`[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]




                                



 
                    OVERSIGHT OF THE SEC'S PROPOSED


                        CLIMATE DISCLOSURE RULE:


                       A FUTURE OF LEGAL HURDLES

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

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 18, 2024

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-70
                           
                           
                           
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
        
        
        
                      ______

              U.S. GOVERNMENT PUBLISHING OFFICE 
 56-256           WASHINGTON : 2024    
        
        
        
                   
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
    Chairman                         JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
              Subcommittee on Oversight and Investigations

                   BILL HUIZENGA, Michigan, Chairman

PETE SESSIONS, Texas                 AL GREEN, Texas, Ranking Member
ANN WAGNER, Missouri                 STEVEN HORSFORD, Nevada
ALEXANDER X. MOONEY, West Virginia   RASHIDA TLAIB, Michigan
JOHN ROSE, Tennessee, Vice Chairman  SYLVIA GARCIA, Texas
DAN MEUSER, Pennsylvania             NIKEMA WILLIAMS, Georgia
ANDY OGLES, Tennessee
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    January 18, 2024.............................................     1
Appendix:
    January 18, 2024.............................................    33

                               WITNESSES
                       Thursday, January 18, 2024

Crain, Charles, Vice President, Domestic Policy, National 
  Association of Manufacturers (NAM).............................     4
Cunningham, Lawrence A., Special Counsel, Mayer Brown LLP........     6
Georgiev, George S., Professor of Law, Emory University School of 
  Law............................................................     9
Schultz, William, Vice President, Schultz Fruitridge Farms Inc...     7

                                APPENDIX

Prepared statements:
    Crain, Charles...............................................    34
    Cunningham, Lawrence A.......................................    43
    Georgiev, George S...........................................    62
    Schultz, William.............................................    78

              Additional Material Submitted for the Record

Huizenga, Hon. Bill:
    Written statement of the American Securities Association 
      (ASA)......................................................    83
Rose, Hon. John:
    Written statement of the American Securities Association 
      (ASA)......................................................    83
Crain, Charles:
    Written responses to questions for the record from 
      Representatives Huizenga and Waters........................    87
Cunningham, Lawrence A.:
    Written responses to questions for the record from 
      Representatives Huizenga and Waters........................    89
Georgiev, George S.:
    Written responses to questions for the record from 
      Representatives Waters and Nikema Williams.................    94
Schultz, William:
    Written responses to questions for the record from 
      Representative Waters......................................    95


                    OVERSIGHT OF THE SEC'S PROPOSED



                        CLIMATE DISCLOSURE RULE:



                       A FUTURE OF LEGAL HURDLES

                              ----------                              


                       Thursday, January 18, 2024

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:08 a.m., in 
room 2128, Rayburn House Office Building, Hon. Bill Huizenga 
[chairman of the subcommittee] presiding.
    Members present: Representatives Huizenga, Sessions, 
Wagner, Rose; Green, Horsford, Tlaib, Garcia, and Vargas.
    Ex officio present: Representative Waters.
    Also present: Representatives Lucas, Davidson, and Casten.
    Chairman Huizenga. The Subcommittee on Oversight and 
Investigations will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Today's hearing is entitled, ``Oversight of the SEC's 
Proposed Climate Disclosure Rule: A Future of Legal Hurdles.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    I want to thank the witnesses for appearing before the 
subcommittee this morning, especially with some of the weather 
challenges. But I especially want to welcome my constituent, 
Mr. Bill Schultz, who is in from Mattawan, Michigan. I am 
really glad that you were able to make it and to be a part of 
this.
    As I indicated last year at our first hearing, oversight is 
a vital check on any Administration's power and on those whom 
the President chooses to represent that Administration.
    Today's hearing should not be confused with a debate on 
climate change but rather whether the Securities and Exchange 
Commission has the legal authority to mandate climate 
disclosures from all companies and that, I believe, is going to 
be the effect.
    Nearly a century ago, Congress created the SEC to protect 
investors; maintain fair, orderly, and efficient markets; and 
to facilitate capital formation. These are timeless goals and 
objectives, not to be used to advance a particular agenda.
    As we approach the two-year anniversary of the proposal of 
the SEC's climate disclosure rule, and this subcommittee's 
year-long investigation into that rule, I think it is prudent 
to examine the facts.
    First, the SEC has wildly underestimated the costs the rule 
will impose on both public and private companies. Instead of 
conducting a thorough economic analysis, the already-
overwhelmed Division of Economic and Risk Analysis at the SEC 
relied on left-leaning environmental activist groups to justify 
its rulemaking.
    While the SEC asserts that the rule would cost current 
reporting companies roughly $10 billion a year, a recent study 
puts that number at closer to $25 billion a year, with little 
analysis on how proposed Scope 2 and Scope 3 requirements will 
impact small businesses, which frankly can't afford a 
compliance department or a legal department.
    Furthermore, this past fall, the Fifth Circuit Federal 
Court of Appeals ruled against a separate SEC-finalized 
proposal relating to shareholder or share repurchase 
disclosures. In that opinion, the court rightfully held that, 
``The SEC acted arbitrarily and capriciously in violation of 
the Administrative Procedure Act when it failed to respond to 
petitioners' comments and failed to conduct a proper cost-
benefit analysis.''
    Given the sheer volume, pace, and complexity of rules 
currently before the SEC, a 9.4-percent staff vacancy rate as 
of September 2023, and Inspector General reports citing 
recruitment and retention challenges, one has to wonder how 
many finalized rules will ultimately be vacated by the courts.
    Which leads us to this question: In light of the Supreme 
Court's ruling in West Virginia v. EPA, does the SEC have 
congressional authorization to implement rules related to 
environmental or climate issues? In its ruling, the Supreme 
Court held that the EPA exceeded its statutory authority, 
relying on ambiguity as constituting an implicit delegation 
from Congress.
    Let us be clear: Congress has not delegated the authority 
to the SEC to require climate disclosures. The court's decision 
signals that the SEC's authority to develop, finalize, and 
implement a climate disclosure rule is in jeopardy and now, 
frankly, we are waiting on the Supreme Court, which took oral 
hearings yesterday on the Chevron doctrine, and what are the 
boundaries. It was about 40 years ago that there was a court 
ruling establishing that, so we are seeing a court certainly 
re-examining that balance between an Administration and 
Congress.
    Lastly, I want to close where I began, with congressional 
oversight. I would be remiss if I didn't speak to the 
subcommittee's efforts to conduct oversight of the SEC's 
climate rule and get answers to many of the questions we hear 
about and we will be hearing about today in our testimony. 
Although the SEC has responded to the committee, one might be 
in awe of the imposing-sounding 69,000 pages of documents that 
they have sent over.
    But the devil is in the details. To date, the Commission 
has approved only 11,540 pages of responsive nonpublic 
documents to be produced to the committee, which is only 16 
percent of the total documents produced. The SEC has flooded 
our subcommittee with unresponsive documents, including a copy 
of the rule itself, a copy of Chair Gensler's public testimony 
before our committee;--which, I might add, I was sitting here 
for myself--press releases, and the entire public comment file 
which, of course, is public.
    So given the lack of cooperation, and the contents of the 
material turned over to the committee to date, I can only 
conclude that Chair Gensler is intentionally slow-walking our 
investigation.
    I will let those watching draw their own conclusions, but 
look at those details. Whether the final climate rule is 
finalized next week or next month, I think we can conclude that 
the SEC Chair has failed to convince not only his fellow 
Commissioners, but the American people, and as we will hear 
today, he will likely not convince the court.
    I look forward to hearing from each one of our witnesses. 
And I now yield to the ranking member of the subcommittee, the 
gentleman from Texas, Mr. Green, for 4 minutes.
    Mr. Green. Thank you, Mr. Chairman, and I would also like 
to thank you publicly for our gentleperson's agreement, a 
handshake agreement that we arrived at on the House Floor 
yesterday. Thank you, again.
    I also, Mr. Chairman, thank the witnesses, as you have, and 
I thank the staff for providing the intelligence that I will 
share today. Today's hearing is but another assault on helpful 
investor protection, climate change-related regulations.
    Friends, the science on climate change is clear, 
perspicuously so. It is not a question of whether it is going 
to happen, because it is already happening. For many public 
companies, extreme weather events or even slight changes in 
regional weather patterns can affect their operating 
performance.
    Recently, Coca-Cola was forced to close one of its bottling 
plants due to the overuse and extraction of groundwater. This 
shutdown resulted in an unexpected loss of profit, and delayed 
manufacturing timelines.
    Some companies already include general disclosures about 
climate risks. But those disclosures are typically very vague, 
lack standardization, and do not provide investors with a good 
sense of the scale of the risk the company faces from climate 
change.
    The Securities and Exchange Commission's (SEC's) recently-
proposed rule on climate seeks to address this vagueness and 
lack of standardization as well as provide clear guidance for 
publicly-traded companies on climate-related disclosures.
    In a recent survey, more than 80 percent of U.S. investors 
indicated that companies need to more openly communicate the 
risks around climate-related factors, and 73 percent also said 
they are more likely to invest in a company that shares with 
investors its plans for effectively managing those factors.
    In response to increased investor demand for this type of 
information, in March of 2021 the SEC released a proposed rule 
to require public companies to make a variety of quantitative 
and qualitative disclosures regarding climate-related risks 
that are likely to have a material impact on their business.
    My colleagues across the aisle are finding fault with the 
SEC's proposed rule but offer no constructive solutions of 
their own. Those of you paying attention will very soon realize 
that this is a regular, recurrent, rhythmic part of the 
Republican playbook.
    Republicans opposed the Dodd-Frank financial crisis 
legislation but offered no serious alternative legislation 
after the last financial crisis. Republicans continue to oppose 
the Consumer Financial Protection Bureau (CFPB) but offer no 
alternative approach to protecting everyday consumers.
    And perhaps most notably, Republicans vehemently opposed 
Obamacare--the name may have had something to do with it. But 
the Republicans vehemently opposed the Affordable Care Act, but 
could provide no alternative, even when in a position to repeal 
and replace it.
    Today's hearing is straight out of the Republican 
fictitious repeal and replace, ``the sky is falling,'' 
playbook. Friends, the sky is not falling, and there is no need 
to repeal and replace.
    I yield back the balance of my time.
    Chairman Huizenga. The gentleman yields back.
    With that, the handshake agreement that Mr. Green was 
referencing was how we were going to be handling our 
questioning, and I had decided that I will actually be 
deferring my 5-minute question period as well to the very end, 
so he will be going second to last, and I will be the last 
questioner.
    Now, I want to introduce our panel. Today, we welcome the 
testimony of Mr. Charles Crain, the vice president of domestic 
policy at the National Association of Manufacturers; Mr. 
Lawrence Cunningham, a special counsel at Mayer Brown; Mr. Bill 
Schultz, my constituent from the Fourth District in Michigan, 
and the vice president of Schultz Fruitridge Farms 
Incorporated--and on a personal note, I will tell you, makes 
one heck of a hard cider, especially the black currant flavor, 
and Ranking Member Green, I am going to work on getting us some 
samples; that might help the operations of the committee. We 
will see. And finally, Mr. George Georgiev, a professor of law 
at Emory University.
    We thank you all for your time, and, as I said earlier, 
your efforts in getting here with the weather and all of those 
things.
    You will each be recognized for 5 minutes for an oral 
presentation of your testimony, and without objection, your 
written statements will be made a part of our permanent record.
    Mr. Crain, you are now recognized for 5 minutes for your 
oral remarks.

 STATEMENT OF CHARLES CRAIN, VICE PRESIDENT, DOMESTIC POLICY, 
          NATIONAL ASSOCIATION OF MANUFACTURERS (NAM)

    Mr. Crain. Thank you, Mr. Chairman. Good morning to you and 
the ranking member and the members of the subcommittee.
    My name is Charles Crain, and I am the vice president of 
domestic policy at the National Association of Manufacturers 
(NAM). I appreciate the opportunity to testify today on behalf 
of the NAM's members and the 13 million people who make things 
in America.
    Manufacturing supports local communities and creates well-
paying jobs. Manufacturing pioneers groundbreaking 
technologies, including the innovations necessary to combat 
climate change, and manufacturing powers economic growth here 
at home and supports American competitiveness on the world 
stage.
    But today, manufacturers are facing a regulatory onslaught. 
The total cost of Federal regulations across the economy 
exceeds $3 trillion every year. Zeroing in on manufacturing, 
our industry faces $350 billion each year in regulatory costs. 
That is a nearly 30-percent increase from just a decade ago.
    And the average individual manufacturer pays more than 
$29,000 per employee, per year, to comply with Federal 
regulations and that figure rises to more than $50,000 for 
small manufacturers--$50,000 per employee, every year. For a 
small company with just 20 employees, that is a million dollars 
that is diverted every year from job creation or from R&D.
    The SEC's climate rule is at the center of this regulatory 
onslaught. The rule would impose tremendous costs on 
manufacturers of all sizes, while overwhelming investors with 
immaterial information, and the SEC hasn't done the work to 
show that the rule's benefits outweigh its costs or that it is 
even within the SEC's legal authority.
    The rule's Scope 3 mandate exemplifies these flaws. 
Requiring larger companies to report their supply chain 
emissions is a significant burden and will fall directly on 
their small and privately-held suppliers because it is their 
emissions that the SEC wants to know about. These small 
businesses will face an untenable choice between building 
brand-new systems, buying expensive equipment, or potentially 
losing valuable customers.
    For the larger companies that are subject to the Scope 3 
requirement, the SEC has admitted that it cannot fully and 
accurately quantify the cost of Scope 3 reporting. That is 
already a red flag for such a substantial requirement.
    For the small businesses that are swept into these large 
companies' Scope 3 efforts, the SEC hasn't even tried. The 
SEC's proposal does not include any discussion of the Scope 3 
cost that will fall on small and privately-held businesses.
    The SEC has taken a similar approach to the climate rule's 
accounting requirements. The rule requires companies to conduct 
a convoluted tagging exercise to identify individual expenses 
that might be climate-related.
    Disclosure of those impacts would then live in the 
company's financial statements. Along with Scope 3, this is one 
of the most consequential and difficult portions of the rule. 
Yet, the SEC has offered no tailoring, no delay, and no 
flexibility at all for small businesses.
    Because these disclosures will be part of companies' 
financial statements, they will be subject to external audit. 
But when the SEC set out to estimate the cost of that audit, it 
came up with an estimate of just $15,000--$15,000--to audit a 
brand new procedure that stretches down into individual 
invoices, that requires complicated judgment calls, and that 
might require a whole separate set of books for some companies.
    This is the type of flawed cost analysis that is 
underpinning the entire climate rule and these flaws call into 
question the legality of the rule itself.
    Under the Administrative Procedure Act (APA), rules can't 
just ignore a major aspect of a rulemaking problem, like the 
impact of Scope 3 on small businesses. They can't be based on 
faulty cost-benefit analysis, and perhaps most importantly, 
they can't exceed an agency's statutory authority.
    The SEC has only been authorized by Congress to require 
material disclosures to help investors make informed decisions, 
not to set climate policy.
    But the climate rule far exceeds what any reasonable 
investor would need to know about a company's climate-related 
risks. So, we are left with a rule that delves into policy 
issues that are well outside the SEC's expertise or authority.
    Overall, the SEC says that the climate rule will cost more 
than $400,000 every year for small public companies. That is a 
huge resource diversion, before even taking into account all of 
the flaws in the SEC's cost analysis.
    Many small manufacturers will be forced to hire new staff 
or even expensive environmental, social, and governance (ESG) 
consultants to keep up with this burden, all at the expense of 
manufacturing investment here in the United States.
    If the climate rule is finalized, small manufacturers and 
their workers will be the hardest hit. Manufacturers, 
therefore, greatly appreciate this subcommittee's efforts to 
rein in the SEC's regulatory overreach.
    Thank you for the opportunity to testify today, and I look 
forward to answering any questions.
    [The prepared statement of Mr. Crain can be found on page 
34 of the appendix.]
    Chairman Huizenga. Thank you, Mr. Crain.
    Mr. Cunningham, you are now recognized for 5 minutes.

  STATEMENT OF LAWRENCE A. CUNNINGHAM, SPECIAL COUNSEL, MAYER 
                           BROWN LLP

    Mr. Cunningham. Chairman Huizenga, Ranking Member Green, 
and members of the subcommittee, thank you for inviting me to 
testify.
    I am Lawrence Cunningham, a lawyer and scholar with 35 
years of experience in corporate law, securities regulation, 
and investing. I am special counsel at Mayer Brown, and 
professor emeritus at George Washington University, although 
the points I make today are my own.
    I will explain why the SEC's proposal is outside of its 
power and is harmful to investors. Congress authorized the EPA 
to protect the climate. It authorized the SEC to protect 
investors from fraud and deception in the securities markets.
    Your oversight is needed because the SEC proposal does not 
address ordinary American individual investors who need the 
SEC's protection to save for buying homes, for their kids' 
education, and for retirement.
    The proposal disregards evidence that individual investors 
mostly invest to save, not to influence climate policy. It 
disregards conflicts of interest between the large 
institutional asset managers and their beneficiaries, ordinary 
Americans whose preferences and goals differ.
    The proposal is unnecessary and harmful because existing 
SEC guidance, proven effective and flexible for more than a 
decade, already requires companies to disclose all climate 
risks that are material to their businesses, and yet, the 
proposal would require irrelevant and burdensome disclosure 
outside the SEC's expertise and authority.
    The proposal would harm investors by forcing companies to 
disclose information about their suppliers, employees, and 
customers which is useless for investors--make companies 
disclose climate impact rather than climate risk, which 
investors do not need.
    It would impose millions of dollars of costs on companies, 
which will hurt investor value for no investor benefit and 
probably no climate benefit. It would compel the disclosure of 
information that is inherently speculative and uncertain, doing 
more to confuse than to inform. It would spur lawsuits over the 
adequacy of disclosure, which are costly even when baseless.
    All of this would discourage companies from being public, 
which reduces investment opportunities for ordinary American 
investors. It would usurp State corporate law and company 
business judgment, which undermines the interests and rights of 
investors.
    Your oversight is also needed because the proposal faces 
legal challenges under the major questions doctrine for a lack 
of explicit congressional authorization for its sweeping 
significant policy reach, under the First Amendment for 
compelling company speech on controversial matters, and under 
the Administrative Procedure Act as it solves no problem within 
the SEC's mandate and fails to include a proper cost-benefit 
analysis.
    In sum, the proposal exceeds the SEC's congressional grant 
of authority, is an undemocratic power grab, and would divert 
resources from the SEC's statutory mission of protecting 
investors.
    I commend your oversight and urge you to examine how the 
proposal would hurt millions of individual American investors 
that Congress created the SEC to protect.
    I welcome your questions.
    [The prepared statement of Mr. Cunningham can be found on 
page 43 of the appendix.]
    Chairman Huizenga. Thank you, Professor Cunningham. I 
appreciate that.
    Mr. Schultz, you are now recognized for 5 minutes.

     STATEMENT OF WILLIAM SCHULTZ, VICE PRESIDENT, SCHULTZ 
                     FRUITRIDGE FARMS INC.

    Mr. Schultz. Chairman Huizenga, Ranking Member Green, and 
members of the subcommittee, thank you for your invitation to 
speak today.
    My name is Bill Schultz, and it is my honor, as vice 
president of Schultz Fruitridge Farms Incorporated, to come 
before you today to speak about the SEC's Scope 3 emissions 
reporting requirements, which could negatively impact our 
multigenerational family business.
    I represent the third generation of my family to grow fruit 
in southwest Michigan. I farm in partnership with my parents 
and my three siblings. We produce a wide variety of crops 
including apples, peaches, grapes, and cherries.
    Growing fruits and vegetables on 300 acres for our 
customers and our community is a very fulfilling experience, 
and I would consider it a privilege. I have the opportunity to 
interact with roughly 10,000 consumers annually.
    I spend my Saturday mornings at our local farmers market 
engaging with our customers and educating them on the 
happenings out at the farm. We get involved with our local 
schools to get fresh apples into the lunch program. Further, 
every season we make an effort to donate some of our farm's 
bounty to local food pantries.
    Meeting so many families and sharing the story of 
agriculture as they visit our farm, our farm market, and our 
restaurant each season is priceless. We are our community's 
farm in so many ways, and I fear that the SEC's rule could put 
our industry at risk.
    This rule would require extensive reporting by public 
companies on their Scope 3 emissions, which are the result of 
activities not owned or controlled by the company but are in 
its supply chain, and I expect most family farms in America 
will be touched by this proposal because these farms' products 
end up in the value chains of public companies.
    Whether it is a grocery store, a fertilizer company, a 
packer, or any of the other public companies we do business 
with, the farms and their supply chains will be impacted by 
Scope 3.
    Our industry's focus is on growing the food, fuel, and 
fiber that this country needs, and being subjected to 
regulations intended for Wall Street does not advance that 
work.
    While large multinational companies have consultants or 
attorneys dedicated to handling SEC compliance, farms like ours 
do not. Complying with this rule would be significantly more 
difficult for our farm. The cost would be much higher. Our farm 
has no experience with the SEC and we have a hard enough time 
competing in this current environment.
    This rule pushes towards more consolidation and gives our 
competitors one more advantage over family farms like ours. 
Investing in environmental stewardship is important to us 
because we want to take care of the land that we live on and 
pass our family farm on to the next generation.
    We have adopted conservation practices that include 
planting cover crops that build soil fertility, we have 
installed trickle irrigation systems to minimize water use, and 
we have planted living row middles in our orchards to reduce 
the need to mow.
    I am passionate about planting and have personally set 
thousands of bushes, trees, and vines with my own two hands. We 
plan and we plant for the future.
    For over 70 years, my family has persevered through all 
types of adversity, from weather extremes to challenging 
markets, and from labor struggles to maintaining profitability. 
A life in agriculture is not for the faint of heart.
    Unfortunately, we now face adding a new and crushing 
regulation to this list of our challenges. On top of the 
resources needed to collect this information, growing an apple 
is not like making a widget. Farming presents variables that 
are rarely present in other businesses. An apple tree, for 
example, takes many years to start producing fruit that can be 
eaten. Weather events or plant pests and diseases create 
hurdles year to year that would deeply complicate the reporting 
process, and it is clear that the SEC did not account for these 
complexities and nuances of farms when writing this rule.
    In conclusion, consumers are already facing high costs at 
the grocery store and this rule will only worsen this problem. 
Small and medium-sized farms are the lifeblood of our industry 
and the pillars of our rural communities.
    Thank you for the opportunity to share my perspective 
today.
    [The prepared statement of Mr. Schultz can be found on page 
78 of the appendix.]
    Chairman Huizenga. Thank you, Mr. Schultz.
    Professor Georgiev, you are now recognized for 5 minutes.

   STATEMENT OF GEORGE S. GEORGIEV, PROFESSOR OF LAW, EMORY 
                    UNIVERSITY SCHOOL OF LAW

    Mr. Georgiev. Chairman Huizenga, Ranking Member Green, and 
members of the subcommittee, thank you for inviting me today to 
testify at this important hearing.
    My name is George Georgiev, and I am a law professor at 
Emory University, where I teach and write about corporate 
governance and securities regulation.
    I have focused on the SEC's disclosure rulemaking for 15 
years, first, as a practicing lawyer advising companies on 
securities law compliance, and subsequently, as a legal 
scholar. My remarks here today are solely in my capacity as a 
legal scholar and I am not testifying on behalf of any group or 
entity.
    I think this hearing is very important. I think the SEC's 
climate disclosure rulemaking efforts are much-needed, and I 
think because they are much-needed, because they have been 
visible, and because securities law is quite complex, there 
have been actually quite a few misunderstandings about what the 
SEC is trying to do, what is in the actual rule, and how the 
legal analysis should unfold.
    Let me spend a few minutes talking about some of those 
misunderstandings, and those are actually objective and 
factual. They are not for the most part matters of opinion or 
dispute.
    First, I want to emphasize that the SEC's climate-related 
disclosure proposal is about providing information to investors 
for purposes of market efficiency, capital formation, and 
investor protection. It is not about regulating climate change. 
It does not seek to effectuate substantive regulation of 
climate and, moreover, the SEC could not do that even if it 
wanted to. It is merely about information.
    Second, it is true that because of the importance of the 
subject, it has attracted attention from both core mainstream 
investor constituencies as well as noninvestor constituencies. 
But the mere fact that noninvestor constituencies are 
interested in the rule should not mean that the rule is suspect 
or that it should not be adopted. The SEC has focused on the 
informational needs of investors and this is what is driving 
the analysis, the content of the rule, and the SEC's efforts.
    Third, investor support for the SEC's rulemaking is near 
universal, close to 95 percent. Moreover, many U.S. companies, 
companies in different geographies of different sizes and 
different industries, have actually come out in support of the 
rule because they recognize that they need this information in 
order to manage their business, and they need regulatory 
guidance, which is very important.
    The current framework relies primarily on voluntary 
disclosures, and voluntary disclosures provide flexibility, 
that is true, but they also entail a high degree of legal risk 
and compliance risk, and they are also very time-consuming and 
costly.
    So, legal certainty is what companies want, and this is 
what the SEC has sought to provide.
    Let's talk a little bit about investor demand. Investor 
demand is real. It is important. But the SEC's proposal does 
not depend on an assessment of the intensity of investor demand 
or even on investors' fluctuating interest in sustainable 
funds.
    Even if sustainability-related funds were to be abolished 
somehow, today, there would still be a very strong case for the 
SEC to promulgate climate-related disclosure rules, because 
they go to the risks and opportunities of companies, how 
companies should be assessed by investors in their decision-
making.
    The next point is about the difference between retail 
investors, real investors, individual investors, and large 
institutional investors, and I want to point out that climate-
related disclosure helps with market efficiency just like all 
disclosure does, it helps with price accuracy, and it helps 
with price discovery, so it will help both retail investors and 
large investors.
    Even if retail investors don't care at all about climate, 
they care very much about the fact that they should be buying 
and selling securities at accurate prices, and if securities 
are mispriced, that is a very serious problem for the capital 
markets.
    Next, the proposed SEC requirement on greenhouse gas 
emissions--Scope 1, Scope 2, and Scope 3--is intended to give 
investors an understanding of the issuers' transmission risk, 
and this is a well-established and uncontested source of 
business risk that will remain present regardless of what the 
SEC does. These emissions disclosures do not and cannot be 
reflective of a double materiality approach. They do not seek 
disclosure of the firm's impact on the environment.
    Finally, the SEC has sought to design a workable rule by 
incorporating liability safe harbors, delaying the 
effectiveness of certain provisions, and endorsing the use of 
estimates, and by all accounts, the SEC is actively working on 
taking those considerations into account.
    Thank you for your time, and I look forward to your 
questions.
    [The prepared statement of Mr. Georgiev can be found on 
page 62 of the appendix.]
    Chairman Huizenga. Thank you. I appreciate that. We will 
now turn to Member questions, and we are going to start with 
the gentleman from Texas, Mr. Sessions. You have 5 minutes for 
your questions.
    Mr. Sessions. Mr. Chairman, thank you very much.
    Mr. Georgiev, thank you for your feedback to us. Does the 
SEC ever use filings that people make to go back and fine them 
for things that they did not comply with in their filing?
    Mr. Georgiev. Yes, it does.
    Mr. Sessions. It does. So, it takes what you described as 
important data, information that we share for market accuracy, 
and then they do something with it. They come back if somebody 
got something wrong and they fine them.
    It is a weapon, sir, and this is why these darn Republicans 
today are saying there is so much that is unknown. There is so 
much that really can't be connected, and yet, you have to put 
it into a filing. Thank you very much.
    Mr. Schultz, I am a 28-year member of the Texas Farm 
Bureau. I recognize that your idea of agriculture and mine is 
to help the consumer and feed the world, and I want to 
congratulate you on your fine young Member of Congress that you 
have because he is doing a heck of a job up here.
    But I want to see if you could go through and give me some 
idea about having to comply with these regulations and, yet, 
look at the SEC, the things that you have to do across-the-
board to get a good product out, and now your family-owned 
business is going to have to comply with this.
    Please go into a little bit more detail, because Texas has 
many people who are small business owners just like you. What 
would happen to you, and what might happen to them?
    Mr. Schultz. Thank you for the great question, Congressman 
Sessions. The SEC is an agency that we have not dealt with in 
the past. The SEC doesn't usually get involved with farm 
operations, if you will, and just the concept as a whole will 
send ripples across the industry. It adds a layer of management 
that will add costs to initiate, and doesn't necessarily add 
value to the product that we produce.
    As you know, farmers tend to be price takers; we take what 
we can get. We don't get to set our prices. And that is part of 
the reason that we are hearing today, what is the effect, and 
it is a broader program than I think a lot of people might 
actually realize.
    Mr. Sessions. So, you are a legal company, and the SEC is 
going to reach their hand down and apply this to you. They are 
going to apply their rules and regulations to you and you had 
never even come into contact with them, and now, they are going 
to reach in and grab you. Is that correct?
    Mr. Schultz. There is a potential that, for them to have 
the data that they believe to be accurate, that data could 
possibly be used against the company that they are monitoring, 
I would imagine.
    Mr. Sessions. And could your response or lack of response 
be because you may not have known you had to file?
    Mr. Schultz. Yes, it would be a very complicated thing to 
effectively manage. Every farm is unique. I say, it is like the 
color of the rainbow. All farmers are different shapes, colors, 
and sizes. They produce different crops and you can't throw 
them all into one bucket.
    There is a lot of variability. Things like production vary 
from year to year. Through no fault of our own, sometimes we 
can produce half as much. It costs almost as much from a 
capital side of things. We still have to spray and water our 
crops, but if the weather took half of our yield, we have to 
have the same inputs. And so, it would look bad on paper, 
through no fault of our own.
    Mr. Sessions. These things happen and I do recognize that 
there is climate change. I am a MAGA Republican and I recognize 
there is climate change. But in that process of the SEC coming 
down and putting rules and regulations, it is, in my opinion, 
also to punish people, and that is the threat.
    But the cost that was spoken about from the National 
Association of Manufacturers is staggering on companies to 
guess, in my opinion, of what their answer would be, and that 
is why we wrote a letter to Mr. Gensler from me and about 50 
Members of Congress, that was dated September 26th, where we 
agree with you.
    And I just want you to know that as you provide feedback to 
us today, we have heard you and we appreciate what you are 
doing.
    Thank you very much, Mr. Chairman. I yield back.
    Chairman Huizenga. The gentleman yields back.
    And with that, the gentlewoman from Texas, Ms. Garcia, is 
recognized for 5 minutes.
    Ms. Garcia. Thank you, Mr. Chairman, and thank you to all 
of the witnesses for being here today, and I, too, thank you 
for braving the cold, and hopefully you will get out of town 
before the next one hits us tomorrow morning.
    It is no secret that the SEC is leading the way in climate-
related disclosures. These disclosures not only promote better 
transparency to inform consumers and investors but also help 
the industry track their environmental, social, and corporate 
governance goals.
    Many U.S. investors are requesting companies to openly 
disclose their climate risks. Some companies are already 
including general disclosures but it is not nearly enough. 
These disclosures are typically very vague and don't provide 
investors with enough information to make a climate-conscious 
and informed decision as they construct their portfolio and 
analyze risk.
    Mr. Georgiev, could you discuss why so many investors are 
pushing for more accurate, reliable climate-related 
disclosures, and how a company's climate risk can lead to a 
financial risk for investors?
    Mr. Georgiev. Thank you for this question.
    I think the reason why investors are so interested and so 
adamant about having companies provide accurate, comparable, 
and decision-useful climate-related disclosure is because 
investment analysis is difficult, investment analysis is 
complex, and it is also, by its very nature, comparative.
    So, investors need to be able to compare different 
companies and unless they have comparable information, accurate 
information, they cannot do so, and this is, by the way, the 
entire reason why we have financial accounting, which took 
decades to develop, and now with this new source of risk and 
new source of impacts investors similarly are demanding 
comparability.
    Let me just add that having an adequate SEC disclosure 
regime, which is completely in line with what the SEC has been 
doing for 9 decades, actually helps investors save on their 
research costs because otherwise it is not like investors are 
not going to look to this information. Rather, they would rely 
on estimates, they would send company surveys, and it would be 
a much more burdensome and time-consuming process for all 
involved.
    So, this really is actually a cost-saving initiative in the 
aggregate, and I think it should be welcomed.
    Ms. Garcia. Right. I am completely baffled by this whole 
notion from some people who suggest that the SEC does not have 
sufficient legal authority to provide for this disclosure 
requirement.
    Just like you, I am a lawyer. In fact, I am also a former 
judge, and former city comptroller in Houston where I handled 
an investment portfolio for which we had to make disclosures in 
some of our bond offerings, and it just baffles me that some 
would suggest that the SEC wouldn't have authority because, 
quite frankly, they have lots of lawyers over there that even 
for the littlest thing they raise the red flag if there is no 
legal authority for them to do something.
    I know that you have done some research on this topic. I 
know that you authored a comment letter to the SEC on this 
topic. Do you think that there is sufficient legal authority or 
do you think there is any credence at all to this whole notion 
that there isn't?
    Mr. Georgiev. I absolutely believe that the SEC has 
sufficient authority and this is evident through multiple 
indicators. The actual plain text of the underlying statutes, 
which date back to the 1930s, the legislative history of the 
statutes, judicial analysis of the statutes, and then, SEC 
rulemaking practice, as well as the fact that Congress has had 
multiple opportunities to restrict the SEC from promulgating 
disclosure rules and it has not done so.
    If anything, Congress has only encouraged the SEC to 
continue with the disclosure regime, which is a hallmark of 
successful capital markets and one of the key features of why 
the U.S. capital markets are the best in the world.
    As early as the 1930s, Congress put in place the underlying 
statutes, and let me just quote former SEC Chairman Jay 
Clayton, who in 2018 said that, ``The SEC's disclosure regime 
is powerful, far-reaching, dynamic and ever-evolving and it is 
a key responsibility for the SEC to keep updating the 
disclosure regime to ensure that there is an adequate mix of 
information for investors to make investment decisions.'' And 
during that Republican-led Commission, the SEC adopted new 
disclosure rules on human capital management, for example.
    They were supported by the Republican-appointed 
Commissioners and this was based on extensive evidence that 
this is the type of information that investors would like to 
see, that the risks of the time are different, and those 
disclosures have been welcomed and they have not been 
challenged at all.
    Ms. Garcia. Thank you. And I see I only have 2 seconds 
left, so again, thank you all for being here today.
    Chairman Huizenga. The gentlelady's time has expired.
    The gentlewoman from Missouri, Mrs. Wagner, who is also the 
the Chair of our Capital Markets Subcommittee, is recognized 
for 5 minutes.
    Mrs. Wagner. Thank you, Mr. Chairman, and I will get right 
to it.
    Mr. Crain, in December, the Fifth Circuit vacated the SEC's 
share repurchase disclosure rule which would have created new 
disclosure requirements for companies engaging in stock 
buybacks.
    The court held that the SEC acted arbitrarily and 
capriciously--I love that word--and it ignored petitioners' 
comments and failed to conduct a proper cost-benefit analysis. 
I could have written it myself.
    Does the SEC's proposed rule on climate risk disclosures 
have the same deficiencies, sir, as the stock buyback rule?
    Mr. Crain. Thank you for that question, Congresswoman, and 
I think you are exactly right. There are some real parallels 
between what the SEC did with the buybacks rule and what the 
Fifth Circuit said in that case, and what we are seeing with 
the climate rule.
    As you indicated, a key failing that the Fifth Circuit 
identified was the SEC's lack of a robust cost-benefit 
analysis, and that is exactly what we are seeing with the 
climate rule, a failure to consider key aspects of the impact 
that it will have on businesses, especially small and private 
businesses which are going to get pulled into this Scope 3 
mandate.
    Those costs are not estimated and not reflected in the rule 
at all. So, I think there are real failings in what the SEC has 
done.
    Mrs. Wagner. There are failures in all of them. There are 
some 50 to 60 rules that have nothing but, I call them, ``cut 
and paste cost-benefit analysis.'' They take them from one 
small paragraph, one rule, and cut and paste to the next, to 
the next, to the next. I am glad the Fifth Circuit did that.
    In November 2023, the court gave the SEC an opportunity to 
correct the buyback rule's defects. The court later found that 
the SEC received comments that would have allowed the agency to 
quantify the rule's economic effect prior to issuing the final 
rule, led them to try and fix their problems but the SEC failed 
to use those comments to conduct a cost-benefit analysis.
    Mr. Cunningham, does this indicate deeper problems in the 
SEC's rulemaking process?
    Mr. Cunningham. Thank you, Congresswoman.
    It may well--certainly, that case was not a shining moment 
for the agency. I would hope and assume that it is taking the 
lessons from that ruling.
    Mrs. Wagner. They keep losing in court, sir.
    Mr. Cunningham. And ideally, they would try to apply your 
question to this proposal and try to reevaluate it.
    Mrs. Wagner. Do you believe that the other 50-plus rules 
being proposed and finalized by Chair Gensler, Mr. Cunningham--
Chair Gensler's SEC will run into similar issues with the 
court, and if so, could you list a few for us, sir?
    Mr. Cunningham. I think the volume is very difficult for 
any agency to produce and to faithfully comply with the 
Administrative Procedure Act's (APA's) very specific 
requirements around cost-benefit analysis, rational basis, and 
so on.
    Mrs. Wagner. The APA is not being followed.
    Mr. Cunningham, in the stock buyback case, the court said 
the SEC not only failed to validate the rule's costs and 
benefits but failed to identify the problem they were trying to 
correct. Key here is, what duty does an agency have to 
substantiate the problem they are intending to address in a 
rule?
    Mr. Cunningham. A very specific duty; it has to generate a 
substantial basis for its rule and it has to explain in a 
rational way what it is trying to accomplish. It also has to 
solicit public comment and it needs to articulate some problem, 
some benefit, and the agency's own policies require it to do 
that as well.
    Mrs. Wagner. The court noted that the simple finding of a 
benefit--and I thought this was very, very informative--is not 
enough to substantiate the need for a new rule on its own.
    Mr. Cunningham. Right.
    Mrs. Wagner. Why does the court require agencies to 
substantiate the problem the rule is intended to fix?
    Mr. Cunningham. Without substantiation of the problem, you 
risk being accused, maybe rightly, of being arbitrary and 
capricious, the word you love so much.
    Mrs. Wagner. Just like the court said.
    Mr. Cunningham. Yes. That is what an agency is required to 
do, just articulate a rational basis that the public can 
participate in commenting on and that will entail identifying a 
problem and identifying benefits from the solution.
    Mrs. Wagner. Why should Congress and the American people be 
concerned if an agency like the SEC is allowed to propose a 
rule simply on the basis that it would provide a benefit to the 
public rather than working to fix an actual issue that is a 
current problem in the market?
    Mr. Cunningham. Look, Congress creates the agencies and 
endows them with some powers but it cannot delegate legislative 
powers to those agencies. So, the agencies need to be 
responsive to Congress and to the Judicial Branch as well, so 
there is a balance among the Executive, Legislative, and 
Judicial Branches, and without adhering to the APA, it upsets 
that balance. And the American people would be right to be 
concerned about upsetting the democratic process.
    Mrs. Wagner. My time has expired. I appreciate the Chair's 
understanding, and I yield back.
    Chairman Huizenga. We have been amazingly disciplined. That 
is the first time I have had to tap the gavel at all today, 
with both witnesses and Members yielding back extra time.
    With that, the ranking member of the full Financial 
Services Committee, Ms. Waters from California, is recognized 
for 5 minutes.
    Ms. Waters. Thank you very much.
    Mr. Georgiev, opponents of the climate proposal have long 
argued that the SEC lacks the legal means to require companies 
to disclose their emissions data and related risk. However, in 
a comment paper you submitted on the proposal, you go into 
great depth about the preexisting authority of the Commission. 
You said they have the authority to promulgate such disclosure 
requirements, particularly in the area of environmental-related 
matters.
    Could you briefly summarize how the SEC has the legal 
authority to require that public companies disclose their 
climate risk and emissions metrics?
    Mr. Georgiev. Yes. The SEC's legal authority stems back to 
the original statute in the 1930s and this is an authority that 
the SEC has exercised time and time again for 9 decades. So, it 
is not something that they just discovered today or yesterday 
and decided to regulate. They have actually been continually 
engaged in the iterative improvement of the disclosure 
framework.
    This is their mission and this is what they have been very 
good at doing. Importantly, they have both expanded the 
disclosure framework and they have also scaled it back as the 
needs of the time and as markets and technology require.
    So, it is not just an ongoing process of expansion. It is 
actually a process of calibration and tailoring, and the SEC 
has been very successful at doing that.
    Let me quote from the D.C. Circuit, which looked into this 
very question and found that rather than casting disclosure 
rules in stone, Congress opted to rely on the discretion and 
expertise of the SEC for determination of what types of 
disclosure would be desirable.
    The D.C. Circuit also said the Commission has been vested 
by Congress with broad discretionary powers to promulgate or 
not promulgate rules requiring disclosure of information beyond 
that specifically specified in the statute. The statute 
specifies about 32 categories of information and tells the SEC, 
look at that information and calibrate it on an ongoing basis, 
and the SEC has done just that.
    Ms. Waters. Would you conclude that perhaps there needs to 
be legislation to clear up the question so that the SEC feels 
more comfortable in its authority?
    Mr. Georgiev. Not really, because this is not a question 
that should be contested or is contested. The courts have 
spoken. The SEC has exercised this authority, and by not 
prohibiting the SEC from promulgating disclosure rules, 
Congress has acquiesced to the SEC's actions.
    So, additional legislation could always be helpful, but it 
is not necessary, and there are many other things that are 
before Congress that are much more contested and more 
important.
    Ms. Waters. Thank you.
    Mr. Cunningham, on your law firm, Mayer Brown's website, it 
states, ``Environmental, social, and governance--that is, ESG--
considerations are increasingly high priorities for global 
businesses.''
    Mayer Brown has a strong track record in helping clients 
around the world address ESG issues. Recognizing the importance 
of ESG principles to its clients Mayer Brown also has a core 
commitment to engaging in responsible business practices in its 
day to day operations, including with respect to ESG. ESG 
policies and best practices are not only moral imperatives but 
also commercial necessities.''
    It sounds like Mayer Brown and its clients think ESG 
considerations are material to investors. Do you disagree with 
your firm or is your firm engaged in greenwashing also?
    Mr. Cunningham. I am very proud of the policy that you 
articulated, although I have nothing to do with it. I am not a 
member of the firm. I am a special counsel of the firm, so I am 
an employee.
    But I think that is an impressive articulation of an 
important firm policy, and I practice in the area, so I am 
certainly very keenly aware of the space.
    And, again, companies take this seriously and they have 
been taking it seriously for a long time. The SEC's existing 
rules require exactly the disclosures that you were just 
talking about, and it has the authority to do that. This rule 
goes far beyond the sort of legitimate scope of ESG policy that 
you have articulated.
    Ms. Waters. Did you know this was on the website?
    Mr. Cunningham. Sorry?
    Ms. Waters. Did you know that this statement was on the 
website?
    Mr. Cunningham. I think I have seen it, yes.
    Ms. Waters. You have seen it before?
    Mr. Cunningham. I think so.
    Ms. Waters. Do you agree with it?
    Mr. Cunningham. Yes. I said that I am proud of it. But, 
again, I don't have anything to do with it because I am just an 
employee.
    Ms. Waters. You are proud but you have nothing to do with 
it? You are just their lawyer?
    Mr. Cunningham. Partners at the law firm would have a role 
in articulating the firm's philosophy, and I am not a partner.
    Chairman Huizenga. The gentlelady's time has expired.
    Ms. Waters. Okay. Sounds a little strange. I yield back the 
balance of my time.
    Chairman Huizenga. The gentlelady's time has expired.
    With that, the gentleman from Tennessee, Mr. Rose, who is 
also the Vice Chair of our Oversight and Investigations 
Subcommittee, is recognized for 5 minutes.
    Mr. Rose. Thank you, Chairman Huizenga, and thank you to 
our witnesses for taking the time to be with us today.
    This is an important hearing, I believe, and since the 
notice of proposed rulemaking in April of 2022, I have been 
extremely concerned by the implications of the SEC's proposed 
climate disclosure rule.
    Just this week, I received a letter from the American 
Securities Association highlighting the damaging impacts that 
the finalization of this rule would have on our economy.
    Mr. Chairman, I ask for unanimous consent to enter the 
following letter entitled, ``The consequences and negative 
impacts of the U.S. Securities and Exchange Commission's 
climate-related proposal from the American Securities 
Association,'' into the record.
    Chairman Huizenga. Without objection, it is so ordered.
    Mr. Rose. Thank you.
    As the owner of a family farm myself, I am most concerned 
about how this rule would impact the agricultural industry. In 
May of 2022, I led a bipartisan letter to Chairman Gensler that 
117 of my colleagues signed, a bipartisan letter highlighting 
the impacts that this proposed rule would have on farmers and 
the agriculture industry, particularly the Scope 3 disclosures 
that are in the rule.
    The fact that Chairman Gensler and the SEC are still 
pursuing this rulemaking 20 months later only further 
indicates, in my view, the lack of understanding that unelected 
Washington bureaucrats have for the work that farmers do.
    Mr. Schultz, as a member of the Michigan Farm Bureau, and 
the owner and operator of your family farm, I am grateful that 
you are here today to represent the industry that is, in my 
view, the backbone of America.
    Can you give us an idea of how big your family farm is, 
beyond what you said in your opening remarks, and how many 
people work there?
    Mr. Schultz. Thank you for the question, Congressman.
    I can tell you that at this time of year, we have about 10 
individuals working on our farm, half family and half regular 
staff, and then that might grow to approximately 30 during the 
harvest season.
    Our office staff consists of my mother, my sister, and 
myself when I can pitch in. So, we don't have a separate 
department for that.
    Mr. Rose. I understand, and that is, frankly, typical of 
American farms across the country.
    Mr. Schultz, how would a one-size-fits-all approach to 
disclosure requirements like the one proposed by the SEC impact 
family farms like yours and others in your community?
    Mr. Schultz. I understand that the backbone of this rule 
was written for investors on Wall Street, but we live on County 
Road 652, so that is a little bit different. Small businesses 
and small farms are the backbone of our community. So, I think 
that the potential for this to kind of get carried away from 
its initial intention exists.
    Mr. Rose. And if the Scope 3 requirements that are in the 
proposed rule, as we have seen so far, if they went into 
effect, and let us imagine that you had to hire somebody to 
work with you and your mom and your sister in that office who 
was an expert in these areas to help you comply, and let us say 
that cost $50,000, you would just increase the price of 
cherries to recoup that $50,000, right? That is how you would 
approach this.
    Mr. Schultz. Unfortunately, that is not how it works in 
agriculture. Besides what we sell direct to our customers at 
our market, we oftentimes have no idea what we are going to get 
paid for what we deliver. Our cherry crop last year was picked 
in July and processed. It is in a freezer plant somewhere and 
they will give us a final price in March and we will take what 
we can get.
    Mr. Rose. Right. You are price takers, not price setters.
    Mr. Schultz. That is correct.
    Mr. Rose. Another aspect of the proposed climate disclosure 
rule that worries me is the disregard for materiality.
    As an investor myself--and a lawyer as well--I know that 
materiality has been the bedrock standard of securities law in 
this country, to maintain fair and transparent markets. 
However, it also ensures that we are not being overly 
burdensome on companies and hurting market competitiveness.
    Mr. Crain, what would be the potential consequences if the 
SEC required the disclosure of nonmaterial climate information?
    Mr. Crain. Absolutely. Thank you, Congressman.
    As you just articulated, immaterial disclosures by 
definition are pure cost drivers, right, and material 
disclosure is something that a reasonable investor would need 
to know to understand a business.
    An immaterial disclosure means that investor doesn't need 
that information. So, the only thing that comes from that is 
the cost on the business, and we run a real risk that as the 
amount of immaterial disclosures increases, corresponding costs 
on businesses continue to increase without any real investor 
benefit.
    Mr. Rose. And to be absolutely clear, public companies are 
already required to report every piece of material information, 
correct?
    Mr. Crain. That is exactly correct.
    Mr. Rose. Thank you. I see my time has expired. I yield 
back.
    Chairman Huizenga. The gentleman yields back.
    The gentlewoman from Michigan, Ms. Tlaib, is recognized for 
5 minutes.
    Ms. Tlaib. Thank you, Mr. Chairman.
    The Majority's memo for today's hearing mentioned concerns 
about the SEC's statutory authority. I know the SEC's 
disclosure regime can be traced back, I think roughly 90 years, 
to Schedule A of Section VII of the Securities Act of 1933.
    With Schedule A, Congress delegated to the SEC the power to 
mandate disclosures of 32 categories of information and, ``such 
other information as the Commission may by rules or regulations 
require as being necessary in the public interest or the 
protection of the investors.''
    So, Mr. Georgiev, has Schedule A of the Securities Act of 
1933 ever been amended or repealed by Congress?
    Mr. Georgiev. No, it has not.
    Ms. Tlaib. Now, the SEC has continuously revised and 
updated its disclosure requirements, as we all know. The 
Commission has established disclosure rules on everything from 
executive compensation, to asset-backed securities, to human 
capital management.
    The SEC has also required environmental disclosures going 
back to the Nixon Administration. Is that correct?
    Mr. Georgiev. That is correct.
    Ms. Tlaib. So, Mr. Georgiev, can you discuss the history 
and breadth of issues about which the SEC has required 
disclosures, including environmental disclosures?
    Mr. Georgiev. Yes, absolutely.
    The SEC's guiding philosophy is that it should provide an 
information-generating framework to ensure comparable decision-
useful information for investors, so the SEC looks at markets, 
looks at economic developments, and calibrates the existing 
disclosure framework for the conditions of the time, and that 
is why even though Schedule A has not been repealed, the SEC 
has expanded and narrowed down certain disclosure requirements, 
basically engaging in ongoing tailoring, iterative 
modernization. You can call it different things.
    Ms. Tlaib. Professor, I think in 1979, the D.C. Circuit 
Court of Appeals stated that, ``The Commission has been vested 
by Congress with broad discretionary powers to promulgate or 
not to promulgate rules requiring disclosure of information 
beyond that specifically required by statute.''
    Mr. Georgiev. That is absolutely correct, because Congress 
realized that it cannot monitor on a real and current basis 
what is going on in the markets. Financial markets are 
extremely important. Capital formation is extremely important. 
Investor protection is extremely important, and that is why we 
need an expert agency to do that.
    Ms. Tlaib. And, Professor, I just want my colleagues to 
understand, over the course of 9 decades of ongoing rulemaking, 
has any court invalidated an SEC rule for exceeding its 
disclosure authority?
    Mr. Georgiev. No. No court has invalidated an SEC 
rulemaking for exceeding the disclosure authority, and I don't 
think a court should do so with this rule either.
    Ms. Tlaib. Again, it is the process out there, and, again, 
we are talking about--the last time, I think,was in 1979. But I 
want to switch gears and touch on the benefits and costs of the 
rule.
    First of all, U.S. companies should not be allowed to 
obscure their exposure of the climate crisis risks threatening 
the investments of retirees. These are our residents, our 
constituents, our workers who need standardized and reliable 
information.
    But what about the compliance costs that everybody--I think 
both California and the European Union (EU) have adopted 
mandatory climate-related disclosure requirements which are 
likely to be more extensive than even the requirements of the 
SEC's final rule.
    So, Mr. Georgiev, since thousands of U.S. companies will 
have to comply with California and EU disclosure requirements 
anyway, what impact will this have on net compliance costs?
    Mr. Georgiev. Let me just step back and say that the SEC, 
by statute, is not required to compare costs and benefits and 
conclude that there is a net benefit. Congress has not 
determined that this is something that the SEC needs to do, 
because cost-benefit analysis of financial regulation is very 
difficult and courts even have said that an agency is not 
required to measure the immeasurable. It should not engage in 
speculation.
    I think it is very important to understand the proper role 
of cost-benefit analysis.
    Now, it is exactly the case that both California and the EU 
have adopted mandatory disclosure requirements very closely 
resembling those of the SEC, and actually, in the case of the 
EU, going much further--3,200 U.S. companies are expected to be 
captured by the EU's sustainability reporting requirements. 
That is a lot of companies that will need to comply with those 
disclosure requirements. So, the added cost--the marginal cost 
of SEC compliance is likely to be zero or very minimal and in 
fact standardization, harmonization, coordination can actually 
help.
    Ms. Tlaib. Yes. Just for my colleagues, let us not distract 
from legal authority or compliance costs. We are distracting 
the public. It is really important for us to protect our 
constituents and this is one way we can do that.
    Thank you.
    Chairman Huizenga. The gentlelady's time has expired.
    The gentleman from Oklahoma, Mr. Lucas, who is also the 
Chair of the House Science Committee, and the former Chair of 
the House Agriculture Committee, is recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman, and I am particularly 
pleased that you invited a real farmer to be with us today. 
That is always a bit of fresh relief in this place.
    Chairman Huizenga. I will note that we have a couple of 
real farmers on the committee as well, but it is always good to 
have someone else in the audience.
    Mr. Lucas. Absolutely. But we have a day job. His day job 
is on the farm every day.
    Mr. Schultz, turning to you for just a moment, you have 
discussed a number of issues that involve the impact of the 
SEC's proposed regulation on you.
    Once again, remind us--ultimately, I suspect that this will 
bring cost onto you and every other farmer and rancher in the 
United States. I am very concerned about how you deal with 
that.
    Tell us, in the nature of your family business, which is 
really kind of typical in many ways of small farms and ranches 
in the United States, when you are impacted by the additional 
cost, you will potentially have to have more staff when it 
comes time to fill out the forms that I suspect the people that 
you sell your product to, not just retail consumers but if you 
sell to an entity that then uses that in a fruit or a jam 
process or in some other prepared food process, they will turn 
back to you to fill out things in order for them to cover their 
backside.
    Reality, you just raise prices.
    Mr. Schultz. Yes. From a down-to-earth point of view, if 
you will, everything has a cost. There is a cause and effect, 
so there will be additional management, if you will, to this 
compliance.
    As an example, we are Welch growers. We raise Concord 
grapes for Welch's grape juice and we already participate. They 
have a sustainability survey where they make sure that their 
company and our company, because we are a grow-our-own co-op, 
score in a sustainable way, that we can keep on doing what we 
have been doing for decades and in a way that cares for our 
land.
    That being said, some of their bigger customers are 
publicly-traded companies; it might be a Wal-Mart or a Costco 
or a grocery store of some sort. They are going to pedal back 
and they are going to look at their suppliers and they are 
going to say, hey, what does that actually look like, and they 
are going to screw down onto that. So, we are doing a lot of 
these things naturally without additional----
    Mr. Lucas. So if you can't move the cost downstream, then 
you have to absorb the cost within your organization, which 
limits your ability to expand or grow or to enhance the quality 
of life of your family and your employees. It is kind of a 
catch-22, is it not, from your perspective as a small business 
person?
    Mr. Schultz. Correct. Yes. We understand that it takes 
money to make money. But we are naturally progressing. We 
upgrade our equipment so that it is more efficient when we have 
a good year, when we have good margins.
    Mr. Lucas. Let me raise an additional point for the panel. 
In place of any cost-benefit analysis, the SEC instead relies 
on international standards developed outside the Commission, 
such as the Financial Stability Board's (FSB's) Task Force on 
Climate-Related Financial Disclosures (TCFD).
    The TCFD's report alleges there is currently a 
misallocation of capital towards carbon-intensive industries, 
and that these disclosures will help correct that.
    It appears that the SEC is pushing forward international 
standards with the self-described goal of redirecting the 
allocation of capital towards preferred activities.
    Mr. Cunningham, can you speak to how the SEC differs from 
international standard setters, and what is the risk of us 
using these as jurisdiction over the climate-related disclosure 
rule?
    Mr. Cunningham. Yes. Thank you, sir.
    There is no evidence that U.S. securities markets are 
mispricing stock that leads to capital misallocation. I can't 
speak about the markets in the rest of the world. They are 
probably not as efficient as ours and those international 
standard setters are focused not on U.S. markets but on global 
markets. So, it would concern me if the SEC decided to follow 
international standard setters rather than focus on our own 
markets, which might be quite different.
    Mr. Lucas. And for the record, it is worth noting that the 
Chair of the Financial Stability Board's Task Force is an 
individual who has spent hundreds of millions of dollars on 
campaigns to shut down American energy and chemical businesses 
through initiatives like Beyond Coal, Beyond Carbon, Beyond 
Petrochemicals.
    The report from the TCFD is given legitimacy when the SEC 
replicates it for its own climate rulemaking. However, an SEC 
rule is an entirely different burden than a voluntary 
disclosure network, even when written by activists.
    Mr. Crain, can you discuss the practical differences 
between these voluntary disclosure frameworks and the SEC's 
proposed rule?
    Mr. Crain. Absolutely, and I will be brief because I know 
your time is short.
    Many companies are participating in the TCFD framework in a 
way that makes sense for them in their business. The SEC would 
impose a compliance burden that is a government mandate. It is 
really an apples and oranges comparison.
    Mr. Lucas. Thank you, Mr. Chairman. I yield back
    Chairman Huizenga. The gentleman's time has expired. With 
that, the gentleman from California, Mr. Vargas, is recognized 
for 5 minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman. I appreciate 
this hearing very much, and I thank the ranking member as well.
    You did say, however, Mr. Chairman, that this was an 
oversight hearing, and made a claim that the hard cider from 
Schultz Fruitridge Farms is very good, and I hope that we get a 
chance to do oversight on that personally.
    Chairman Huizenga. So moved.
    [laughter]
    Mr. Vargas. And it is an honor to have you here, sir.
    I agree with what the SEC is attempting to do here. I think 
that is no secret, I always have, and I think it is certainly 
within their jurisdiction. We have talked a lot about the 
courts today and it is very interesting.
    When you get old enough--and I guess I have been around 
long enough--you find out that sides change. My Republican 
colleagues used to look to the courts and say, they are a bunch 
of activist judges, and we need to change them. Then, they did 
change the judges. You have more conservatives, and now, they 
look to the courts and say, well, the court said this.
    And I guess I look at it--I remember my law school days, 
and one of my professors, Roberto Unger, said that the legal 
outcome in a dispute really depends on the particular legal 
notable, and the particular legal notable is potentially the 
judge, whether he or she is conservative or liberal, or a bad 
attorney or a good attorney.
    It depends on what you do. You get people who do the same 
thing certainly in criminal law, and then you get different 
outcomes. So, it depends on a particular legal notable.
    But I find it kind of interesting now that the Republicans 
point to the courts as some sort of objective standard when it 
changes.
    In fact, interestingly, we had some Supreme Court justices 
who said, oh, no, we would never change Roe v. Wade, that is 
precedent upon precedent. Then, of course, the first thing they 
did was change it. So, it is interesting how things have 
changed.
    But anyway, I will move on. I do want to ask this, because 
I always ask this: How many of you believe in climate change, 
that climate change is happening? You can raise your hand if 
you do.
    [All witnesses raise hands.]
    Mr. Vargas. Yes. I thought so, and I appreciate that 
because I think that is the first time we have ever had that 
here. Last time, there was a guy who sat right where you do 
now, and he defended why he didn't believe in it, which is 
fine, which is good. I appreciate that.
    But I think we have come a long way. I think we have to 
recognize that. I would recognize that I do think that what is 
happening with climate change is material, and I think that 
investors want to know.
    However, I do have some concerns, and I am going to turn to 
you right now, Mr. Schultz, because I do have some concerns. 
When you said you have planted thousands of plants with your 
own hands, so have I; I worked in a nursery growing up. I lived 
on a chicken farm and worked on a nursery.
    We went from liners to one gallon, one gallon to five, five 
gallons to 15s, 15s to 24-inch boxes, and 30-inch boxes, then 
36-inch boxes, and I did that for years and my parents 
certainly believed in child labor. I started working when I was 
about 10 and enjoyed it. But that is a different thing; I 
worked with my father.
    But how does this impact you? You have a very compelling 
story. You have a family farm. You seem like a very decent guy. 
How is this impacting you? Because it doesn't seem like the 
public is invested in your firm. You are already doing some of 
this disclosure because of Welch's, because of the jam. Even my 
kids want to know that it is a good product. We use it. But how 
is it affecting you? I didn't get that here.
    Mr. Schultz. Yes, and I think part of the reason for the 
hearing today is that there might need to be some clarity as to 
what that might look like on the Scope 3 component, because it 
is maybe not clear at this point in time. You can read it so 
that it would impact all the supply components in that chain, 
which looks like would be the American farmer in this situation 
as well.
    Mr. Vargas. I agree with that. I do think that there should 
be some clarity. I am sympathetic to that and I think that 
there should be.
    Professor, again, I am very much in favor of the rule, but 
I am sympathetic to that perspective. Could you comment on 
that?
    Mr. Georgiev. Yes. I think we should not prejudge the rule. 
The SEC has been very actively engaging with stakeholders and 
market participants and industry associations. Let me just 
quote a staggering statistic, which I was very surprised by 
when I looked it up earlier this month: ``The SEC has taken 372 
meetings on the climate disclosure rule in the past 22 months. 
The Chair alone has taken 178 meetings. So, the SEC is very 
interested in hearing feedback about the rule, calibrating the 
rule, fine-tuning the rule, and I expect that they are very 
well aware of concerns by----
    Mr. Vargas. I think that my time is almost up, so I just 
want to make one last comment. I do think that this is a very 
important rule because I believe in climate change. I thank God 
that all of you do, too. I think that things have changed. The 
world has changed and, again, I thank you.
    Mr. Chairman, I yield back, and I do have time.
    Chairman Huizenga. The gentleman's time has now expired. 
The gentleman from Ohio, Mr. Davidson, who is also the Chair of 
our Housing Subcommittee, is recognized for 5 minutes.
    Mr. Davidson. Thank you, Mr. Chairman. I appreciate the 
opportunity to waive on to this important hearing of our 
Oversight Subcommittee. When we look at what is going on here, 
this is one of the more-aggressive rulemakings in any of our 
agencies and, frankly, the Securities and Exchange Commission 
has been hyper-aggressive compared to most agencies.
    In fact, this has been the most-aggressive rulemaking since 
Dodd-Frank, and Dodd-Frank was a major piece of legislation 
passed by the House and the Senate and was signed into law, and 
of course, it prompted rulemakings to follow the law changes.
    Here, the only thing that happened is that Gary Gensler 
became the Chairman of the SEC. And as I have said, Gary 
Gensler highlights two problems: we have a Gary Gensler 
problem; and we have a structural problem with the SEC.
    I would love to restructure the SEC, which would 
effectively eliminate the chairmanship. We already have the 
world's best capital markets and that is shown by the amount of 
invested capital in them. They function pretty well.
    The only thing we could really do is mess them up, and Mr. 
Gensler has made a really serious effort at messing them up. 
This is an example of overreach that has been cited in West 
Virginia v. EPA. They don't have the legal authority.
    And so, Mr. Crain, I think when you talk about major 
questions, this would be a major question, would it not? Why 
would it be such a major question?
    Mr. Crain. I think that is exactly the right framing. The 
SEC has a very clear set of legal authorities to require, in 
this case, disclosure of material information for the 
protection of investors, efficient markets, and capital 
formation.
    This rule doesn't meet those goals. I think it is very 
clear, and that brings them instead into the major question 
which you alluded to, which is outside of their expertise or 
statutory authority and therefore calls into question the 
underlying legal authority to promulgate this rule.
    Mr. Davidson. Yes, thank you.
    And you think about the implications. We have talked about 
the cost. The cost to the economy is enormous. I talked with 
the owner of a small business in my district just outside of 
Cincinnati, Ohio, and he said that for one of his contracts, he 
has a little over a million dollars with a publicly-traded 
company, and if they had to comply with the Scope 3 cost, it 
would cost him about $37,000, so a 3.7-percent increase in the 
cost of the contract. And if you could perfectly pass that on, 
that is 3.7 percent inflation on whatever that is.
    But as our agriculture folks have said, not everyone is a 
price setter. Lots of small businesses, in particular, are 
price takers. So when you look at the pressure that a lot of 
small businesses are under, what you see is consolidation. The 
big businesses get bigger, and the small businesses go out of 
business or move offshore, and this is part of what has 
crippled our manufacturing economy.
    And thanks to NAM for highlighting some of those really 
important problems.
    But, Mr. Cunningham, can you please explain how Biden v. 
Nebraska could impact the SEC's argument in favor of the 
climate disclosure rule even if Scope 3 were stripped from the 
final rule?
    Mr. Cunningham. Thank you.
    Yes, I think West Virginia v. EPA and the Biden v. Nebraska 
cases, as well as a third case involving OSHA and 
vaccinations--all three of those opinions indicate the Supreme 
Court is going to be careful not to allow administrative 
agencies to exceed their grant of congressional authority. That 
is the major questions doctrine.
    And I think one additional point about this rulemaking, at 
least in those three areas, is the agency was acting in their 
lane, even though they exceeded their authority.
    Here, the SEC is moving into a different lane. So it is 
sort of, I don't know, major questions 3.0.
    Mr. Davidson. Right. Thank you for the clarification on 
that, and for these reasons, I think Gary Gensler is the wrong 
person to be leading the Securities and Exchange Commission.
    But I think we have the wrong structure. When you look at 
some of our agencies, you see this ping pong that goes on and 
it has a big impact down through our market, because one party 
gets their person in charge and they decide, yes, we are going 
to ram through this thing and it is done with power instead of 
persuasion.
    And I would like to see a three-three structure to the 
Commission, because then, the 80/20, 70/30 issues they are 
going to figure out, and the things that get political, because 
this is a topic that is going to get political when it comes to 
this body.
    There is a body in our country that is supposed to decide 
these 50/50 issues, and right now, it is about a 50/50 power-
sharing arrangement here in this body.
    We are supposed to have those arguments, but we are 
supposed to have them here in Congress, not with unelected and 
very unaccountable bureaucrats, and Gary Gensler couldn't 
highlight that problem much more effectively.
    I hope we do something about it. I yield back.
    Chairman Huizenga. The gentleman's time has nearly expired. 
With that, the gentleman from Illinois, Mr. Casten, is 
recognized for 5 minutes.
    Mr. Casten. Thank you, Mr. Chairman.
    As is so often the case in this line of work, I find myself 
playing the role of having to remind everybody that we all over 
here have the ability to negotiate the laws of the United 
States. We do not have the ability to negotiate the laws of 
physics or the laws of economics.
    The Intergovernmental Panel on Climate Change (IPCC) has 
been telling us for a long time that we have to stand to 1\1/2\ 
degrees of warming. That is physics. Last year, we hit 1.48. We 
are going to overshoot. There is irreversible damage that is 
coming.
    According to the National Oceanic and Atmospheric 
Administration (NOAA), in the United States alone, climate-
related weather disasters from 2018 to 2022 cost us over $617 
billion, or a little over $120 billion a year. That number is 
both huge and increasing.
    Last year, U.S. climate-related weather disasters cost us 
$176 billion. And those are the insured losses. Actual losses 
are worse for those who aren't insured. The 2020 Commodity 
Futures Trading Commission (CFTC) report under the Trump 
Administration said, ``Climate change poses a major risk to the 
stability of the U.S. financial system, and regulators and 
financial institutions need reliable, consistent, and 
comparable data and projections for climate risks, exposure, 
sensitivity, vulnerability, adaptation, and resilience.''
    In the last year, we have seen major insurers--State Farm, 
Allstate, and others--pull out of Florida, pull out of 
California, pull out of Louisiana. Those risks are not going 
away. They are simply being punted onto lenders and property 
owners, including, but not limited to farmers, I would add.
    Given all of this data, do any of the four of you disagree 
that climate change is creating significant financial risks to 
our economy and to the companies that participate in our 
economy? Do any of you disagree with that sentence?
    [All witnesses raise hands.]
    Mr. Casten. Okay. The record will show that we are all in 
agreement. That is terrific.
    Mr. Crain, moving to you, when you invest as an individual, 
do you review the risks that a company has disclosed that they 
are exposed to before you make your investment decisions?
    Mr. Crain. I will confess I am more of a mutual fund 
investor myself so I am not looking at individual stocks all 
that often.
    Mr. Casten. No, no. You and me both. Would you advise 
someone to consider the risks before they make an investment?
    Mr. Crain. Certainly, an investor making these types of 
decisions would need to understand the material risks.
    Mr. Casten. And if you were considering an investment in a 
company and you said, well, I have identified a significant 
risk here, can you share it with me, and they said, no, that is 
not material, go pound sand, would you invest in that company?
    Mr. Crain. I would have to see the individual facts, but it 
probably wouldn't be the most productive interaction.
    Mr. Casten. I share that because when we have hundreds of 
billions of dollars a year of loss in the system, there are a 
lot of companies who are saying, I don't want to disclose these 
risks because I can't attract capital if you do, and my 
colleagues across the aisle are saying, that is not material, 
so go pound sand. Understand the motivations here.
    Mr. Georgiev, the Supreme Court, in Basic v. Levinson said 
that information is material, ``if there is a substantial 
likelihood that a reasonable shareholder would consider it 
important.''
    Going back to my question with Mr. Crain, is there any 
debate that a reasonable investor would view these hundreds of 
millions of dollars of disruption a year as materially 
significant and important?
    Mr. Georgiev. If the investor is reasonable, then they 
should view these sums as materially important.
    Mr. Casten. Okay. Mr. Chairman, I would like unanimous 
consent to introduce into the record a 2022 survey by 
Environmental Resources Management.
    Chairman Huizenga. Without objection, is is so ordered.
    Mr. Casten. This survey found that institutional investors 
today are spending $1.4 million annually to collect, analyze, 
and report climate data to inform their investment decisions.
    It also found that the average corporation is spending 
about $500,000 a year, about a third as much money to 
voluntarily disclose that data.
    In other words--and Mr. Georgiev, I think you had mentioned 
this in your testimony--this is not a question about whether or 
not there are costs to disclose this. Of course, it takes time 
to go and get data. This is a question about who is 
responsible.
    So, Mr. Georgiev, is it the responsibility of companies to 
provide information to investors under our accounting rules or 
is it the obligation of investors to spend their money to go 
and discover what risks public companies are exposed to?
    Mr. Georgiev. Public companies have voluntarily opted into 
the public company disclosure regime. They derive a benefit--
access to highly-liquid large and efficient capital markets--
and in return for that, they have to provide information. That 
is the basic bargain that has been in place since the 1930s.
    And it is very much, if they want to derive the benefits, 
then companies have the obligation to provide that information.
    Mr. Casten. But are these voluntary climate disclosure 
regimes consistent? Do all companies provide the same data? Are 
they all obligated?
    Mr. Georgiev. No, they are not, and they are also much more 
difficult to enforce.
    Mr. Casten. Thank you. I am out of time. But this hearing 
is really about whether we are going to protect investors' 
rights to access information or protect companies' rights to 
withhold information from investors.
    Chairman Huizenga. The gentleman's time has expired.
    With that, the gentleman from Nevada, Mr. Horsford, is 
recognized for 5 minutes.
    Mr. Horsford. Thank you to the chairman and the ranking 
member for the hearing today.
    But, here we go again. Republicans are so focused on their 
outrageous culture wars that they are not going to spend our 
time today talking about the issues that are imperative to the 
financial sector.
    Instead, we have convened so that my colleagues can 
continue to bash what is really a customer-driven initiative. I 
think that amidst this renewed push, it is worth pointing out 
that the new products that my colleagues are so quick to deride 
only exist because there is a market for them, and I thought 
that the other side was for free markets.
    Why would we deny wide swaths of investors the information 
they care about when they are making investment decisions, 
especially when this information already exists, in many 
instances?
    I am really tired of spending our time obsessing over 
manufactured culture wars instead of doing the work that the 
American people sent us here to do.
    Our focus could be on access to capital for small 
businesses, for example, or bolstering financial literacy 
efforts to build a more-inclusive financial sector or, as I 
have suggested previously, addressing the ever-skyrocketing 
cost of housing.
    During our last spat of anti-ESG hearings, we learned just 
how detrimental it can be if we blind ourselves to the very 
real risks associated with a company's mismanagement of their 
local environment.
    So, I am baffled to have to say this, but I believe that 
our nation's investors and other financial services 
professionals know best how to manage their risk. They are in 
the business of managing risk in all of its forms and in any 
risk that these professionals deem to be material that should 
be included within the decision-making process of their 
purview.
    I am a firm believer that a better-informed investor is 
never a bad thing, and it is clear to me that the SEC has the 
authority to prescribe these highly-sought-after disclosures.
    Mr. Georgiev, as you may know, the majority of investors 
have made it clear that they want companies to disclose 
climate-related information. We have even seen companies begin 
to disclose this information voluntarily.
    So, could you describe why that may be the case and what 
benefits companies may receive by allowing investors to 
consider this information in their investment decisions?
    Mr. Georgiev. Voluntary disclosure serves an important 
role. It allows companies to distinguish themselves from their 
competitors because, as I said a while ago, investment 
decisions are, by their very nature, comparative, so companies 
are always looking for a way to stand out.
    The problem with voluntary disclosure, though, and why we 
need mandatory disclosure is that when there is negative 
information, when there are problematic facts, when there are 
risks, companies, because they are looking to attract capital, 
are reluctant to provide and disclose the negative information.
    So, they end up providing the positive information without 
providing the negative information. That is why we need 
mandatory disclosure, a baseline, a total mix of information 
that actually informs investor decision-making, and there is an 
advantage there both for companies, as you suggest, as well as 
for investors and for the economy.
    Mr. Horsford. Given all the attention given to the Scope 1, 
2, and 3 emissions disclosures, I worry that my colleagues have 
lost sight of the variety of quantitative and qualitative 
information regarding climate risks to which investors would be 
given access.
    Under the SEC rule, these companies would need to not only 
provide descriptions of their climate-related risk, but 
critically, they would also need to outline relevant risk 
management processes.
    How a company manages their perceived risk is not only 
crucial for an investor's decision-making but it is simply good 
corporate governance to have these processes in place.
    Let us not forget that a key aspect of the SEC rule is the 
impact of climate-related events, which occurred at an alarming 
rate last year, and can range from hail storms to hurricanes.
    Finally, let me just close by stating that in Nevada, the 
very real threat of climate change is causing us to quickly 
confront the increase in these events, namely, for Nevada, a 
water crisis. We have endured over 2 decades of a drought in 
Las Vegas, and it would be difficult to believe that wouldn't 
be a significant material risk to a certain company's 
profitability.
    Mr. Georgiev, would you please speak to the importance for 
a company to be aware of its local water supply challenges and 
how this information may be helpful for investors when making 
decisions?
    Mr. Georgiev. Yes. Water is a crucial resource. It is a 
critical resource and it is a scarce resource, so it is very 
important for companies to be aware of supply chain challenges, 
and this is where water scarcity comes in.
    Mr. Horsford. Thank you very much. I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    The ranking member of the subcommittee, Mr. Green from 
Texas, is recognized for 5 minutes.
    Mr. Green. Thank you again, Mr. Chairman. I greatly 
appreciate all that has been said today, and it appears, Mr. 
Chairman, that we have to identify our legitimate real farmers' 
bona fides.
    I am proud to tell you that I know what well water tastes 
like, I know what, ``gee'' and ``haw'' sound like, and I know 
what chitlins taste like. I also know what a smokehouse smells 
like, and I know what living on a farm where you have no 
running water as we know it today is like.
    I grew up on a farm in my early childhood, and I have a 
great appreciation for Mr. Schultz and what he is having to 
contend with.
    And to this end, I have a statement dated September 12, 
2023, from Reuters, where Chair Gensler was appearing before 
Congress, and here is what he said, ``It is not the 
Commission's intent to have farmers or ranchers in Montana or 
any other State report on goods they sell to publicly-traded 
companies.'' This is what SEC Chair Gary Gensler said in 
response to questions from Democratic Senator Tester of 
Montana.
    So, I want you to know that this is still in its infancy. 
It is metamorphosing and it has not been finalized. There is 
still much to be said, much to be done, and you have quite a 
few advocates who would not want to see Wal-Mart pass on its 
costs to you. I think that this is something that you can be 
assured people are going to work hard to prevent.
    Moving on to my next topic rather quickly, but while I am 
doing that, Mr. Georgiev, would you comment on my comments, 
please?
    Mr. Georgiev. Yes. I think your comments are very apt. I 
think it is important to underscore the fact that what the SEC 
is doing here is making sure that companies provide investors 
with relevant information rather than seeking to regulate 
climate change. This benefits all sorts of investors, both 
investors who are agnostic about the effects of climate change, 
as well as investors who are very concerned about the effects 
of climate change, because if investors who are agnostic--if 
they are contrarian and want to invest only in companies that 
don't believe in climate change, they will get that information 
through the SEC disclosure rule.
    So, it helps all sorts of investors, regardless of their 
beliefs, and that is the beauty of this rule, and that is why 
the SEC is on solid footing in promulgating this rule.
    Mr. Green. Thank you very much.
    Moving on to industry experts giving some guidance, this is 
not novel. When the oil and gas disclosures were codified, 
industry experts were used. So, this is something that we have 
done before and there is no reason why we can't do it again.
    Again, Mr. Georgiev, would you comment on my comments?
    Mr. Georgiev. That is absolutely right. The SEC is a 
disclosure agency, and in all cases, it has relied on the 
expertise of technical bodies to come up with the right 
disclosure requirements.
    So, what it is doing here with the TCFD is not at all 
unprecedented. We had a similar process with the oil and gas 
disclosure rules first adopted in the 1970s, and revised in 
2009, as you point out.
    We have had the same process in the context of executive 
compensation, very complex matters of asset-backed securities, 
and so on and so forth.
    So, the technical assistance that the SEC is getting from 
bodies which, by the way, include participation by U.S. 
Government officials and supervision by them, is not at all 
unprecedented.
    Mr. Green. Finally, it has been said that, on one hand, 
this should be left to the EPA. But then, on the other hand, 
the SEC already has the authority to do it. So why would we 
leave to the EPA what the SEC has the authority to do?
    Would you comment on my comments please, Mr. Georgiev?
    Mr. Georgiev. Yes, absolutely. Just because an issue 
involves climate change doesn't mean that only the EPA and NOAA 
can touch it. All agencies of the Federal Government have to 
make allowances for climate change. The Department of Defense, 
for example, is making allowances for climate change.
    So, it is not that the EPA has one particular remit. It is 
doing one sort of regulation. The SEC is doing information 
regulation for a very specific purpose, to benefit investors.
    Mr. Green. Thank you, sir.
    I close with, I also know what a henhouse egg tastes like. 
I yield back.
    Chairman Huizenga. The gentleman yields back.
    And I know that there is a number of folks who have grown 
up on a farm. I believe Ms. Garcia lives on a ranch, as do a 
number of our Members, so I am glad to hear that this is taking 
root.
    And you read a comment from Mr. Gensler. It may be the 
intent but I am afraid it may not be the application and that 
is part of the reason for this hearing today.
    Recognizing myself here--I wish Mr. Vargas was still here. 
He was talking about how Republicans have started looking at 
the courts favorably. One, appointments matter. Two, what those 
appointments do and how they do it matters. When we see an 
activist expansionist court versus a constructionalist court, 
that is very different, and we clearly are seeing that right 
now.
    He also asked Mr. Schultz, my constituent, how he is 
affected. I used to represent Fremont, Michigan, which is home 
to Gerber Baby Food, owned by an international publicly-traded 
company that directly contracts with family farms in and around 
the area, and these family farms are struggling to figure out 
how they can make sure that they can track their organic versus 
nonorganic, much less all of the inputs.
    So, Mr. Schultz might be dealing with a few more middlemen, 
a co-op, for example, in between, but we have examples of these 
growers going directly into a publicly-traded company who 
absolutely are going to get scooped up into this definition. 
Absolutely. There is no way of avoiding it at this point.
    Mr. Cunningham, I want to go to you. Professor Georgiev put 
forward two things in his written testimony. He said, one, the 
intensity of demand doesn't matter for those investors. 
Interestingly enough, and most recently it was Mr. Casten who 
noted this, investors are demanding this information. That was 
one point, because I am not sure that the investors are quite 
demanding it, but, two, we have dueling lawyer and professors 
here on this.
    Professor Georgiev's second point was nor does it matter if 
they are interested parties, if the interested parties are 
actually investors. I believe he notes them as noninvestor 
constituencies.
    How novel is this in legal theory? Has the SEC ever given 
weight to a noninvestor constituency before in its rulemaking?
    Mr. Cunningham. The congressional authority that the SEC 
exercises is investor protection. That is it, and everything it 
does has to connect back to that, and in this proposal they 
went to great lengths to talk about investor demand, which is a 
novel concept, as a way to support its invoking its authority 
under investor protection.
    But, yet, the investor demand that it attempted to measure 
was just one segment of the universe and it paid no attention 
to the 160 million individual investors who really need the 
SEC's protection.
    Chairman Huizenga. Its protection, yes. Okay.
    And very quickly, in your opinion, do you think these 
constructionalist courts are actually going to overturn this 
activism?
    Mr. Cunningham. We have identified several deficiencies in 
the proposal, and if it was released or finalized as proposed, 
I think it would be very seriously in jeopardy.
    Chairman Huizenga. I am going to turn to Mr. Schultz here 
to close.
    There was a U.S. court case, the American Farm Bureau 
Federation v. the EPA, which held that public disclosure of 
farmers' personal information is, ``substantial,'' and, ``a 
clearly unwarranted invasion of privacy'', and I think you 
touched on this.
    This isn't just where you work; it is where you raise your 
family. And I think it is widely acknowledged that there are 
privacy concerns with disclosing your operations and those 
details to the SEC if this climate rule were to be finalized as 
it is.
    Have you been told anything that would give you assurance 
that somehow that data is going to be protected? I might note 
that we just had a recent breach of the SEC's data.
    Mr. Schultz. I don't know if I can speak a lot on that 
subject, although I can tell you that if we start pitting data 
from smaller companies into the marketplace, you are going to 
drive consolidation down, and I don't think that is necessarily 
what the intent of this rule is, but it could definitely have 
that impact.
    Chairman Huizenga. Sadly, Mr. Schultz, I have been around 
here long enough as a staffer and as an elected Member to know 
that oftentimes, it is those unintended consequences that have 
the biggest bite and impact and are, frankly, the hardest to 
remove from that.
    I want to say thank you, to you, for that. You have noted 
how your family works towards conservation and stewardship and 
maybe we can end on that.
    Mr. Schultz. Thank you, Mr. Chairman.
    Chairman Huizenga. Without objection, I have an article 
that I would like to put into the record, a Wall Street Journal 
article entitled, ``The latest dirty word in corporate America, 
ESG.''
    And I will say, again, thank you to our witnesses. I deeply 
appreciate your time and your effort in getting here.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    The hearing is now adjourned. Thank you.
    [Whereupon, at 11:49 a.m., the hearing was adjourned.]

                            A P P E N D I X



                            January 18, 2024

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