Cheyenne, OK – Today, Congressman Frank Lucas (OK-03) joined his colleagues on the House Committee on Financial Services for a hearing with U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler.
In July, SEC Chairman Gensler asked SEC staff to develop a mandatory climate-risk disclosure rule, also known as an Environmental, Social and Governance (ESG) disclosure. Lucas questioned Chairman Gensler on the Commission’s ESG rule-making process, how it might impact small-to-medium sized companies, and the depth of expertise at the SEC currently drafting the climate-risk disclosure.
Click here to watch Lucas’ Q&A.
On climate-risk disclosure
Lucas: Perhaps only a few of our colleagues remember the amount of time when you were CFTC Chairman, and I was the Ag Committee Chairman that we spent in quality hearings. Of course, you’ll always note that I focus on things that are important at home and today I would like to put my particular perspective on the upcoming climate-risk disclosure rule-making that’s generated a lot of interest here in Oklahoma, since we are both producers of traditional and renewable energy as well as an ag area that consumes a great deal of energy. So, with that Mr. Chair, publicly traded companies are at varying stages of climate and ESG disclosure, and the related reporting and climate modeling is a still-evolving practice. Chairman, are you concerned that the upcoming climate-risk framework could have an out-sized burden on small-to-medium sized companies, and how might the SEC account for this?
Gensler: I’m really looking with the support of my fellow Commissioners to try to put something out for public comment. And a question you just raised, to include questions like that to the public as to large issuers versus small issuers as you mentioned. And also, implicit in what you’re saying, some reporting will be easy to do sooner- I’ve asked staff to look at qualitative disclosure about governance and strategy but also quantitative disclosure to make sure that the disclosures people are making particularly around greenhouse gas emissions have consistency. But how to potentially even phase the implementation amongst large and small issuers and also amongst the different types of disclosures.
Lucas: As many would argue, I think quite correctly, the small and medium sized companies are the real generators of opportunity, are the real generators of growth. So, we don’t want to harm their ability to compete with their big brothers and sisters, so to speak. That said, continuing to think about this issue, you have said that your staff is considering quantitative factors such as metrics related to greenhouse gas emissions, climate-change financial impacts, and advancement towards climate-related goals.
Could you describe the current depth of climate expertise housed at the SEC? Are there currently climate and environmental scientists on staff and is the Commission engaging with agencies such as NOAA, the EPA, and the Department of Energy regarding the climate-risk rulemaking?
Gensler: The expertise at the SEC is around disclosure about and ensuring that the public- looking at the disclosures that are currently. Again, hundreds of companies are making voluntary disclosures now, trying to bring some consistency and comparability to those disclosures. To your second question, yes we have been in conversation with other important parts of the U.S. government.
Lucas: It’s absolutely important, as much faith that I have in the MBAs and attorneys and the poli-sci people, it’s important that these other scientific disciplines be involved in this process. Whether it is consulting with the other entities in the federal government that have that expertise or drawing on it from somewhere else, this is too important just to create rules and regs. It has to be done, I think Mr. Chairman, you and I both would agree in a very thoughtful fashion.
On Treasury-market structure
Lucas: So, with that, Chairman Gensler you’ve announced that the SEC is conducting a review of Treasury-market structure.
Could you discuss what this review might entail, how you’re coordinating with the Fed and the Treasury Department, and how you might think about the costs and benefits of potential changes?
Gensler: So, we’ve had a number of challenges in our U. S. Treasury market dating back to 2014, when there was problems in the pricing in the market. But then in 2019 and 2020, we’re literally our central bank, the Federal Reserve, was providing liquidity to the market because there were challenges in the financial resiliency. Working closely with our colleagues at the Federal Reserve and Treasury and also the Commodity Futures Trading Commission has a role here, what we’re trying to think through is how we could build greater resiliency into the market. We have $22, $23 trillion market. It’s at the base of everything else we do in the capital markets. And right now, if I can use a term, we have kind of a multi-nodal system, where we have a clearing house, we have inner dealer brokers, we have big market makers- both principal trading firms and big banks, and if any one of those got into challenges, as we saw last Spring and the Fall of 2019, our Central Bank tends to get pulled into providing resiliency. And so, we’re looking at can we do this better around potentially central clearing. Jake Clayton took up, could we put some rules in place about the trading platforms themselves and the like.