Democrats to use majority status to revoke Trump-era rulings

ESG regulation is once again at the heart of legislative tensions in the US Senate as Republicans and Democrats lock horns over the recently ESG Enforcement Task Force. Democrat legislators have now taken aim at a Trump-era SEC rule which limited shareholder’s abilities to ‘hold corporate management accountable’.

Over recent weeks, opposition lawmakers have voiced concerns over the momentum of climate-related financial legislation and initiatives, after the Biden administration moved decisively to implement its own legislative agenda surrounding the financing of green initiatives, including in energy transformation, and ESG disclosures.

Notably, the Securities Exchange Commission (SEC) has created a new role created in February - the Senior Policy Advisor for Climate and ESG – tasked with guiding the commission on environmental and economic matters.

SEC responds to investor demand for ESG information

In response to the interest from investors, the SEC launched a dedicated webpage to highlight its responses to ESG and climate risks as well as opportunities within the sector. Recently, the US regulator committed to an ‘all-agency’ approach to ESG development and has been paying close attention to investor demands on what they want to see implemented.

Allison Herren Lee, who became the SEC’s acting chair in January, said in a statement: “Our all-of-SEC approach looks at how climate and ESG intersect with our broader regulatory framework to get investors the information they need to plan for their financial future.”

In a significant move, the SEC revealed strong signs of intent through the establishment of the Climate and ESG task force, which includes units focussed on enforcement. The task force, which was announced on March 5, aims to identify misstatements or gaps in climate risk disclosures.

The greater scrutiny of ESG disclosures has been welcomed by many, however, it has initiated an empowered response from Republican lawmakers, who claim that greater clarity on the direction and intent of the Task Force is needed.

Opposition leaders demand answers on ESG strategy

On March 24, Senator Pat Toomey, the Senate Banking Committee’s top Republican, (pictured above with former President Trump) penned a letter to acting SEC Chairwoman Herren Lee, a Democrat, outlining a request for information on the scope and intention of the newly formed taskforce. He wrote: “These announcements appear to presage major changes in longstanding practices on disclosure and enforcement matters at the SEC. Such changes would be premature.

“It is imperative that the SEC provide fair notice, and fully comply with the Administrative Procedure Act if it is going to impose new requirements. The SEC also should not use enforcement actions as a backdoor for imposing new regulations on ESG and climate change issues.

“I am requesting a staff briefing on this subject by no later than the week of April 5, 2021.”

Undermining Shareholder Democracy

Meanwhile, Senate Democrats have taken a swipe at legislation brought in by the Trump administration. Majority lawmakers have introduced a resolution to rescind an SEC rule which, investors claim, limits their abilities to encourage corporations to act on issues including climate change. Senate Banking Chairman Sherrod Brown, who introduced the resolution said in a statement: “These rules were yet another ploy by the Trump Administration to undermine shareholder democracy.

“Last year’s changes to the SEC rule on shareholder proposals made it much harder for working families and investors to hold corporate management accountable.”

The resolution would use the Congressional Review Act (CRA) to reverse the rule, and as a result, will require a majority vote in both the House and the Senate.

There has been much speculation around the extent to which Congress would utilise the CRA to remove regulation brought in by the previous administration, and this latest development may be an indicator of things to come.