Facing pressure from the industry and various lawmakers that its comment periods were too short, the Securities and Exchange Commission extended the comment period for its climate disclosure proposal, along with two other recent proposals.
In March, the SEC voted 3-to-1 to release the climate disclosure proposal to require publicly traded companies to include certain climate-related disclosures in their registration statements and periodic reports. Among other things, it would require registrants to include information about climate-related risks that are “reasonably likely to have a material impact” on their business, operations or financial condition. The proposed rules would also require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2).
The original comment deadline was May 20, 2022, but under the SEC’s announcement, the extended public comment period on the proposed rulemaking will run until June 17, 2022. The SEC notes that the scope and comment process for this release remains as stated in the original Federal Register notice of April 11, 2022.
Pressure to Extend and Legal Authority
The SEC has faced pressure from industry stakeholders, who have criticized what they believe are shortened comment periods, given the breadth and reach of many of the proposed requirements. And this could subject the Commission’s rulemaking to litigation under the Administrative Procedure Act, which requires regulatory agencies to provide a meaningful opportunity to comment on proposed rules.
“The overlapping and serially short comment periods simply do not provide the public time to fully analyze, consider, and comment on these rule proposals, including the time that it takes to study and analyze the market and economic implications of the proposals and identify possible unintended, negative consequences,” wrote a group of 25 industry stakeholders in an April 5 letter to SEC Chairman Gary Gensler.
In addition, others, including lawmakers on Capitol Hill, have questioned whether the SEC even has the legal authority to issue the climate disclosure proposal. For instance, in a May 4 letter to Gensler, Republican members of the House Oversight Committee wrote that the climate disclosure rule “would represent the largest expansion of SEC authority without a clear legislative mandate from Congress.” The members called on the SEC to provide documents and communications in relation to the development of the proposed rule, as well as to hold a briefing with the members.
Similarly, Ranking Republicans of the House Financial Services Committee in a May 5 letter called on the Committee’s Chair, Rep. Maxine Waters (D-CA), to schedule a hearing with the SEC so that members could question the Commission about its recent rulemaking efforts, as well as its short and overlapping comment periods.
For his part, Gensler believes the Commission stands on firm ground with respect to its legal authority to mandate that public companies include climate-related disclosures in their registration statements and periodic reports. At an April 12 Ceres webinar briefing, Gensler explained that the proposal is guided by the concept of materiality and the Commission’s mission to protect investors, maintain efficient markets and facilitate capital formation.
The issue of the Commission’s legal authority in promulgating the climate disclosure rule was also raised by SEC Commissioner Hester Peirce as part of her detailed rebuttal in opposition to the proposed rule.
Additional Extensions
Meanwhile, given the criticism about the length of the comment periods, the SEC also announced that it will reopen the comment periods on the proposed rulemaking to enhance private fund investor protection and on the proposed rulemaking to include significant Treasury markets platforms within Regulation ATS for 30 days.
“Today, the Commission acted to provide the public with additional time to comment on three proposed rulemakings that have drawn significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders,” SEC Chair Gary Gensler said in a statement. “The SEC benefits greatly from hearing from the public on proposed regulatory changes. Commenters with diverse views have noted that they would benefit from additional time to review these three proposals, and I’m pleased that the public will have additional time to provide thoughtful feedback.”
The public comment periods for the proposed rulemakings “Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews” (released Feb. 9, 2022) and “Amendments Regarding the Definition of 'Exchange' and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities” (released Jan. 26, 2022) will be reopened for 30 days following publication of the reopening release in the Federal Register.
Similar to the climate disclosure proposal, the SEC notes that the scope and comment process for both releases will remain as stated in the original Federal Register notices of March 24, 2022, and March 18, 2022.
