Gensler’s plan to fast-track climate rule

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Mar 22, 2022 View in browser   By Kate Davidson and Aubree Eliza Weaver Editor's Note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. The Securities and Exchange Commission took a big step toward delivering on the Biden administration's climate agenda Monday, proposing new rules that would require companies to disclose greenhouse gas emissions and hold them accountable for their climate promises. With the White House's climate agenda bogged down in Congress, the proposed rule would deliver a durable policy win for the president, our colleagues Lorraine Woellert and Zack Colman report. Per Lorraine and Zack: "The rule would generate detailed information on how corporations, financial services firms and other businesses are being affected by climate change. It would force executives to explain how they're coping with extreme weather, supply chain disruptions and other climate-related upheavals. It follows years of shareholder demand for more information and an admission by the SEC that existing requirements are inadequate." Gensler goes lean — Regulators often start with a meaty (i.e. ambitious) policy proposal, with the expectation that they'll need to trim some fat along the way in response to pushback from stakeholders. In this case, SEC Chair Gary Gensler took on the industry feedback up front and delivered a leaner version of the proposal than progressives had hoped and some industry analysts expected. The rule would require companies to disclose indirect emissions generated by their suppliers and customers, known as scope 3 emissions. After hearing from business groups, the SEC included safe harbors, exemptions and a longer phase-in for scope 3 reporting. "It is heartening that some of these considerations were taken into account," Tom Quaadman, an executive vice president at the U.S. Chamber of Commerce, told our colleagues. "We're at the very start of a process, and we're going to have to see where the final rule ends up. It's still a jump ball." Eric Pan, CEO of the Investment Company Institute, said the group will carefully study the scope 3 approach but added, "[we] appreciate that the SEC recognizes the many challenges that currently exist with reporting scope 3 emissions." It hasn't quieted critics — Progressives are unhappy with the draft language on scope 3, which they say gives companies a big out. And opponents of the rule argue it goes way beyond the SEC's authority. Sen. Ed Markey (D-Mass.) urged the agency to expand the proposal to quickly require scope 3 requirements, rather than phase them in. "We are not only asking companies to tell us what they do, but suggesting how they might do it," Republican SEC commissioner Hester Peirce, who voted against the rule, said during a meeting on the proposal Monday. "Society is in big trouble if we are looking to SEC lawyers, accountants and economists to dictate how companies should address climate change." But, but, but — Unveiling a more moderate version of the proposal now may help avoid big revisions later, which could delay the rulemaking process and open them up to legal risk, said Ty Gellasch, a fellow at the Global Financial Markets Center at Duke University School of Law. "They know they don't have enough time to re-propose it," Gellasch said. "So I think the idea was to propose what they expect to adopt, or very close to it, and that way they don't have to worry about the litigation risk of having the final rule be significantly different from the proposal." A big, big deal? It's important to remember, as Lorraine and Zack point out, that this proposal is all about information. It doesn't require companies to reduce their carbon footprint; the SEC is not an environmental regulator. Thousands of firms are already disclosing details about emissions standards and targets under voluntary standards set by the business community. It's a watershed moment for the issue and will put points on the board for the Biden administration. To what extent – and in what direction – will it change investor behavior? That remains to be seen. IT'S TUESDAY — Tweet of the day is an inflation question from Marc Goldwein, of the Committee for a Responsible Federal Budget: "Was at a restaurant that charged for rolls today. How does [the Bureau of Labor Statistics] measure inflation when the price goes from nothing to something?" BLS wonks and inflation data nerds, we await your answer: kdavidson@politico.com, aweaver@politico.com. Or find us on Twitter: @katedavidson or @aubreeeweaver. Driving the Day Senate Banking hearing on shoring up supply chains at 10:15 a.m. … Former IRS Commissioners David Kautter and John Koskinen speak at an American Council for Capital Formation virtual discussion at 12 p.m. … San Francisco Fed President Mary Daly speaks at a virtual discussion hosted by the Hamilton Project at 2 p.m. … Treasury's Nellie Liang speaks at the National Association for Business Economics conference at 2:45 p.m. BIDEN WARNS RUSSIAN CYBERATTACKS ARE COMING — Our Maggie Miller and Sam Sabin: "President Joe Biden on Monday warned of Russian cyberattacks against the U.S. — making his most prominent alert yet about what he called new intelligence concerning the Putin regime's plans." "The more Putin's back is against the wall, the greater the severity of the tactics he may employ … one of the tools he's most likely to use in my view, in our view, is cyberattacks," Biden said. —The Treasury Department, which is in regular contact with Wall Street on cybersecurity issues, has increased its meetings with financial firms since the Russian invasion began, a source familiar with the situation tells MM. Those sit-downs include classified briefings and tabletop exercises, with an eye toward gaming out how officials in the sector and in the government would respond and coordinate in the event of a major cyberattack on the U.S. financial infrastructure. — Over at the Fed, Chair Jay Powell is staring down a number of risks stemming from the war in Ukraine, including higher inflation and weaker growth. But it's worth remembering what he said in December when asked about financial stability risks on the horizon: "The risk of a successful cyberattack is… one that would be very difficult to deal with. I think we know how to deal with bad loans and things like that … A cyberattack that were to take down a major financial institution or financial market utility would be a really significant financial stability risk that we haven't actually faced yet." POWELL: FED CAN FIGHT INFLATION WITHOUT CAUSING A RECESSION — Our Victoria Guida: "Federal Reserve Chair Jerome Powell on Monday expressed confidence that the central bank would be able to rein in inflation over the next few years without causing a recession, though he acknowledged the road ahead would be challenging. "In a speech, Powell said the Fed's actions combined with external economic factors should help bring inflation back down near the central bank's 2 percent target over the course of three years. But the central bank has caused several recessions since World War II with rate hike campaigns, a risk he addressed directly in his remarks."   JOIN THURSDAY FOR A CONVERSATION ON CRYPTOCURRENCY AND REGULATION:  Cryptocurrency has gone mainstream. With the market now valued at $1.8 trillion, Washington's oversight of the fast-growing industry remains in its infancy. How should Congress and federal agencies shape future regulation of digital asset markets? Join POLITICO in person or virtually for a deep-dive discussion on what's next for crypto, regulation and the future of finance. Programming will run from 5 p.m. to 6 p.m. EDT with a reception from 6 p.m. to 7 p.m. EDT. REGISTER HERE.     Crypto NO SURPRISE — Our Sam Sutton writes: Last month, we reported that a new independent expenditure committee with ties to GMI PAC, a crypto-focused Super PAC Texas backed by former Trump adviser Anthony Scaramucci's hedge fund and FTX CEO Sam Bankman-Fried, spent more than $1 million supporting Texas state Rep. Jasmine Crockett's primary bid to take over for retiring U.S. Rep. Eddie Bernice Johnson (D-Texas). A new Federal Election Commission filing confirms that GMI PAC seeded the new independent expenditure committee, called Web3 Forward, for $1.5 million. Crockett secured 48.5 percent of the vote in the March 1 primary and faces Jane Hamilton, a former chief of staff to Rep. Marc Veasey (D-Texas), in the May 24 runoff. GOLDMAN GOES IN — From CNBC's Hugh Son: "Goldman Sachs is pushing further into the nascent market for derivatives tied to digital assets The firm is the first major U.S. bank to trade crypto over the counter, CNBC was first to report. Goldman traded a bitcoin-linked instrument called a non-deliverable option with crypto merchant bank Galaxy Digital, the two firms said Monday." Ukraine WHY BIDEN CAN'T HELP EUROPE RID ITSELF OF NATURAL GAS — Our Zack Colman and Ben Lefebvre: "The European Union wants the United States' help in kicking its addiction to Russian natural gas. But President Joe Biden faces big limits in what he can promise when he visits the continent this week. "Europe's main request is more liquefied natural gas from the U.S., whose output of the fuel has surged over the past five years. But American gas exporters are already shipping their LNG overseas nearly as fast as they can, with little new capacity due to come online during the next two years. And Biden cannot command the activities of private oil and gas companies — who will typically sell their product wherever in the world they can fetch the highest price." HOW ONE OLIGARCH USED SHELL COMPANIES, WALL STREET TIES TO INVEST IN THE U.S. — NYT's Matthew Goldstein and David Enrich: "For two decades, [Roman Abramovich] has relied on this circuitous investment strategy — deploying a string of shell companies, routing money through a small Austrian bank and tapping the connections of leading Wall Street firms — to quietly place billions of dollars with prominent U.S. hedge funds and private equity firms, according to people with knowledge of the transactions." WHITE HOUSE BELIEVES RUSSIA IS SEEING A BIG DROP IN OIL SALES — WaPo's Jeff Stein: "Senior Biden aides believe that Russia is suffering a dramatic decline in oil sales that stands to deprive the Kremlin of a key source of government revenue, according to a senior administration official and one person briefed by a senior administration official, both of whom spoke on the condition of anonymity to share an assessment not yet made public." Fed File MORE ON POWELL'S NABE SPEECH — POWELL SAYS FED WILL CONSIDER MORE AGGRESSIVE RATE HIKES TO REDUCE INFLATION — WSJ's Nick Timiraos: "Federal Reserve Chairman Jerome Powell said the central bank was prepared to raise interest rates in half-percentage-point steps and high enough to deliberately slow the economy if it concluded such steps were warranted to bring down inflation. And he advised looking at the short-term Treasury yield curve to assess recession risks — Bloomberg's Liz McCormick and Ye Xie: "'Frankly, there's good research by staff in the Federal Reserve system that really says to look at the short — the first 18 months — of the yield curve,' Powell said in response to a question at the National Association for Business Economics. 'That's really what has 100 percent of the explanatory power of the yield curve. It makes sense. Because if it's inverted, that means the Fed's going to cut, which means the economy is weak.'" WALL STREET REACTS TO POWELL'S HAWKISHNESS — Bloomberg's Isabelle Lee and Peyton Forte: "Just in case financial markets didn't get Jerome Powell's hawkish message last week, they got it Monday when he made it abundantly clear that the Federal Reserve is coming hard for inflation , even if it means slowing the economy. The reaction on Wall Street was swift. Stocks gave up gains and slid more than 1 percent, while Treasuries extended losses that took the two-year Treasury yield past 2.1 percent. But just like last Wednesday, an initial freakout turned into a more benign decline, with the S&P 500 down just 0.3 percent as of 2:50 p.m. in New York."   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.     Jobs Report Indivar "Indi" Dutta-Gupta has been named the new executive director of the Center for Law and Social Policy, starting June 1. Dutta-Gupta is currently the co-executive director of the Georgetown University Center on Poverty and Inequality. He previously worked at the Center on Budget and Policy Priorities and is a House Ways and Means alum. Fly Around S&P Global Ratings, a unit of financial information provider S&P Global Inc said on Monday it will withdraw ratings for all Russian entities before April 15. —Reuters The war in Ukraine is casting a stagflationary shadow over the world economy and posing a dilemma for central banks: Should they support flagging growth or fight skyrocketing inflation? — WSJ's Tom Fairless China's government stockpiled a record amount of cash in the first two months of the year instead of spending it, despite numerous pledges by top officials to speed up fiscal stimulus to boost the economy. — Bloomberg   Follow us on Twitter Mark McQuillian @mcqdc Kate Davidson @KateDAvidson Aubree Eliza Weaver @aubreeeweaver Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary   Follow us

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