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.
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