In an article in 2022, Politico reported that SEC Chair Gary “Gensler has come under fire for the pace of rulemaking coming out of the agency, with critics claiming that dissecting the flood of new proposals in such short periods of time is impractical. Gensler has pointed out that the number of proposals [is] largely on par with what former SEC chairs like Clayton have done. The latest proposals have just been more clustered than in the past, Gensler said.” That’s a response that I’m sure I’ve heard any number of times during Congressional hearings. Is that still the case? To find out, Bloomberg performed a count of SEC records from 2001 to 2023 to assess the extent of rulemaking in the first two years, four months and one week into the tenures of several of the SEC Chairs over that period who were confirmed to lead the SEC at the start of a new administration. The answer? Yes and no. According to Bloomberg, the “SEC under Chair Gary Gensler is issuing regulations at its slowest pace in decades for a new presidential administration,” having adopted just 22 final rules since his tenure began in 2021. By comparison, over the same periods, the SEC under Jay Clayton had adopted 25 final rules, under Mary Schapiro, 28 rules, and under Harvey Pitt, a whopping 34 rules (many implementing the SOX mandate). So were all the complaints about the tsunami of rulemaking just misguided? Not exactly. As Bloomberg notes, “[d]espite trailing his recent predecessors on final rules, Gensler’s proposal tally of 49 exceeds Clayton’s 28 and Pitt’s 48, but is less than Schapiro’s 65.” [Emphasis added.] For the agenda of the Gensler administration, that leaves quite a chasm at this point between rules that are final and rules that are just proposed. What might that mean for SEC priorities? Bloomberg takes a deep dive.
According to Bloomberg, the current gulf between proposed and final rules risks leaving a number of agenda items unfinished. Potentially, Bloomberg reports, “Gensler has less than a year and a half before Republicans could take control of the SEC in a new administration, raising expectations the commission intends to finalize a flurry of environmental, social and governance regulations and other rules in the coming months….Legal and congressional threats to derail Gensler’s plans for corporate greenhouse gas emissions reporting, workforce disclosures and other rules are growing as 2025 nears, with the possibility of a GOP-controlled government.” Shortly after the SEC climate disclosure proposal was released, Bloomberg observes, several business interests and about two dozen Republican state attorneys general threatened legal action, with the sharpest criticism reserved for the Scope 3 GHG emissions disclosure requirement. Gensler has responded that “he’s heard concerns ‘loud and clear.’ But the chair has declined to say how the climate disclosure proposal may change before it’s finalized—or confirm whether October is a realistic target for finishing it.”
Bloomberg has its eye on the clock, which could affect both the defense of any litigation challenging new rules and possible Congressional action to undo them. If a climate disclosure rule is adopted this year, for example, any litigation that might be commenced shortly thereafter is unlikely to be resolved by 2025. If Republicans were to win the presidency in 2024 and take control of the SEC in January 2025, Bloomberg posits, a “Republican-led SEC would have the power to end its defense of the rule,” although environmental organizations could step in to defend the rule. Another challenge might arise with regard to the climate disclosure regulation “if the SEC punts the regulation too far into next year. A federal law, the Congressional Review Act, would let a Republican-controlled House and Senate in the next Congress quickly revoke regulations the SEC and other agencies issued in late 2024, if they avoid a presidential veto.” To avoid action under the CRA, the article notes, “Gensler only has to finalize the climate rule within about a year.” But other possible rulemakings—especially those that have appeared on prior agendas but have yet to make it out of the starting gate—could well be in jeopardy under the CRA, if the GOP were to win the White House and majorities in Congress, that is. Examples might include plans for human capital management disclosure and for disclosure regarding corporate board diversity. On the SEC’s most recent agenda, the target dates for issuance of these proposals are October 2023 and April 2024, respectively. (See this PubCo post.)
As noted above, Gensler has faced much pushback from Republicans in Congress and elsewhere, as well as from some in the business community, about the scale of the SEC’s jam-packed agenda, particularly in the absence of an express legislative mandate. While many of the rules adopted during Schapiro’s and Pitt’s tenures, Bloomberg indicates, were expressly mandated by specific legislation—Dodd-Frank and SOX—Gensler cannot say the same, pointing instead to general authority under the securities laws and investor demand. (This article from the FT states that, while 59% of the 22 proposals issued during the first two years of the tenure of Mary Jo White were mandated by Dodd-Frank and other specific legislation, only 17% were so mandated under Gensler’s tenure.) Bloomberg also points to a 2022 report from the SEC’s then-acting inspector general, which “found Gensler’s rulemaking approach was too rushed and could hurt the agency’s health,” and to a warning from the Securities Industry and Financial Markets Association, SIFMA, about “Gensler’s ‘far-ranging and aggressive rulemaking agenda,’ projecting that he’s on track to propose and finish 65 rules.” On the other hand, Bloomberg observes, the climate disclosure proposal appears to be consistent with the White House agenda: President Biden’s “2020 campaign climate plan included a pledge to require ‘public companies to disclose climate risks and the greenhouse gas emissions in their operations and supply chains.’” As to Gensler’s strategy of employing a more cautious, considered process for adoption of final rules—as opposed to the flurry of proposals issued—the president and CEO of investor advocacy group Healthy Markets Association told Bloomberg that “he’s hopeful Gensler’s rush to propose rules and caution at adopting them quickly will lead to stronger regulations.” While there are “risks with this strategy,” he said, “the reward is that they have a more informed rulemaking that’s more likely to withstand legal challenge.”
An SEC spokesperson told Bloomberg that Gensler is “focused on getting things right—based upon the economics, the Commission’s legal authorities, and promoting the SEC’s mission—not the clock.” As to the remaining agenda, SEC Commissioner Hester Peirce advised Bloomberg that “she’s bracing for busy months ahead. ‘When he puts something on the agenda, it’s not on there for fun….It’s something that he’s actually looking at doing.’”
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