[House Report 118-615]
[From the U.S. Government Publishing Office]


118th Congress    }                                      {     Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                      {     118-615

======================================================================

 
  PROVIDING FOR CONGRESSIONAL DISAPPROVAL UNDER CHAPTER 8 OF TITLE 5, 
    UNITED STATES CODE, OF THE RULE SUBMITTED BY THE SECURITIES AND 
 EXCHANGE COMMISSION RELATING TO ``THE ENHANCEMENT AND STANDARDIZATION 
             OF CLIMATE-RELATED DISCLOSURES FOR INVESTORS''

                                _______
                                

 July 30, 2024.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. McHenry, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                      [To accompany H.J. Res. 127]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the joint resolution (H.J. Res. 127) providing for 
congressional disapproval under chapter 8 of title 5, United 
States Code, of the rule submitted by the Securities and 
Exchange Commission relating to ``The Enhancement and 
Standardization of Climate-Related Disclosures for Investors'', 
having considered the same, reports favorably thereon without 
amendment and recommends that the joint resolution do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Related Hearings.................................................     3
Committee Consideration..........................................     3
Committee Votes..................................................     3
Committee Oversight Findings.....................................     5
Performance Goals and Objectives.................................     5
Congressional Budget Office Estimates............................     5
New Budget Authority, Entitlement Authority, and Tax Expenditures     6
Federal Mandates Statement.......................................     6
Advisory Committee Statement.....................................     6
Applicability to Legislative Branch..............................     6
Earmark Identification...........................................     6
Duplication of Federal Programs..................................     6
Section-by-Section Analysis of the Legislation...................     7
Minority Views...................................................     8

                          PURPOSE AND SUMMARY

    Introduced on April 8, 2024, by Representative Bill 
Huizenga, H.J. Res. 127, a resolution providing for 
congressional disapproval under chapter 8 of title 5, United 
States Code, of the rule submitted by the Securities and 
Exchange Commission relating to the ``Enhancement and 
Standardization of Climate-Related Disclosures for Investors,'' 
would rescind the Securities and Exchange Commission's (SEC) 
rule ``The Enhancement and Standardization of Climate-Related 
Disclosures for Investors.''

                  BACKGROUND AND NEED FOR LEGISLATION

    On March 6, 2024, the Securities and Exchange Commission 
(``SEC'') voted 3-2 to adopt an 886-page rule entitled ``The 
Enhancement and Standardization of Climate-Related Disclosures 
for Investors'' (``the Climate Rule'' or ``the rule''). The 
rule introduces sweeping changes to existing disclosure 
obligations for public companies. Among its many requirements, 
the rule imposes new obligations including but not limited to 
scope 1 and 2 greenhouse gas (``GHG'') emissions; climate-
related risks; board oversight of climate risks; management's 
assessment and management of climate-related risks; climate-
related targets and goals; and financial statement effects of 
certain climate related risks. In adopting the final rule, the 
SEC overstepped its authority by finalizing climate-related 
regulations without a clear directive from Congress. The rule 
will have ripple effects that will be felt throughout the 
economy.
    Shortly after adoption, numerous lawsuits challenging the 
rule were filed, including by companies, trade groups and 
attorneys general from several Republican-led states. On March 
15, 2024, the Fifth Circuit Court of Appeals granted a request 
for an administrative stay on the rule. The stay was 
subsequently lifted and, following the SEC's request to 
consolidate pending litigation, the Eighth Circuit Court of 
Appeals was selected via a lottery to hear the consolidated 
case. On April 4, 2024, the SEC voluntarily stayed the rule 
pending the outcome of ongoing litigation.
    The SEC should not have finalized the Climate Rule. For 
example, the Climate Rule likely violates the major questions 
doctrine, which requires agencies to decide on issues of major 
political or economic significance only where there is clear 
Congressional authority. As Committee Republicans have 
repeatedly made clear, Congress never authorized the SEC to 
promulgate climate-related regulations. Moreover, to comply 
with the Administrative Procedure Act (``APA''), the SEC should 
have re-proposed the rule after significant changes had been 
made. Finally, there are serious concerns that the types of 
disclosures required by the rule compel speech in violation of 
the First Amendment. In fact, the information that must be 
disclosed is not ``purely factual and uncontroversial'' and may 
be used as an attempt to name and shame market participants.
    Notwithstanding several notable changes to the proposed 
rule, the Climate Rule remains an unworkable and overly 
burdensome attempt to achieve progressive climate policy goals. 
For example, the rule deviates from the materiality standard, 
replacing a principles-based approach to disclosures with 
several prescriptive new requirements. Despite arguments to the 
contrary, the disclosures required by the rule will overwhelm, 
not inform, everyday investors. In addition, the rule will 
substantially increase costs, litigation risk, and operational 
complexity while providing no comparable benefits to companies 
or investors. Given the rule's relatively short timeline for 
compliance, public companies must act immediately to adhere to 
the rule's requirements. Ultimately, everyday Americans will 
suffer, as companies will hire fewer employees, raise prices to 
afford higher compliance costs, or avoid going public.

                            RELATED HEARINGS

                             118TH CONGRESS

    Pursuant to clause 3(c)(6) of rule XIII, the following 
hearings were used to develop H.J. Res. 127: The full Committee 
on Financial Services held a hearing on April 10, 2024, titled 
``Beyond Scope: How the SEC's Climate Rule Threatens American 
Markets.''

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
April 17, 2024, and ordered H.J. Res. 127 to be reported 
favorably to the House by a recorded vote of 28 ayes to 22 nays 
(Record vote no. FC-137), a quorum being present.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the order to report legislation and amendments thereto. H.J. 
Res. 127 was ordered reported favorably to the House by a 
recorded vote of 28 ayes to 22 nays (Record vote no. FC-137), a 
quorum being present.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee, based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the goal of H.J. Res. 127 is to 
rescind the SEC's rule ``The Enhancement and Standardization of 
Climate-Related Disclosures for Investors.''

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    H.J. Res. 127 would disapprove a final rule published by 
the Securities and Exchange Commission (SEC) in March 2024.\1\ 
By invoking a legislative process established in the 
Congressional Review Act, the resolution would repeal the rule 
and prohibit the agency from issuing the same or any similar 
rule in the future.
---------------------------------------------------------------------------
    \1\Securities and Exchange Commission, ``The Enhancement and 
Standardization of Climate-Related Disclosures for Investors,'' Final 
Rule, 89 Fed. Reg. 21688 (March 28, 2024), https://tinyurl.com/
3zxsjsp9.
---------------------------------------------------------------------------
    The rule requires public companies that are subject to the 
SEC's reporting requirements to disclose material risks from 
climate-related effects on the company's financial condition.
    CBO estimates that repealing the rule would have an 
insignificant effect on the SEC's costs. Because the SEC is 
authorized to collect fees each year to offset its annual 
appropriation, CBO expects that the net effect on discretionary 
spending over the 2024-2029 period would be negligible, 
assuming appropriation actions consistent with that authority.
    CBO also expects that repealing the rule could reduce civil 
monetary penalties that the SEC may seek against individuals 
and companies that violate the disclosure requirements of the 
rule. Civil monetary penalties are recorded as revenues in the 
federal budget. CBO expects that companies would generally 
comply with the requirements in that rule and thus any 
reduction in civil monetary penalties under the bill would be 
insignificant over the 2024-2034 period.
    The CBO staff contact for this estimate is Aurora Swanson. 
The estimate was reviewed by H. Samuel Papenfuss, Deputy 
Director of Budget Analysis.
                                         Phillip L. Swagel,
                             Director, Congressional Budget Office.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee adopts as its own the 
estimate of new budget authority, entitlement authority, or tax 
expenditures or revenues contained in the cost estimate 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1973.

                       FEDERAL MANDATES STATEMENT

    Pursuant to section 423 of the Unfunded Mandates Reform 
Act, the Committee adopts as its own the estimate of the 
Federal mandates prepared by the Director of the Congressional 
Budget Office.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes a program of 
the Federal Government known to be duplicative of another 
Federal program, including any program that was included in a 
report to Congress pursuant to section 21 of the Public Law 
111-139 or the most recent Catalog of Federal Domestic 
Assistance.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

    This Joint Resolution disapproves the rule submitted by the 
Securities and Exchange Commission relating to ``The 
Enhancement and Standardization of Climate-Related Disclosures 
for Investors'' and asserts that such rule shall have no force 
or effect.

                             MINORITY VIEWS

    H.J. Res. 127 is a Congressional Review Act (``CRA'') 
resolution that would nullify the U.S. Securities and Exchange 
Commission's (the ``SEC'' or ``Commission'') rule to enhance 
and standardize climate-related disclosures for investors, 
which was recently finalized on March 6, 2024. While the final 
rule is narrower than the rule as originally proposed, it 
represents a meaningful first step in standardizing climate-
related disclosures for public companies, and if overturned 
would do significant investor harm.
    Since their inception over 90 years ago, U.S. securities 
laws have required public companies to disclose material 
information to their investors in order to allow investors to 
make sound decisions with their hard-earned dollars. However, 
current SEC rules provide limited guidance on what climate-
related information these companies must provide. Many 
companies recognize that such information is important to 
investors and disclose various climate-related data points. Due 
to a lack of standardization from the SEC, however, there are 
considerable differences across public companies which makes it 
difficult for investors to compare such information. For 
several years now, investors in publicly traded companies and 
investment funds have increasingly requested the disclosure of 
standardized and reliable data regarding environmental-related 
factors. Just in 2023 alone, investors, asset managers, and 
banks with $136 trillion assets under management requested 
thousands of companies disclose climate-related information to 
help inform their investing and voting decisions.
    In response to this overwhelming investor and industry 
demand for standardized climate-related information--and after 
receiving tens of thousands of public comments--the SEC voted 
earlier this spring to finalize its climate disclosure rule. 
According to Ceres Accelerator for Sustainable Capital Markets, 
although the final rule is narrower than the original proposal, 
on the whole, it will benefit investors in several key ways.\1\ 
First, the status quo is costly for investors. Institutional 
investors already spend $1.4 million per year on average to 
collect, analyze, and report climate data to their investors, 
which is more than 2.5 times the average annual cost ($533,000) 
companies pay to voluntarily disclose this data.\2\ Second, the 
status quo is problematic for public companies. It can be 
challenging for companies to determine which voluntary 
reporting frameworks to use, and discrepancies and 
inconsistencies among the frameworks can result in misleading 
disclosures which may confuse and even harm investors.\3\ 
Third, the status quo does not allow for comparability between 
companies' disclosures, which is what investors need when 
making portfolio-wide capital allocation decisions.\4\
---------------------------------------------------------------------------
    \1\Ceres Accelerator for Sustainable Capital Markets, Overview: 
U.S. Securities and Exchange Commission's Proposed Rule on Climate 
Disclosure (accessed Jun. 20, 2024).
    \2\Id.
    \3\Id.
    \4\Ceres Accelerator for Sustainable Capital Markets, Overview: 
U.S. Securities and Exchange Commission's Proposed Rule on Climate 
Disclosure (accessed Jun. 20, 2024).
---------------------------------------------------------------------------
    Additionally, the standardization and reliability of 
climate information brought about by the rule will also provide 
investors with the following benefits, per Ceres.\5\ Emissions 
data will enable investors to better understand individual 
companies' short- and long term exposure to climate risks and 
the potential ensuing financial and performance-related impacts 
that may come with them.\6\ In addition, investors can use 
emissions data to better inform their purchasing decisions and 
portfolio construction, risk management, as well as their (or 
their proxy's) decisions on how to vote on proposals that 
influence the direction of the corporation.\7\ By nullifying 
the climate rule, H.J. Res. 127 would eliminate these benefits 
for investors.
---------------------------------------------------------------------------
    \5\Id.
    \6\Ceres Accelerator for Sustainable Capital Markets, Overview: 
U.S. Securities and Exchange Commission's Proposed Rule on Climate 
Disclosure (accessed Jun. 20, 2024).
    \7\Id.
---------------------------------------------------------------------------
    The SEC's climate rule was purposely drafted to comport 
with Republican's prior views of the SEC's authority to require 
disclosures. A key premise of the SEC's final rule is that 
public companies only need to disclose the climate-related 
information specified in the rule if the company itself 
determines such information to be ``material'' to its 
investors. This came after nearly three years of consideration 
and a lengthy comment period which saw thousands of investors 
confirm that climate-related information is important with 
respect to their investment decisions. Consistent with this 
extensive feedback as well as Supreme Court precedent around 
the definition of materiality--the Commission's final climate 
rule stated that, ``as with other materiality determinations 
under the Federal securities laws . . . the guiding principle 
for [a climate-related] determination is whether a reasonable 
investor would consider the disclosure of an item of 
information . . . important when making an investment or voting 
decision or such a reasonable investor would view omission of 
the disclosure as having significantly altered the total mix of 
information made available.'' Notably, this standard is also in 
line with the standard laid out in the 117th Congress by Rep. 
Bill Huizenga--the author of this resolution--in his 
``Mandatory Materiality Requirement Act of 2022'' (the 
``MMRA''). Much like the final climate rule, the MMRA would 
have limited new SEC disclosure requirements to cases where 
``the Commission expressly determines that there is a 
substantial likelihood that a reasonable investor of the issuer 
would consider the information disclosed to the Commission 
under the requirement to be important with respect to an 
investment decision regarding the issuer.'' The slight 
difference in this case, which actually makes the final rule 
more company-friendly and less burdensome than the regime 
envisioned by the MMRA, is that with the climate rule the 
company rather than the SEC gets to make the final materiality 
determination.
    The following is a brief selection of the thousands of 
groups that previously wrote to the SEC in support of the 
Commission's original climate disclosure rule proposal or the 
principles underlying the proposal:
    Nonprofit Organizations (General): Americans for Financial 
Reform; Better Markets; Ceres Accelerator for Sustainable 
Capital Markets; Public Citizen; Union of Concerned Scientists; 
Alliance to Save Energy; American Sustainable Business Council; 
Business for Social Responsibility; Center for Climate and 
Energy Solutions; Earth Action, Inc.; Environmental Defense 
Fund; Environmental Protection Network; Governance Institute; 
Green America; Innovation Network for Communities; Institute 
for Market Transformation (IMT); Natural Resources Defense 
Council; World Business Council for Sustainable Development; 
Climate Emergency Fund; Citizens Energy Corporation; Catholic 
Divestment Network; United Nations Foundation; Evergreen 
Action; Ocean Conservancy; Sierra Club; The Sunrise Project; 
Accelerate Neighborhood Climate Action; Accountability Counsel; 
Action Center on Race and the Economy; Amazon Watch; American 
Federation of Teachers; Businesses for a Livable Climate; 
CatholicNetwork US; Center for International Environmental Law; 
Citizen's Alliance for a Sustainable Englewood; Climate Finance 
Fund; Climate First!, Inc.; Community for Sustainable Energy; 
Earth Action, Inc.; Earthjustice; Earthworks; Endangered 
Species Coalition; Friends of the Earth US; Green America; 
GreenFaith; Institute for Agriculture and Trade Policy; League 
of Conservation Voters; Mental Health & Inclusion Ministries; 
National Sustainable Agriculture Coalition; People's Action; 
Positive Money US; Private Equity Stakeholder Project; Publish 
What You Pay--US; Rainforest Action Network; RapidShift 
Network; Save EPA (former employees); Service Employees 
International Union; Small Business Alliance; Social Value US; 
Spirit of the Sun, Inc.; Stand.earth; System Change Not Climate 
Change; The Green House Connection Center; The Greenlining 
Institute; The Revolving Door Project; Transformative Wealth 
Management, LLC; Wall of Women; Wallace Global Fund; Waterway 
Advocates.
    Asset Managers: Ariel Investments; Boston Common Asset 
Management; Clean Energy Ventures (CEV); ClearBridge 
Investments; Rockefeller Asset Management; Steinberg Asset 
Management, LLC; Sustainable Insight Capital Management; Terra 
Alpha Investments LLC; Loring, Wolcott & Coolidge; Trillium 
Asset Management; Zevin Asset Management.
    State-level Investors: California State Teachers Retirement 
System (CalSTRS); New York State Common Retirement Fund; Oregon 
State Treasury Minnesota State Board of Investment; Connecticut 
Office of the State Treasurer; Illinois State Treasurer Michael 
Frerichs.
    State and Regional-affiliated Nonprofits: 350 Colorado; 350 
Conejo / San Fernando Valley; 350 New Orleans; 350 Seattle; 350 
Silicon Valley; Call to Action Colorado; Climate Reality 
Montgomery County; CO Businesses for a Livable Climate; 
Connecticut Citizen Action Group; Elders Climate Action 
Maryland; Greater New Orleans Housing Alliance; I-70 Citizens 
Advisory Group; Southwest Organization for Sustainability; 
Unite North Metro Denver.
    For these reasons, we oppose H.J. Res. 127.
            Sincerely,
                                   Maxine Waters,
                                           Ranking Member.
                                   Nydia M. Velazquez,
                                   Brad Sherman,
                                   Gregory W. Meeks,
                                   David Scott,
                                   Stephen F. Lynch,
                                   Al Green,
                                   Emanuel Cleaver II,
                                   Jim Himes,
                                   Bill Foster,
                                   Joyce Beatty,
                                   Juan Vargas,
                                   Sean Casten,
                                   Ayanna Pressley,
                                   Rashida Tlaib,
                                   Sylvia R. Garcia,
                                   Nikema Williams,
                                           Members of Congress.

                                  [all]