On Tuesday (September 24th), Securities and Exchange Commission (SEC) chairman Gary Gensler appeared alongside his colleagues for an oversight hearing before the House Financial Services Committee. As Congress examines the agency’s recent record, it’s worth remembering that Gensler’s signature policy – his climate disclosure rule – has proven to be both malignant policy and a political disaster.
Upon entering office, Gensler’s ambitions were bold. He sought to turn the SEC (a financial regulator) into a de facto climate regulator. He crafted a proposal that would force businesses to disclose massive amounts of data related to their carbon emissions – and, in some cases, the emissions of their business partners (so-called “Scope 3” emissions). This stirred up a storm, with many economists and businesses warning that Gensler’s demands were so stringent that they would, in practice, be impossible for industry to comply with.
Gensler’s ambitions stumbled during the regulatory process when negative feedback on the proposed rule forced him to cut back drastically on many of his ideas, including the disastrous Scope 3 emissions disclosures. Next, the disclosures fell flat on their face in court, with the SEC facing early setbacks as the legality of the rule is litigated.
All in all, Gensler’s climate agenda has proven to be a total flop. Especially as federal judges more skeptical of agencies’ creative and power-expanding interpretations of statutes, it is quite unlikely that the SEC disclosure rule will survive the current legal challenge.
There are many reasons for this, but one fundamental one is that Congress created the SEC to serve as a financial regulator, and – despite the agency’s protestations to the contrary – it is highly unlikely that any single company’s emissions will create the kind of material financial risks that generally require disclosure. This argument was fleshed out well by the American Enterprise Institute’s Benjamin Zycher in a recent amicus brief.
Congress serves as an overseer and accountability mechanism for administrative agencies, tethering them to the democratic process. Part of its oversight duty is to identify misconduct and push back on it. During the Biden administration, few agencies have gone rogue to the extent the SEC has. It is part of Congress’s duty to ensure that the SEC’s mission creep ceases and that the agency returns to its limited role as an economic regulator.