Clock is ticking for ESG climate rule: Will Biden’s SEC follow through or back down?

Congress created the Securities and Exchange Commission (SEC) to protect investors from market manipulation following the 1929 stock market crash. And for decades, the SEC focused on enforcing securities laws and punishing wrongdoers.

Fast forward to today: Republicans in Congress are urging the SEC to remember its core mission and ease up – way up – on environmental, social and governance (ESG) rulemaking.

The SEC’s proposed rule, “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” is still on track to be finalized in October, according to the commission’s regulatory agenda. Changes to the proposed rule are still in the works and a more watered-down version may be what emerges.

“We’ve still got some work to do,” is what SEC chair Gary Gensler told reporters about the timeline for a final regulation. But the rule faces roadblocks from the Republican-led House, and vulnerable Democrat Senators running for reelection in red states, like Joe Manchin of West Virginia, Jon Tester of Montana and Sheldon Whitehouse of Ohio, who could pressure the White House to back off.

The ESG Working Group of the House Financial Services Committee blasted the climate rule in a recent report. Several members of the Financial Services and General Government Subcommittee of the Senate Appropriations Committee criticized the proposed regulation while questioning Gensler earlier this summer. Accusations of “overreach” and “weaponizing the SEC” were heard during the back-and-forth debate.

If Congress doesn’t scuttle ESG rule, the courts likely will

Recent U.S. Supreme Court rulings against wide-ranging and costly regulations enacted by the Environmental Protection Agency and other federal departments could spell doom for the SEC’s climate rule. Litigation is already in the works to kill the climate rule once it’s finalized with an effective compliance date for funds.

Federal and state laws clearly state that pension and retirement fund managers are required to maximize returns for their investors. ESG ratings of companies and investors, and funds geared toward ESG, lose money more often than not for investors according to the Wall Street Journal.

Under the SEC’s proposed climate disclosure rule, companies would have to disclose:

• material risks posed by climate change to their business and their financial statements
• physical risks such as sea level rise and severe storms
• transition to renewable fuel risks, and
• direct and indirect greenhouse gas emissions.