The SEC climate rule: What’s next

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Mar 06, 2024 View in browser   By Zachary Warmbrodt Presented by 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.   CONGRESS OVERDRIVE: Since day one, POLITICO has been laser-focused on Capitol Hill, serving up the juiciest Congress coverage. Now, we’re upping our game to ensure you’re up to speed and in the know on every tasty morsel and newsy nugget from inside the Capitol Dome, around the clock. Wake up, read Playbook AM, get up to speed at midday with our Playbook PM halftime report, and fuel your nightly conversations with Inside Congress in the evening. Plus, never miss a beat with buzzy, real-time updates throughout the day via our Inside Congress Live feature. Learn more and subscribe here.     QUICK FIX The SEC today is set to finalize its long-awaited climate-risk disclosure rule, marking the government’s most ambitious attempt at revamping regulations around sustainable investing. It’s been a two-year saga since the agency first proposed the rule, which we’re expecting to be significantly scaled back from its initial iteration. But today’s vote is in some ways just the beginning of a difficult road ahead for the SEC’s new vision of transparency around big business and climate change. Here’s what your MM host and POLITICO’s deeply sourced climate rule experts, Declan Harty and Jordan Wolman, will be watching in the weeks and months to come. The inevitable court fight(s) The SEC has spent the last two years trying to ensure the rule is on safe legal footing but that probably won’t stop an onslaught of litigation. Major business groups including the U.S. Chamber of Commerce are poised to sue the SEC. They've questioned the legality of the proposal as well as the agency’s general authority to force climate disclosures on public companies. Declan notes that the legal battles could prove to be some of the SEC’s most consequential. Opponents have regularly cited the major questions doctrine, a loosely defined legal theory based on the idea that Congress needs to expressly give agencies certain powers. A long line of former SEC officials, as well as securities and constitutional lawyers, have rejected the premise. A lawsuit may also fly from climate advocates, depending on how dissatisfied they are that the SEC didn’t enact even more sweeping disclosure requirements. “The SEC should consider that litigation risk runs both ways,” Sierra Club senior attorney Andres Restrepo said in a recent piece from POLITICO’s E&E News. A legal challenge also looms from state-level Republican officials who are leading a crusade against environmental investment policies deemed hostile to fossil fuel production. “We’re eager to review the final text, and we stand ready to pursue every available remedy for any unlawful aspects of the rule,” West Virginia Attorney General Patrick Morrisey said in a statement. As Jordan puts it: “No one is going to be totally happy with the final rule, ranging across the spectrum from Sen. Elizabeth Warren to the U.S. Chamber. We'll be watching how fiery – or not – players on all sides of the issue come out in reacting to the final rule as the agency tries to strike a delicate balance." Congress Republicans are gearing up to force Democrats to pick a side on the climate rule, and it could be painful. Eleanor Mueller reports that Rep. Bill Huizenga, who chairs the financial services oversight subcommittee, and Sen. Tim Scott, the top Republican on Senate Banking, are prepping Congressional Review Act resolutions to block the rule. While President Joe Biden would no doubt threaten a veto, it’s in a zone of policy concerns where Republicans have succeeded in recruiting Democrats to their cause. Last year, Biden was forced to issue his first veto after moderate Democrats helped Republicans pass legislation to repeal a DOL rule that permits retirement investing tied to environmental and social goals. “I hope they'll take my direction,” Sen. Jon Tester, the Montana Democrat who has urged the SEC to scale back the rule, told Eleanor. “I don't want to prejudge it but I'm hoping for something that will be good.” The new ESG landscape Underlying the legal and political threats is a big mood shift in Wall Street’s approach to the environment since the beginning of the Biden administration. Banks and other major financial firms were willing to take a much more vocal and supportive approach to tackling climate change in the early days of the Biden era, when the new administration began to make a major push to enlist the industry and scrutinize its activities. But it’s been a brutal few years for firms that took a stand, and the pendulum has no doubt swung the other direction amid mounting political and legal pressure from the anti-ESG movement. Outgoing Biden climate czar John Kerry, who played a lead role in trying to rally Wall Street on climate, has been venting in recent days over the industry's retreat. “Anyone who is pulling away today is turning away from the science and responding to political and ideological pressure that is not based on facts, not based on science,” Kerry told the FT. “They’re not in my judgment acting on the right side of history.” It’s Wednesday — Send reaction on the SEC climate rule to zwarmbrodt@politico.com.   A message from Bank Policy Institute: 97% of the public agrees: The Federal Reserve’s Basel Endgame proposal will create a drag on our economy for years to come and will hurt working families and small businesses. Tell regulators that it’s time to #StopBaselEndgame and re-propose. Learn more at StopBaselEndgame.com.   Driving the day ADP’s employment report for February is out at 8:15 a.m. … The SEC finalizes its climate-risk disclosure rule at a meeting that begins at 9:45 a.m. … Fed Chair Jerome Powell testifies at House Financial Services at 10 a.m. … CFTC Chair Rostin Behnam testifies at House Ag at 10 a.m. … January job openings data is out at 10 a.m. … The Fed releases its Beige Book economic survey at 2 p.m. The new credit card fight — The U.S. Chamber of Commerce is gearing up to sue the CFPB after the bureau finalized an $8 cap on credit card late fees, Katy O’Donnell reports. Sen. Tim Scott wants to force a vote on whether to block the regulation via the Congressional Review Act. Sinema’s out — Sen. Kyrsten Sinema, a reliable finance industry ally in Congress, will not seek reelection. Our Burgess Everett writes that the Arizona independent’s decision “continues an exodus of consensus-building centrists that, for a couple short years, essentially ran the upper chamber.” Democratic Rep. Ruben Gallego and Republican Kari Lake are campaigning to succeed her. Bitcoin’s wild ride — The cryptocurrency hit an all-time high of $69,210 on Tuesday before dropping by 10 percent, CNBC reports. First in MM: Luetkemeyer’s new Fed bill — Rep. Blaine Luetkemeyer introduced legislation that would effectively delay a Fed proposal to lower the cap on debit card fees. It would require the Fed to conduct extensive analysis and report to Congress before finalizing the policy, Eleanor reports. The American Bankers Association, the Independent Community Bankers of America and the Bank Policy Institute support the legislation. Separately, Luetkemeyer and Rep. Nikema Williams led a letter signed by 36 other lawmakers warning Powell about the rule ahead of his testimony today.   A message from Bank Policy Institute:   Economy Jerome Powell, political survivor — Victoria Guida is out with a new column on one of the Fed chair’s greatest strengths: his deft handling of politics surrounding the central bank. “Powell, in actively working to keep the Fed out of the political morass of the rest of Washington, has shown enormous skill,” House Financial Services Chair Patrick McHenry said. First in MM: A new Bidenomics report — The Center for American Progress is out with new analysis that finds 83 percent of counties receiving private investments spurred by Biden administration policies have manufacturing sectors that have been on the decline since 2001.   DON’T MISS POLITICO’S HEALTH CARE SUMMIT: The stakes are high as America's health care community strives to meet the evolving needs of patients and practitioners, adopt new technologies and navigate skeptical public attitudes toward science. Join POLITICO’s annual Health Care Summit on March 13 where we will discuss the future of medicine, including the latest in health tech, new drugs and brain treatments, diagnostics, health equity, workforce strains and more. REGISTER HERE.     Markets Bank anxiety — Bloomberg reports that bond investors are punishing banks with heavy exposure to commercial real estate, potentially adding even more pressure to their profits. Regional lenders with portfolios weighted toward underperforming CRE markets include Bank OZK, Valley National Bancorp and Webster Financial Corp. McHenry on deposits — The House Financial Services chair is reflecting this week on why Congress declined to revamp deposit protections in the wake of last March’s bank failures. He was skeptical at the time, and as Eleanor reports, he says conversations about changes have “not been intense since the spring of last year.” McHenry told the Brookings Institution Tuesday that lawmakers don’t have economic analysis to justify overhauling the system. “Let’s let the data drive this,” he said. “We have this idea that we're going to have payroll accounts protected. Well, how do you do that? How do you judge what is the payroll account? What's not? What type of business account? … On this we need to start with the practical question, like what is the effect, and we need to let economic analysis drive that question, rather than just reflexive politics.” More post-SVB reading — ABA is questioning why Fed financing was used as the FDIC resolved last spring’s bank failures (more background here) … Better Markets says the banking system is still in serious danger, and it has a roadmap for how policymakers should respond.   A message from Bank Policy Institute: Small businesses and bankers agree: Basel Endgame is bad for the economy. Karen Kerrigan, Small Business & Entrepreneurship Council: “This policy would shred access to capital for American entrepreneurs by severely increasing the cost of lending, a significant blow for business owners who rely on affordable and accessible loans and credit to operate and expand.” 10,000 Small Businesses: “We rely on America’s banks to operate and grow our businesses, support our employees, and strengthen our communities. We are already struggling to access capital - according to an October 2023 survey of our community, 78% of us are concerned about our ability to access capital, a sharp increase from April 2022 when 77% of small business owners were confident about credit. And we worry these new proposals will make getting access to capital even harder.” Learn more at StopBaselEndgame.com.     Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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