlemen can hold securities in the same trading platforms they operate, raising the risk of the sort of manipulations that would be illegal on traditional exchanges.

“Frankly, there’s a fair amount of noncompliance, and so we’re going to continue to try to work with the intermediaries get them inside and regulated — and if need be use our regulatory toolkit,” he said.

Tags Climate change climate disclosure Gary Gensler John Kennedy

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