On July 18, the House Financial Services Committee Subcommittee on Capital Markets held a hearing entitled “Oversight of the SEC’s Division of Corporation Finance.” The sole witness in the hearing was Erik Gerding, Director, Division of Corporation Finance, Securities and Exchange Commission (SEC).
Below are some high-level takeaways on some of the key issues covered in the hearing prepared by Delta Strategy Group.
Subcommittee Chairwoman Ann Wagner (R-MO)
- The SEC’s primary role should be to maintain fair, orderly, and efficient markets while promoting capital formation and protecting investors. Recent actions of the Division of Corporation Finance have deviated from this core mission. The rollback of the July 2020 proxy advisor role, which was intended to ensure transparency in proxy-voting decisions, undermines necessary reforms to the proxy-advisors duopoly.
Representative Brad Sherman (D-CA)
- Scope 3 emissions disclosures are not reliable. These require companies to make estimates of what other groups are doing that might prevent comparability for investor disclosures.
Representative Frank Lucas (R-OK)
- The SEC’s proposed climate rule would have a massive impact on public companies. There are estimates that compliance costs could exceed $100 million for some companies. There has not been adequate analysis of the impact of these costs, particularly for small- and medium-sized companies. It would also impact private businesses in the value change of public companies. This would include farmers and ranchers.
Representative David Scott (D-GA)
- The SEC’s proposed climate disclosure rule will be critical in understanding public companies’ risk exposure to climate change and helping investors allocate capital efficiently. However, I believe that they could have a significantly costly and adverse effect on thousands of small farmers and ranchers. I am also concerned that this could have an impact on the loans that public banks are willing to lend to these farmers.
Erik Gerding, Director, Division of Corporation Finance (SEC)
- A large part of the division’s work is done by our disclosure review program which reviews the disclosures and financial statements of reporting companies to monitor and enhance compliance with accounting standards. The Division provides advice to companies, investors, and their advisors by issuing Staff Legal and Accounting Bulletins, staff Disclosure Guidance Topics, updates to the Division’s Financial Reporting Manual, no-action and interpretive letters and Compliance and Disclosure Interpretations.
- The climate disclosure rule is only aimed at public companies. It includes a number of provisions that allow companies to use estimates and assumptions for Scope 3 emissions along their supply chain. That being said, we have received a large number of comments addressing these concerns, and we are carefully considering these concerns.