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

                       OVERSIGHT OF THE SEC'S DIVISION OF 
                                CORPORATION FINANCE

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON CAPITAL MARKETS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 18, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-42
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
53-870 PDF                  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 Capital Markets

                    ANN WAGNER, Missouri, Chairwoman

FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
FRENCH HILL, Arkansas                DAVID SCOTT, Georgia
TOM EMMER, Minnesota                 JUAN VARGAS, California
ALEXANDER X. MOONEY, West Virginia   JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
DAN MEUSER, Pennsylvania             SEAN CASTEN, Illinois
ANDREW GARBARINO, New York, Vice     WILEY NICKEL, North Carolina
    Chairman                         STEPHEN F. LYNCH, Massachusetts
MIKE LAWLER, New York                EMANUEL CLEAVER, Missouri
ZACH NUNN, Iowa
ERIN HOUCHIN, Indiana
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 18, 2023................................................     1
Appendix:
    July 18, 2023................................................    29

                               WITNESSES
                         Tuesday, July 18, 2023

Gerding, Erik F., Director, Division of Corporation Finance, U.S. 
  Securities and Exchange Commission (SEC).......................     4

                                APPENDIX

Prepared statements:
    Gerding, Erik F..............................................    30

              Additional Material Submitted for the Record

Casten, Hon. Sean:
    An Open Letter from Out Leadership on the Business Case for 
      ESG Reporting & Investment, dated June 20, 2023............    35
    Written statement of Principles for Responsible Investing....    41
Hill, Hon. French:
    EY Center for Board Matters, ``Four key takeaways from the 
      2022 proxy season,'' dated July 2022.......................    48
Huizenga, Hon. Bill:
    Letter to Vanessa A. Countryman, Secretary, SEC, re: The 
      Enhancement and Standardization of Climate-Related 
      Disclosures for Investors (File No. S7-10-22), dated June 
      17, 2022...................................................    59
Meuser, Hon. Dan:
    Chart, ``Rule Proposals Issued During the First 27 Months of 
      SEC Chairs' Tenures''......................................    67
Vargas, Hon. Juan:
    Letter from Family Farm Defenders and other groups...........    68
Gerding, Erik F.:
    Written responses to questions for the record from 
      Representative Nunn........................................    74

 
                    OVERSIGHT OF THE SEC'S DIVISION
                         OF CORPORATION FINANCE

                              ----------                              

                         Tuesday, July 18, 2023

             U.S. House of Representatives,
                   Subcommittee on Capital Markets,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 2128, Rayburn House Office Building, Hon. Ann Wagner 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Wagner, Lucas, Sessions, 
Huizenga, Mooney, Steil, Meuser, Garbarino, Lawler, Nunn; 
Sherman, Scott, Vargas, Gottheimer, Casten, Nickel, Lynch, and 
Cleaver.
    Ex officio present: Representative Waters.
    Chairwoman Wagner. The Subcommittee on Capital Markets 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 
Division of Corporation Finance.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    Thank you, Mr. Gerding, for joining us today. This hearing 
will examine the actions taken by the SEC's Division of 
Corporation Finance under your leadership, Director Erik 
Gerding. These actions have far-reaching implications for 
millions of retail investors and the overall health of public 
markets. I think Director Gerding's controversial rulemakings 
and decisions threaten to undermine the attractiveness of 
public markets and stall economic growth at a time when global 
competition is on the rise.
    The SEC's primary role is to maintain fair, orderly, and 
efficient markets, while facilitating capital formation and 
protecting investors. However, the recent actions of the 
Division of Corporation Finance have deviated from this core 
mission, pushing an unconventional and partisan agenda that 
hampers the free market system. The burden of excessive 
regulations and politically-motivated disclosure requirements 
falls heavily on small and medium-sized companies, impeding 
their growth. It is crucial that the SEC change its course and 
foster a market system that is competitive and dynamic.
    One specific area of concern is the rollback of the July 
2020 proxy advisor rule, which was intended to ensure 
transparency in proxy voting decisions. This rollback 
undermines necessary reforms to the proxy advisors duopoly and 
fails to protect the interests of retail investors seeking to 
maximize the return on their investment. Moreover, costly 
disclosure regulations on environmental and social policies 
will harm companies by obstructing their business expansion and 
hindering them from hiring additional employees.
    For example, in 2022, investors backed by shareholder 
activist group, As You Sow, filed a proposal that Comcast 
reported on its retirement plan options in relation to climate 
action goals. This attempt to use retiree funds for fringe 
political purposes could have resulted in lower returns or 
higher risk for investors had it been successful. Similarly, 
other proposals, such as emissions targets from Costco, have no 
material impact on the company's financial performance.
    By limiting their ability to generate returns, retail 
investors who rely on these returns for their retirement 
savings will be directly affected. It is our duty to protect 
these interests and ensure their success within our capital 
markets. To restore the SEC's integrity and realign its actions 
with its mission of investor protection and capital formation, 
we must prioritize the interests of retail investors. It is 
essential that we create an environment that maximizes 
opportunities for their success.
    We have heard in previous hearings how important 
maintaining a variety of attractive pathways for raising 
capital is for businesses. Excessive regulatory and compliance 
costs act as barriers to entering the public markets, leading 
many companies, especially smaller ones, to turn to private 
markets. Unfortunately, my friends across the aisle view 
private market growth as problematic and have pushed for more 
disclosure requirements and regulatory burdens. For example, it 
has been suggested that the SEC will require heightened 
disclosure obligations for large private companies on Form D. 
Committee Republicans strongly oppose this approach as it 
would, in effect, force private companies to go public before 
they are ready.
    The recent actions of the SEC's Division of Corporation 
Finance, along with the proposed cybersecurity disclosure 
rules, private market regulations, and conflicts of interest in 
securitizations, pose a threat to our market and our free 
market systems. Our parents and grandparents worked their 
entire lives to save for retirement. It is the duty of the SEC 
to ensure that American retirement accounts are not used as a 
tool for partisan political and social agendas.
    The SEC needs to follow its congressionally-mandated 
directives to facilitate capital formation and protect 
investors, and under Director Erik Gerding's leadership, this 
is not happening. I want to thank you, and I eagerly look 
forward to this morning's discussion on these crucial matters.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from California, Mr. Sherman, for--
--
    Mr. Sherman. Four minutes.
    Chairwoman Wagner. ----4 minutes.
    Mr. Sherman. And I am seeking unanimous consent that the 
ranking member of the full Financial Services Committee be 
allowed to present either before or after the witness.
    Chairwoman Wagner. Without objection, it is so ordered.
    You are now recognized for 4 minutes for an opening 
statement.
    Mr. Sherman. This hearing marks the 412th hearing of this 
committee and our subcommittees on the issue of environmental, 
social, and governance (ESG) criteria. Shareholders are 
literally the capitalists. They should be able to decide and 
they should be given the information so that they can decide 
where to invest their money. The Republicans are waging war 
against the capitalist market that says investors get to 
decide. They are waging that war on behalf of entrenched 
managements who don't want the real owners of the company to 
tell them what to do.
    We are told that we should have a variety of avenues for 
raising capital. One important avenue is for climate investors. 
These are not fringe investors. They are a huge portion and a 
growing portion of those who are investing their capital. And 
it seems like the purpose of these hearings is to tell climate 
investors to go to hell, or to go to Europe where they can get 
the information should they choose to invest in European 
companies. Even investors who do not give a whit about whether 
they leave this planet in better shape for their children and 
grandchildren are going to want some information before they 
invest in the Maldives Coconut Plantation Corporation, because 
the Maldives is only about 4 feet above the water, and maybe 
that is an investment risk.
    I have read these documents that go through your Division, 
and they list dozens of investment risks. This is clearly one 
that needs to be examined. I do want to point out, as the only 
CPA on our side, that Scope 3 makes it very difficult to create 
anything that is anywhere close to reliable. It took the CPA 
profession 200 years to develop the systems we now use to 
define and tabulate audit report information. And to try to do 
Scope 3 is something that I haven't heard professors of 
accounting theory or persons who have headed technical review 
departments in major CPA firms think that we are quite ready to 
do.
    It is not just ESG. We also need, ``W''; investors want to 
know about the, ``workforce.'' It is the most valuable asset. A 
hundred years ago, 90 percent of the value of a company could 
be seen on the balance sheet listing hard assets. Now, 90 
percent of that value is not in the hard assets; it is in 
things like the training or competency of the workforce.
    And we also need disclosures about China, because it is a 
risk to many companies that we may see a cut off or a 
diminution in our trade relationship with China, and because 
some investors don't want to see us become dependent upon 
China.
    Shifting to another issue, your Division is coming up with 
conflict-of-interest rules. We have heard Republicans say that 
they are very upset that the SEC is doing so much work, so 
quickly, and I can understand that. We mandated that you draft 
these regulations only 13 years ago, and in the blink of an 
eye, here they are. You are moving too fast. Thirteen years is 
not long enough. But it is important, as much as I have wanted 
these regulations to move forward, that they move forward with 
care. I am concerned that ordinary hedging of interest rate 
risk might be regarded as somehow violative of the conflict-of-
interest rules, and I would hope that interest rate risk and 
some other things can be carved out and not be considered 
something that could lead to a charge of a conflict of 
interest. And I yield back.
    Chairwoman Wagner. The Chair now recognizes the ranking 
member of the full Financial Services Committee, Ms. Waters, 
for 1 minute.
    Ms. Waters. Thank you, Director Gerding, for your 
attendance here today. This is the second week where 
Republicans are pushing their cultural wars. What has become 
clear is that Republicans don't like that the SEC wants 
investors to have information about companies they seek to own 
or to have the ability to strengthen governance of the 
companies they own.
    The Division of Corporation Finance plays a critical role 
in reviewing the disclosures public companies make about 
themselves so that investors can understand the financial risk 
of where they place their hard-earned savings. I commend the 
Division for its good work in protecting investors and 
improving transparency in our capital markets. You, Director 
Gerding, are strengthening capitalism in America. I yield back.
    Chairwoman Wagner. Today, we welcome the testimony of Erik 
Gerding, the Director of the Division of Corporation Finance at 
the SEC. We thank you for taking the time to be here. And 
without objection, your written statement will be made a part 
of the record.
    Director Gerding, you are now recognized for 5 minutes for 
your oral remarks.

STATEMENT OF ERIK F. GERDING, DIRECTOR, DIVISION OF CORPORATION 
     FINANCE, U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

    Mr. Gerding. Chairwoman Wagner, Ranking Member Sherman, and 
members of the subcommittee, thank you for inviting me to 
testify today about the activities and responsibilities of the 
Securities and Exchange Commission's Division of Corporation 
Finance. It is my honor and pleasure to appear before you today 
to discuss the Division's work.
    Please note that I am testifying in my official capacity as 
Director of the Division of Corporation Finance, but my 
testimony does not necessarily reflect the views of the 
Commission, the Commissioners, or other members of the staff.
    The mission of the SEC is to protect investors; maintain 
fair, orderly, and efficient markets; and facilitate capital 
formation. In support of this mission, the Division of 
Corporation Finance seeks to ensure that investors are provided 
with the material information needed to make informed 
investment decisions.
    A large portion of the Division's work is done by our 
Disclosure Review Program, which reviews the disclosures and 
financial statements of reporting companies to monitor and 
enhance compliance with disclosure and accounting requirements 
under the Federal securities laws and SEC rules. We concentrate 
our review resources on disclosures that appear to be 
inconsistent with those laws, rules, or accounting standards, 
or that appear to be materially deficient or lack clarity. 
Division staff members conducting filing reviews are assigned 
to offices that have specialized industry, accounting, and 
disclosure expertise.
    We continue to feel the impact of the surge in initial 
public filings from 2021 and 2022. We have seen an 
approximately 18-percent increase in the number of active 
public companies since 2021, and we continue to review 
thousands of annual reports each year. In addition to the 
filing review process, the Division recommends to the 
Commission new rules or changes to existing rules as needed to 
improve investor protection and to facilitate capital 
formation. These rulemakings benefit from public comments, and 
we will continue to encourage comments from the public on any 
new proposals or proposed recommendations that the Commission 
makes.
    We also help companies and their advisors to comply with 
Commission rules by communicating the staff views in a variety 
of forms, such as staff legal and accounting bulletins, through 
issuer letters, staff disclosure guidance topics, updates to 
the Division's financial reporting manual, no-action and 
interpretive letters, and compliance and disclosure 
interpretations.
    In addition to providing public guidance, the Division 
serves as a resource for investors, businesses, and their 
advisors. Our Office of Chief Counsel responds to legal and 
interpretive questions from the public about the Securities 
Act, the Exchange Act, and the Trust Indenture Act.
    Our Office of Small Business Policy provides guidance to 
small businesses seeking to raise capital or to comply with 
existing reporting requirements. Each year, this Office 
responds to approximately 1,000 requests for assistance from 
the small business community.
    Our Office of Mergers and Acquisitions fields questions 
regarding business combinations, including domestic and cross-
border tender offers, contested change-of-control transactions, 
and beneficial ownership (BO) reporting.
    For foreign issuers or domestic issuers undertaking 
offshore offerings, our Office of International Corporate 
Finance serves as our subject matter experts regarding specific 
registration, reporting, deregistration, and exemptive matters.
    Thank you again for inviting me to discuss the Division's 
activities and responsibilities. I would also like to emphasize 
that the overview that I have shared with you today does not 
fully capture the tremendous commitment of the staff of the 
Division to our mission of promoting investor protection, 
capital formation, and fair and orderly markets. I am happy to 
answer your questions.
    [The prepared statement of Director Gerding can be found on 
page 30 of the appendix.]
    Chairwoman Wagner. Thank you, Director Gerding. We will now 
turn to Member questions, and I recognize myself for 5 minutes 
for questions.
    Director Gerding, in July 2022, the SEC proposed amendments 
to rules that would narrow certain grounds under which 
companies may exclude shareholder proposals from their proxy 
statements. Specifically, the proposed amendments would make it 
harder for public companies to exclude shareholder proposals 
that are duplicative, or a resubmission of a proposal that 
failed previously, or a proposal that a company has already 
substantially implemented. As you know, these SEC-proposed 
amendments have not been finalized and require Commission 
approval for them to be adopted. Yet, SEC staff is already 
using the proposed approach to decide shareholder proposal no-
action requests. Can you explain, sir, why SEC staff is 
operating as if these amendments were already finalized?
    Mr. Gerding. Thank you, Chairwoman Wagner. As you know, the 
Division did recommend changes to Rule 14a-8 in 2022 on 
resubmission, substantial duplication, and other grounds for 
exclusion under 14a-8. We are carefully considering comments 
received in response to that proposed rule, but until a rule is 
finalized by the Commission, we follow existing rules in our 
informal shareholder proposal process.
    Chairwoman Wagner. As you said, you are still dealing with 
the comment period. They haven't been finalized. They haven't 
been adopted. Yet, you are using the proposed approach. I will 
give you just an example of one right here dealing with Altria 
Group. And I take high exception to this, as do, I believe, the 
companies and this committee. Without objection, I will submit 
this to the record, and I will also make sure you get a copy of 
it, sir.
    Director Gerding, what do you think the weather will be 
next week?
    Mr. Gerding. I'm sorry, Chairwoman Wagner?
    Chairwoman Wagner. What do you think the weather is going 
to be next week?
    Mr. Gerding. I don't know. I would have to look it up.
    Chairwoman Wagner. Interesting. Next week, I think it is 
going to be cold and rainy. Director, what will be the effect 
of artificial intelligence on oil refinery production in 2034?
    Mr. Gerding. Chairwoman Wagner, I would leave that to 
companies to disclose.
    Chairwoman Wagner. Interesting. I thought it would cost all 
companies $13 trillion annually. Director Gerding, while these 
questions may seem strange, that is exactly what you are asking 
public companies to do under the climate change proposals put 
forth by the Commission. And given that companies are being 
forced to guess about the state of the weather or technological 
innovations decades in the future, how can they possibly 
provide, in the words of Chair Gensler, the comparability and 
standardized disclosures that the rules purport to require?
    Mr. Gerding. Chairwoman Wagner, the climate risk disclosure 
proposal that the Commission voted on last year is about 
disclosing risk to investors, and risk is about future losses 
that companies may face. This is the kind of disclosure, the 
kind of things that investors need to make investments and 
voting decisions.
    Chairwoman Wagner. Future risk. They are guessing. Director 
Gerding, the SEC reversed Chairman Clayton's 2020 reforms that 
would have effectively held proxy advisory firms accountable 
for omitting or misstating material information regarding proxy 
voting advice or conflicts of interests.
    Sir, do you agree with Chairman Gensler that proxy advisory 
firms should be able to omit material information or to provide 
misinformation regarding their voting advice, methodologies, 
sources of information, or conflicts of interest without being 
held accountable?
    Mr. Gerding. Chair Wagner, the 2020 proxy voting advisory 
business provisions remain in effect with respect to requiring 
proxy voting advisory businesses to disclose conflicts of 
interest. They remain in effect with respect to subjecting 
proxy voting advice to the Federal proxy rules, and they remain 
in effect with respect to ensuring the proxy voting advice is 
subject to anti-fraud rules, including Rule 14a-9.
    Chairwoman Wagner. None of that is answering my question, 
which has to do with the omitting of material and whether that 
is okay. My time has expired, so I will submit a couple of my 
other questions for the record.
    The Chair now recognizes the ranking member of the 
subcommittee, Mr. Sherman, for 5 minutes for questions.
    Mr. Sherman. It is true no company can accurately predict 
the future. Our whole reporting system is designed to calculate 
the past, and then it is up to the investor to determine what 
is likely to happen in the future. If you buy Apple stock based 
on their earnings today, what you are really thinking is that 
those earnings will allow for dividends to be paid whenever 
they want to pay dividends, which could be a decade from now. 
So, what you care about is the dividends. All you can get is a 
report on the past. Likewise, we can't ask companies to tell us 
what the temperature of the planet is going to be in 2034, but 
they can tell us how much greenhouse gases they emitted in a 
prior year.
    Sir, it is my understanding that under your Scope 1 and 
Scope 2 proposal, companies would simply be disclosing what 
their greenhouse gas emissions were last year, and they would 
include in that, under Scope 2, the greenhouse gases of the 
utilities that they use. Would they be required to predict 
temperatures in the next decade?
    Mr. Gerding. No, they would not, Ranking Member Sherman.
    Mr. Sherman. But they would have to disclose their own 
company's emissions during the prior fiscal year?
    Mr. Gerding. The climate risk disclosure proposal does 
include certain transition risk metric requirements for certain 
public companies, including greenhouse gas emission.
    Mr. Sherman. Yes, the company may be entirely green. They 
may generate all of their electricity and everything with solar 
panels. They may get an award from the Sierra Club, but if they 
are growing coconuts in the Maldives, they may have a 
substantial climate risk. It is only 4 feet above sea level 
and, in some places, 4 inches above sea level.
    I want to shift to the conflict-of-interest rules. I 
mentioned these in my opening statement. You are required to 
issue them, and they make sense as to the first and second 
prong that you have. The issue here is, does the promoter 
design a security and then that security will tank--if I was 
going to buy a car from a company which had bet that that car 
would blow up, I would say that is very bad. If, however, 
General Motors bets that interest rates will go down, or that 
gas prices will go up, or that Detroit will be in the World 
Series, I don't care. They are not betting that my car will 
blow up, nor are they betting about something that they control 
or that they designed.
    So, it makes sense to have your first two prongs, that they 
can't sell short or have a derivative that, in effect, sells 
short the very security that they design. Do we need to make 
clear, and do you think you do make clear in your proposed 
regulations that the promoter of an asset-based security could 
hedge their interest rate risk or otherwise bet on the interest 
rate markets?
    Mr. Gerding. Yes, Ranking Member Sherman, the proposed rule 
that you are referring to implements Section 621 of the Dodd-
Frank Act. And consistent with that statute, in the proposal 
there are exemptions for hedging, bona fide market making, and 
liquidity commitments.
    Mr. Sherman. Even if it is not hedging, you hedge an 
interest rate risk if you bet interest rates are going to go 
up, because you have a big position in that. You may just want 
to bet that interest rates go up because you think interest 
rates are going to go up. It is an overall part of the economy. 
Do you make it clear that, on the one hand, you can sell an 
asset-based security, and on the other hand, you can buy a 
debenture which will be profitable if interest rates go up?
    Mr. Gerding. Yes, Ranking Member Sherman, the proposed rule 
would address conflicts of interest by certain securitization 
market participants. And the proposed rule includes a 
definition of what those conflicts of interest would look like, 
including betting against the asset-backed securities or 
synthetic asset-backed securities that are----
    Mr. Sherman. I would hope to work with you further to make 
sure that you give a conflict if you are betting against the 
design that you created, but simply betting that interest rates 
are going to go up or some other parts of the economy that you 
have no control over should not be considered a conflict of 
interest. I look forward to working with you on that, and I 
yield back.
    Chairwoman Wagner. The Chair now recognizes the gentleman 
from Oklahoma, Mr. Lucas, for 5 minutes.
    Mr. Lucas. Thank you, Madam Chairwoman. Mr. Gerding, I 
would like to focus on the Commission's proposed climate rule, 
which I believe would have a dramatic effect on public 
companies. There are estimates that would adjust the initial 
compliance costs at more than $100 million for some companies. 
In your rulemaking process, how have you assessed the effects 
of these costs? What effect will these costs have on public 
companies, particularly the smaller and medium-sized companies?
    Mr. Gerding. Congressman, the rule proposal that you are 
referring to contains a rigorous economic analysis that looks 
at the benefits and cost to public companies and public 
companies of all sizes. That being said, as part of every 
economic analysis and every rule proposal, we solicit comments 
on the economic analysis. We gather comments, and we have 
received a lot of comments on the benefits and costs in the 
economic analysis. And we are carefully considering those and 
any recommendations----
    Mr. Lucas. Do you calculate how many dollars, because that 
affects the viability of a company?
    Mr. Gerding. The economic analysis would factor in all 
costs of the rule on public company reporting, including 
compliance costs with the disclosure regime.
    Mr. Lucas. Have you worked with any other agencies that 
undertake climate-related rulemaking such as the EPA, NOAA, the 
Department of Energy, the FTC, or, for that matter, just any 
other agencies?
    Mr. Gerding. Congressman, we consult and talk to a number 
of Federal agencies in our rulemakings. But all of our 
rulemaking recommendations are based on our statutory 
authorities and our notice-and-comment rulemakings, including 
the comments that we receive in response to the rulemakings.
    Mr. Lucas. So in a case like this with climate-related 
rules, in essence, you go it on your own. Okay. The proposed 
rule would also impact private businesses that are in the value 
chain of a public company. Public companies that are required 
to report emissions data will turn to their downstream 
suppliers, such as farmers and ranchers, to calculate and 
report their emissions data to those companies. We have seen 
public companies shift their inputs to larger operations that 
have the resources to track climate and emissions data. Do you 
know the number of public companies with Scope 3 targets?
    Mr. Gerding. Congressman, I don't have that particular 
statistic with me now. I will note that we have received a 
number of comments on the impacts of the climate rule proposal 
on the suppliers that you mentioned, and we are taking those 
comments very, very seriously.
    Mr. Lucas. I would like to know, if it is possible, the 
number of companies that your people believe would be impacted, 
and has there been an analysis conducted on the volume of 
private businesses that would potentially be forced out of the 
supply chain as a result of this because their bigger partners 
simply have to turn to someone else?
    Mr. Gerding. I want to note, Congressman, that the climate 
risk disclosure proposal would apply only to public companies. 
There are provisions in there that would require certain 
disclosures by public companies that may impact other 
companies, and we are carefully considering all of the comments 
we have received on those----
    Mr. Lucas. And I appreciate that, Mr. Gerding, because you 
are a part of the Federal bureaucracy and you know 
organizations tend to shift their responsibilities and their 
costs to someone else. I am just concerned that in public 
business, the least able to compete, the folks who are having 
the greatest challenges being a part of the economy, are the 
ones who will get shoved out of this.
    If climate-related information is material to a public 
company's operations, is that company already required by the 
SEC to disclose that information, completely absent of the 
rule? If something is material, they are supposed to say so 
already, correct?
    Mr. Gerding. This is a common misconception, Congressman. 
The SEC rules do not require public companies to disclose 
everything material that happens to them.
    Mr. Lucas. Has the materiality standard served our capital 
markets investors well so far?
    Mr. Gerding. The materiality standard that we continue to 
follow is that articulated by the Supreme Court, and we 
continue to follow the statutory mission that we have always 
followed, which is providing----
    Chairwoman Wagner. The gentleman's time has expired.
    Ms. Lucas. This is fascinating, Madam Chairwoman. I yield 
back.
    Chairwoman Wagner. Thank you. The gentleman from Georgia, 
Mr. Scott, is now recognized for 5 minutes.
    Mr. Scott. Director Gerding, I want to discuss the SEC's 
proposed rule. As you know, the SEC's proposed rule requires 
publicly-traded firms to disclose to investors the climate-
related risks they face and the greenhouse gas emissions their 
company is responsible for, including emissions from up and 
down the company's value chain, which is now known as Scope 3 
emissions. And these metrics will be critical in understanding 
carbon-intensive companies' risk exposure and helping investors 
allocate capital efficiently and prioritize their engagement.
    However, I believe that they could have a significant, 
costly, and adverse effect on thousands of small farmers and 
ranchers. And I understand the rule only applies to publicly-
traded companies and does not create any disclosure obligations 
for small private companies, so I am very concerned about this 
and the potential of indirect impact that this rule could have 
on small farmers and ranchers.
    My first question to you is, do you see a single scenario 
where a large publicly-traded company that falls under Scope 3 
still chooses to seek data from small agriculture suppliers in 
order to meet Scope 3 reporting requirements?
    Mr. Gerding. Congressman, the proposed climate risk 
disclosure rule includes a number of provisions that would 
allow companies that would be required to disclose Scope 3 
emissions to use assumptions, methodologies, and tools other 
other than getting disclosures from suppliers and customers. 
That being said, we have received a large number of comments 
expressing the very concerns that you are expressing today, and 
we are carefully considering those concerns and those comments 
as we formulate any recommendation to the Commission.
    Mr. Scott. What about large publicly-traded banks and other 
financial institutions which provide loans to small family 
farmers and ranchers? Could Scope 3 requirements have an 
unintended consequence on the amount of loans or investment 
activity being made by these banks?
    Mr. Gerding. Congressman, the requirement that you are 
mentioning in the proposed rule includes a number of 
provisions, including a materiality qualifier that would 
potentially limit the number and the scope of disclosure 
requirements that companies would have to make here. We are 
aware that banks have already developed methodologies for 
making these kinds of disclosure requirements and assumptions 
about disclosure requirements.
    Mr. Scott. Let me ask you this. The SEC received a record 
15,000 public comments on the rule--15,000--surpassing the most 
comments garnered by any single proposal in the history of the 
Securities and Exchange Commission. Chairman Gensler has 
recently hinted at potential adjustments to Scope 3. Can you 
provide some daylight to us as to what these adjustments could 
be?
    Mr. Gerding. Congressman, I can't make any commitment to 
what a future Commission action would look like. I will note, 
again, that we have received comments expressing a lot of the 
concerns that you have mentioned today, and we are very 
carefully considering those comments and taking them very, very 
seriously.
    Mr. Scott. Thank you very much. I yield back.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Texas, Mr. Sessions, for 5 
minutes.
    Mr. Sessions. Madam Chairwoman, thank you very much. And I 
want to thank you for having this important, what is really a 
follow-up to the follow-up to the follow-up discussions in 
which we engaged the SEC on this outlandish proposal that they 
put out, the Scope 3 requirements.
    Mr. Gerding, I am very concerned, and I think you will hear 
and are hearing from members of this subcommittee that the SEC 
continues abusing the discretion delegated to it by Congress to 
undermine the attractiveness of public markets and to hinder 
economic growth. Your recent focus on non-material 
environmental, social, and political issues is more than 
worrisome--15,000 public comments should have demonstrated that 
we believe that, primarily because your 500-page mandatory 
climate disclosure rule would be in violation of not just what 
I think is common sense, but could be considered anti-
capitalist and against the ability to grow our economy.
    I would like to ask you, do you consider inflation to be a 
primary cause or how worrisome that would be to all these 
public companies, where they would want to write about 
inflation as a material of hindering their growth, and their 
stock price, and their ability to hire people and their ability 
to stay afloat?
    Mr. Gerding. Congressman, a number of macroeconomic 
factors, including inflation, could impact companies and their 
financial performance.
    Mr. Sessions. Sir, I think that this Administration, in 
particular, has downward-driven pressure on companies 
intentionally because of a desire of politics and what I 
believe is a view of anti-capitalism expressed by this 
Administration, specifically at Treasury and the SEC, and we 
think this is a problem. It is diminishing people who would 
propagate new business deals. We have engaged the Chair of the 
committee and told him what we think about how they look at 
their discretion and the things that it has caused in the 
marketplace.
    I want you to know that we believe that this SEC are 
activists and are trying to take a perspective of destroying 
market gains that might be made, employment by companies, and 
the opportunity to stay afloat and to be competitive with the 
world. And we think that what has been downward-driven by this 
Administration is far more destructive to the growth of 
companies and their ability to be competitive because of the 
pressures that have been placed on them. An example of this is 
the 15,000 public comments that have been received on the 
proposed rule.
    We need capitalism. We are in competition with the world. 
We have pressures that come from other countries, and we want 
to be competitive, but because we have an activist government 
that the President of the United States openly touts as the 
most-liberal, as the most-progressive, what we are becoming is 
one of the boys. And you are arbitrarily harming what has 
always been in the United States during these last 200 years: 
an opportunity for freedom; and an opportunity for 
individualism.
    But perhaps more importantly, entrepreneurship has been a 
rule that has guided the United States of America. And it would 
be my hope that you at the SEC and, in particular, in the 
capital markets subdivision would recognize that corporate 
profits and ability are at risk with the active social agenda 
that I see. And I hope you listen to us, because we are 
speaking directly to people who make those decisions, and that 
is what we think. Madam Chairwoman, I yield back.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Massachusetts, Mr. Lynch, for 5 
minutes.
    Mr. Lynch. Thank you, Madam Chairwoman, and I thank the 
ranking member as well. And thank you, Mr. Gerding, for your 
willingness to come before the committee and help us with our 
work.
    I just want to go over this a little bit. This information 
that you are requesting would aid investors and actually the 
shareholders, the owners of these corporations, to make better 
decisions with respect to the operation of these companies, 
isn't that correct?
    Mr. Gerding. Congressman, that is our overall mission, 
consistent with our statutory authority of investor protection 
and promoting capital formation. Our rules are about providing 
investors with information that they need to make investment 
and voting decisions, including decisions to value the 
securities that they own or the securities that they may wish 
to purchase.
    Mr. Lynch. So in many ways, this is about managing risk 
specifically to the climate change disclosure rule?
    Mr. Gerding. That is correct. And, Congressman, the 
disclosures of risk and required disclosures of risks are 
something that the Commission has required for decades. This is 
nothing new. Going back decades into the 1960s, the Commission 
has required disclosures from companies of risks that they face 
and that could affect the value of the securities that 
investors own or may wish to purchase.
    Mr. Lynch. Exactly. I come from the construction industry. 
I was an iron worker for over 20 years before I came to 
Congress. Also, my degree is in construction management, and I 
have seen tremendous change in the construction industry. My 
district includes the South Boston waterfront in my district, 
and we are building high-rises all along that waterfront. And I 
have noticed that companies, in constructing their high-rise 
office towers and residential towers, are using a whole set of 
measures and materials that will mitigate the risk that they 
have from climate change and sea-level rise.
    I have several buildings that have been built in the last 
10 years that actually have self-contained water supplies that 
allow them to release wastewater into the sewage system, such 
that they lower their tax rate, their sewer tax rate. I have a 
company that just built a large residential tower right on the 
water, right on the coast, and their first floor has 
retractable wave barriers which come up out of the ground and 
block the ocean from coming in. And if that is not enough, they 
have designed the entire first floor of their office tower so 
that they can just drop the water barriers, remove the 
furniture, and let the water just rush through the building 
with no damage. And when the storm is over and the water 
recedes, they go back to business. So, they have done all of 
these measures, and obviously, they have solar energy capacity 
there. They put in all of these measures to induce people to 
invest in those companies and in those buildings.
    Doesn't the information that you are requiring help people 
make those decisions so they can choose companies that are 
taking a proactive approach to protecting from that level of 
risk?
    Mr. Gerding. Congressman, the proposed climate risk 
disclosure rule would give investors information about physical 
and transition risks in order for them to make investment and 
voting decisions. I would note that many companies, as we know 
in the release, are already making climate risk disclosures. 
The key to the proposal, though, is that those disclosures 
should be consistent, comparable, and decision-useful. If 
companies believe that they are not subject to physical or 
transition risks, they can disclose that, and investors can 
make investment and voting decisions accordingly.
    Mr. Lynch. Thank you. It keeps people honest. Madam 
Chairwoman, I yield back. Thank you for your courtesy.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Michigan, Mr. Huizenga, who is 
also the Chair of our Subcommittee on Oversight and 
Investigations, for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman. Director 
Gerding, in my role as Chair of our Oversight and 
Investigations Subcommittee, I have requested information 
relating to the SEC's pending Climate Rule Act. I assume you 
are aware of this. Over the last month, we have had several of 
your colleagues before our committee, including the Chief 
Economist and the General Counsel of the SEC. Frankly, neither 
of them could or, maybe more accurately, would answer the 
simple question of why the Chair is stonewalling Congress in 
our efforts to understand this massive rule. I am going to get 
to a couple of questions, and I am going to request that you 
please don't stall your answer by thanking me for my insightful 
question, which is what they did the entire time.
    I assume that your Division is in direct contact with the 
General Counsel's Office on this request. So quickly, one, does 
your Division have the responsive materials, such as thorough 
economic analysis on the climate disclosure rule, that you will 
share with this committee? And I am not asking for the public 
documents; those have been already sent to us. We have those. 
And two, will you commit to cooperate with us to understand, to 
answer our questions relating to our investigation when they 
fall within your Division?
    Mr. Gerding. Congressman, everything that the Commission 
relies on in voting to propose or adopt a rule is within the 
proposing and adopting releases. I will note that the Office of 
the General Counsel and other offices are primarily responsible 
for providing and responding to requests of this committee and 
other committees.
    Mr. Huizenga. You are shoving it off to them? In other 
words, basically, we just have to work with them to get the 
answers that we need? You have nothing to give us?
    Mr. Gerding. Congressman, my institutional role is to lead 
the Division of Corporation Finance, and we do have----
    Mr. Huizenga. Okay. I am going to move on. Last week, 
representatives from the two largest proxy advisory firms, 
Glass Lewis and ISS, appeared before our Oversight and 
Investigations Subcommittee. ISS testified that they rely on 
the SEC's legal analysis to determine what shareholder 
proposals are legally permissible.
    Mr. Gerding, are you aware that proxy firms do not 
undertake any independent legal analysis of shareholder 
proposals and instead refer that judgment to your staff as to 
whether a proposal violates Federal rules or Federal laws or 
State laws?
    Mr. Gerding. Congressman, my Division does not take 
positions on underlying shareholder proposals.
    Mr. Huizenga. That is not my question. Are you aware that 
the proxy advisors do not do independent analysis and that they 
rely on your analysis, assuming, as they said, that if you, the 
SEC, allows a vote to go forward, a proposal to go forward, 
then it must meet legal criteria? Are you aware of that?
    Mr. Gerding. I am not familiar with the testimony that you 
are mentioning.
    Mr. Huizenga. We will print it off. It is public 
information, but we will print it off and send it to you, 
because you need to understand this. Earlier, you told my 
friend from Massachusetts that you look at material information 
for investors, and isn't knowing whether a proposal would 
violate State or Federal law material to an investor?
    Mr. Gerding. Congressman, I think you are referring to our 
shareholder proposal review process.
    Mr. Huizenga. No, no, I am referring to the analysis, the 
fact that the SEC does no analysis as to whether a proposal 
violates State law if it was adopted or violates Federal law if 
it was adopted. Are you aware of that? Yes or no?
    Mr. Gerding. Congressman, as we review shareholder 
proposals, we review the----
    Mr. Huizenga. How much clearer can I be? Yes or no, you do 
not understand that or this is all new information for you?
    Mr. Gerding. Congressman, we apply Rule 14a-8, and the 
grounds for exclusion in shareholder----
    Mr. Huizenga. Does the SEC analyze whether a proposal would 
violate State or Federal law? Yes or no?
    Mr. Gerding. I can refer you to the 14a-8 grounds for 
exclusion as we do our----
    Mr. Huizenga. That is not my question. Since the proxy 
firms clearly rely so heavily on your analysis, what other 
analysis does the SEC conduct with respect to a shareholder 
proposal? How about that? What do you do, or do you just assume 
that the proposal is up, Katie, bar the door, it gets on, it 
needs a vote?
    Mr. Gerding. Congressman, part of what the career staff do 
every year in the shareholder proposal review process is offer 
informal views on whether any grounds----
    Mr. Huizenga. What other areas do you analyze? You don't 
analyze climate. You don't analyze whether it violates State 
law. You don't analyze whether it violates Federal law. What do 
you analyze?
    My time has expired, Madam Chairwoman, but I do have a 
letter that I ask unanimous consent to enter into the record, a 
letter expressing concerns about the climate disclosure rule 
written by two former SEC Chief Economists.
    Chairwoman Wagner. Without objection, it is so ordered.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Casten, for 5 minutes.
    Mr. Casten. Thank you, Madam Chairwoman, and I would like 
unanimous consent before I start to include a letter into the 
record from Out Leadership in support of the continuation and 
expansion of ESG reporting and metrics.
    Chairwoman Wagner. Without objection, it is so ordered.
    Mr. Casten. Director Gerding, I want to start by just 
giving you a chance to respond to some of what has been 
discussed here. I feel like we need to just sort of bring this 
all down to a really simple reading level because I don't think 
these issues are that complicated, but I want to make sure 
everybody in the room understands. Can you remind us of the 
definition of, ``materiality,'' that guides the Commission?
    Mr. Gerding. Congressman, the definition of, 
``materiality,'' that the Commission follows is the one that 
the Supreme Court has articulated in cases like TSC Industries 
v. Northway, and Basic, Inc. v. Levinson. All of our rules are 
following Supreme Court precedent.
    Mr. Casten. To basically summarize Levinson, I think the 
Court has said, ``the substantial likelihood that the fact 
would be viewed by a reasonable investor as having 
significantly altered the total mix of information made 
available.'' Is that a----
    Mr. Gerding. That sounds accurate, Congressman.
    Mr. Casten. Okay. And can you just remind us why the 
Commission believes that the proposed climate risk disclosure 
rule fits this definition of materiality?
    Mr. Gerding. Congressman, the climate risk disclosure 
proposal is aimed at providing investors with disclosure for 
them to make investment and voting decisions, including for 
them to analyze risks in order to value the securities that 
they hold or may purchase. So, the whole focus of the proposed 
rule is on providing investors with disclosures that would be 
relevant for their investment and voting decisions. And that is 
the overall concept of materiality.
    Mr. Casten. Okay. And this rule has been up for public 
comment for a long time. Can you estimate roughly what 
percentage of the comments you have received have been 
favorable with respect to the rule?
    Mr. Gerding. Congressman, I don't have in front of me exact 
statistics on comments that would be supportive of or opposed 
to the rule. I would note that we have received a large number 
of comments that support the proposed rule, and we have 
received comments that have expressed concerns with the rule, 
and we are taking all of the comments extremely seriously.
    Mr. Casten. Okay. We can follow up with you afterwards. We 
had some analysis--I mentioned in the hearing last week that 
over 90 percent of investors responding were supportive of the 
rule, which certainly sounds like a lot of reasonable investors 
to me. In 2010, the SEC issued interpretive guidance regarding 
disclosure related to climate change. Have you seen adequate 
compliance from companies with this guidance? In other words, 
are SEC registrants already sufficiently disclosing material 
climate-related risks in their filings?
    Mr. Gerding. Congressman, I think you are referring to the 
2010 guidance that the staff put out on climate-related 
disclosures. We have seen companies make disclosures on those 
matters, but it has been our observation that those disclosures 
are not always consistent, comparable, or decision-useful. And 
that is, as we explained in the climate risk proposed rule, 
part of the reason for the overall rule.
    Mr. Casten. Relating to that, and I think you said this to 
Mr. Lynch, but just to clarify, in the absence of this rule, 
what I think you are saying--I don't want to put words in your 
mouth--is that the passage of this rule would provide investors 
with a better understanding of the risks that they face in 
their portfolio so they can allocate their capital accordingly 
and risk would be better priced. Is that a pithy enough summary 
of the SEC's position?
    Mr. Gerding. Congressman, that is something that is part of 
this rule and part of what we have done for decades, again, 
providing investors with information about the risks of the 
companies in which they invest. And part of that is what 
investors use to make investment decisions and to construct 
investment portfolios.
    Mr. Casten. I said at the start that I feel like I need to 
dumb this down. This is so simple, right? People want 
information. They are demanding information. We are trying to 
give them information, and if you give people information, they 
will allocate their portfolio and better price risk. And my 
colleagues seem to be bringing a lot of witnesses in here who 
are saying, well, if we pass this rule, we will see divestments 
from certain sectors. No, we won't. We will see divestment from 
lousy managers who are incapable of responding to investor 
pressure, because if investors move their capital and the price 
goes up, and you don't respond to that, welcome to capitalism. 
Capitalism is scary. It is frightening if you can't compete, 
and I hope that someday the Republican Party embraces 
capitalism and investor rights once again. Thank you. I yield 
back.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Pennsylvania, Mr. Meuser, for 5 
minutes.
    Mr. Meuser. Thank you very much, Madam Chairwoman. And 
thank you, Director Gerding, for being here with us today.
    So many actions of the SEC trouble me, including the pace 
of rulemaking, limited comment periods, aggressive 
implementation timelines, and the lack of responsiveness to 
congressional concerns. This breakneck pace is exhausting the 
SEC staff, as you probably know, and overwhelms the industry, 
which I know, with broad new rulemaking without enough time to 
comment, and congressional inquiries are sometimes at 
painstakingly headshaking lengths of time. The examples of some 
of these extensive timeframes are the climate disclosure rule, 
as well as the proxy advisory rule, which you allowed 30 days 
for comment, and that was over Thanksgiving and Christmas, so 
you were not really looking for substantial input.
    Madam Chairwoman, to demonstrate the breakneck pace of the 
SEC's rulemaking agenda compared to previous Chairs, I ask 
unanimous consent to submit this chart entitled, ``Rule 
Proposals Issued During the First 27 Months of SEC Chairs' 
Tenures.'' For the record, this chart shows that after 27 
months, Chair Gensler has issued 58 rules, compared to 33 rules 
issued under Chair Clayton, and 30 rules issued under Chair 
White, so the rules have doubled and the comment periods have 
decreased by 20 to 25 percent, respectfully.
    Chairwoman Wagner. Without objection, it is so ordered.
    Mr. Meuser. Mr. Gerding, let me ask you this: Can you 
identify which of these 11 rulemakings would actually advance 
the SEC's mandate to facilitate capital formation?
    Mr. Gerding. Congressman, all of the rules that my Division 
recommends proposing or adopting are squarely within our 
statutory mandate of investor protection, capital formation, 
and promoting fair and orderly markets.
    Mr. Meuser. Do you think the industry agrees with that? Do 
you ever ask?
    Mr. Gerding. Congressman, we receive a wide range of 
comments on all of our rulemakings, and we take all of those 
comments very, very seriously.
    Mr. Meuser. Okay. So when proposing these very significant 
rules that impact millions of Americans and have broad 
implications, stakeholder input and sufficient comment periods, 
one would very rationally think roundtables, concept releases, 
and other outreach mechanisms should be an important part of it 
because that is the industry that you are trying to help and 
advance and promote, correct? Why is it then that we have data 
which shows a conflict with what you are saying?
    Mr. Gerding. Congressman, we take the notice-and-comment 
process extremely seriously. I believe that all of the comment 
periods are not only adequate under the Administrative 
Procedure Act, but have generated robust comments on our rules. 
We carefully consider those comments. And again, that is not 
just our obligation under the Administrative Procedure Act; it 
makes for better policies and better recommendations from the 
Division.
    Mr. Meuser. I don't think your clientele--and maybe you 
don't look at it that way, but I tend to--would agree with a 
216 percent increase in new rules, but 20 percent less time to 
comment on this plethora, this blizzard of new rules. But you 
think that everything is going fine and there is no reason to 
change course?
    Mr. Gerding. Congressman, again, we take the notice-and-
comment rulemaking and our obligations under the Administrative 
Procedure Act very, very seriously. And the public is my 
clientele, and we take our statutory authorities, our statutory 
mandate extremely seriously.
    Mr. Meuser. Okay. But you agree that your timeframe is 
about 45 days, where before it was a good 20 to 25 percent 
longer?
    Mr. Gerding. Congressman, again, I believe all of the 
comment periods for all of the rule proposals that we have 
recommended are adequate under the Administrative Procedure Act 
and have yielded comments which we are carefully considering.
    Mr. Meuser. If you did hear, as I do, that the timeframes 
are not sufficient and the number of rules coming across is 
very difficult to deal with, would you then consider and commit 
to this committee to review your timeframes and the level of 
rules being issued to better accommodate American investors and 
the industry?
    Mr. Gerding. Congressman, we receive a number of comments 
on our comment period that we carefully----
    Mr. Meuser. Unfortunately, it sounds like a, no. Madam 
Chairwoman, my time has expired, so I yield back.
    Chairwoman Wagner. The Chair now recognizes the gentleman 
from California, Mr. Vargas, for 5 minutes.
    Mr. Vargas. Thank you very much, Madam Chairwoman, and I 
thank the ranking member for this hearing, and to the witness, 
thank you very much for being here.
    Madam Chairwoman, before I begin my questions, I would like 
to submit into the hearing record a letter signed by Family 
Farm Defenders, Food & Water Watch, the Institute for 
Agriculture and Trade Policy, and the Union of Concerned 
Scientists.
    Chairwoman Wagner. Without objection, it is so ordered.
    Mr. Vargas. Thank you very much. Thank you, Madam 
Chairwoman.
    The ESG disclosures are a market-driven initiative to 
increase investor education and corporate transparency. 
Information from ESG disclosures will help investors gain 
greater insight into what companies are doing to reduce carbon 
footprints and to address important issues like climate change, 
diversity, and labor rights. Investors understand that ESG 
issues are material and need to be accounted for when assessing 
market opportunities. Investors are smart people, and I think 
that is why 77 percent of the large Fortune 500 companies now 
have ESG disclosures, because investors want to know this 
information.
    And I think what you are attempting to do here is very 
appropriate. It has been a long process because there have been 
a lot of comments, and there should be to try to figure out how 
you measure this. It is very complicated issue, there is no 
doubt about that, but this is very important. But again, it is 
investors, and why investors read the headlines. Do you read 
the headlines, Mr. Gerding?
    Mr. Gerding. Yes, I do, Congressman. I read The Wall Street 
Journal every day.
    Mr. Vargas. Yes. The headlines recently have been screaming 
about climate disasters, and I just talked to someone from 
Phoenix, who said that it is 118 degrees, not that it hasn't 
been that hot before, but it has never been that consistently 
hot. It has been hot like that now for a long time. Take a look 
at what happened up in Vermont. Take a look at what is 
happening around the world right now. These climate disasters 
cost money. Take a look at what insurance companies are doing 
in Florida, and in California, because, again, climate change. 
Investors look at this. Investors believe this is material, 
and, of course, it is material. It costs billions and billions 
of dollars, so of course, it is material. Do you think it is 
material?
    Mr. Gerding. I'm sorry, Congressman?
    Mr. Vargas. Do you think that the issue of climate is 
material? Do you think investors are correct about that?
    Mr. Gerding. Congressman, as part of proposing the climate 
risk disclosure proposal, my Division, as part of our 
recommendation to the Commission, was aware of and cited a 
large number of investors who expressed a desire for the types 
of information that are in that climate risk proposal. And that 
information, as you know, is about helping those investors make 
choices, not the Commission, but those investors make decisions 
with required disclosure about their investment and voting 
choices.
    Mr. Vargas. Yes. Sometimes when I am up here listening, it 
sounds like there are some accusations that you are doing this 
for yourself, somehow for the Commission. No, it is for the 
investors. Investors want to know, and especially savvy 
investors, because they do see what is coming up. And 
unfortunately, the scientists who most commonly speak about 
this, say there is going to be more of this. So, of course, 
savvy investors want to know this information to make sure that 
they are not going to invest in a company that is very short-
sighted. They want a company that is going to be around for a 
long time, because they manage these risks. They understand the 
risks of climate change and climate disaster.
    And again, I think you are on the right track. There is the 
question of, do you take a look at the comments that people 
make? There are so many of them. I believe you do. Isn't that 
correct? By the way, the number of them is interesting because 
now, digitally, you can do anything. When they move $42 billion 
out of a bank in one day, you know that the world has changed. 
The reality is because of digitalization, things move quickly, 
but do you take a look at these comments and do you take them 
seriously?
    Mr. Gerding. Absolutely, Congressman. We carefully read 
each comment. We take the comment process extremely seriously, 
whether they are comments supporting, or opposing, or 
expressing concerns with a particular proposal, and that is 
part of our duties under the Administrative Procedure Act. It 
is also what makes for better policy and better rules.
    Mr. Vargas. Again, I thank you for being here. And I thank 
the chairwoman and the ranking member for holding this hearing, 
and I yield back.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Wisconsin, Mr. Steil, for 5 
minutes.
    Mr. Steil. Thank you very much, Chairwoman Wagner. I am 
really concerned about the direction the Securities and 
Exchange Commission has taken under Chairman Gensler. I want to 
go back to a few things you said here today, in particular as 
it relates to shareholder proposals that are looking for no-
action requests. Did you tell us that the Securities and 
Exchange Commission does not review whether or not the actual 
shareholder proposal is legal or not legal in order to issue 
your recommendation?
    Mr. Gerding. Congressman, when the staff conducts their 
informal process under 14a-8, we look at all grounds for 
exclusion under 14a-8----
    Mr. Steil. Understood.
    Mr. Gerding. ----and offer informal views on whether any of 
those grounds for exclusion apply.
    Mr. Steil. Correct. I understand that. Are you willing to 
say on the record that you do or do not look at whether or not 
an action is legal federally or in any of the 50 States?
    Mr. Gerding. Again, Congressman, we look at all grounds for 
exclusion----
    Mr. Steil. Do all grounds include legality?
    Mr. Gerding. One of the grounds would require the 
Commission to look at a number of factors, including that one.
    Mr. Steil. So yes, you do look at legality?
    Mr. Gerding. Again, Congressman, we apply all----
    Mr. Steil. Without being difficult here, this should be a 
really simple question. Either, yes, you look at legality, or, 
no, you don't look at legality. Do you look at legality?
    Mr. Gerding. We look at all grounds----
    Mr. Steil. I get, ``all grounds.'' Does that include 
legality?
    Mr. Gerding. Congressman, I am happy to refer you to 14a-8.
    Mr. Steil. No, no, don't refer me to anything. Do you look 
at legality? I have you here in front of me today. Do you look 
at legality?
    Mr. Gerding. Congressman, we don't offer opinions on the 
legality.
    Mr. Steil. So, no, you don't. Here is the problem. If, 
``no,'' is your answer, here is the problem. We had before the 
committee last week, ISS and Glass Lewis, the duopoly that 
dominates proxy advisory advice, and I asked ISS and Glass 
Lewis, do you look at legality, and they said no--on the 
record, no. Why? Because they said the SEC does. And now, what 
we are hearing from you is, after trying to delay answering the 
question, no, you don't look at legality.
    So, here is the problem. We have the SEC coming forward and 
allowing a whole host of ESG-related reforms. We look at 
companies like Travelers, who pointed out to the SEC that if 
they had their shareholder proposal moved forward, it would be 
illegal. Why? Because it would have required Travelers to 
adjust pricing based on race. They pointed out to you, the SEC, 
that it would have been illegal for them to do that. You didn't 
care--not you, personally; the SEC didn't care. The SEC allowed 
it to go forward. The proxy advisors reckoned in favor and the 
proxy advisors pointed to the SEC, saying that they don't do 
the review of whether or not it is legal; that is the job of 
the SEC. You are now telling us that you don't review whether 
or not an action is legal, and so what we have is a complete 
lack of accountability.
    And then, Chairman Gensler guts Chairman Clayton's proxy 
advisor rules so that the proxy advisors aren't on the hook 
either. No one is on the hook, and then, Americans are 
wondering why their retirement savings are being weaponized to 
advance a woke liberal agenda. Well, here it is. Anyone can 
submit a proposal. That proposal can be illegal. The SEC 
doesn't care. The proxy advisors don't care. And you have 
instances like the Travelers case--but there are plenty of them 
out there--where 46 percent of shareholders voted to have 
Travelers engage in illegal behavior.
    And then, you have boardrooms pulling their hair out, 
saying, we should be focusing on growing our businesses, 
growing jobs, but we can't because the SEC is asleep at the 
switch. Chairman Gensler gutted the proxy advisor rule so the 
proxy advisors aren't on the hook. The proxy advisors are 
advising in favor of this. People should be darn frustrated 
with what is going on. And the lack of accountability at the 
SEC under Chairman Gensler, for example, gutting the Clayton 
proxy advisor rules, should frustrate the American people who 
are watching their 401(k)s, who are watching their pension 
funds that they are relying on for retirement being weaponized 
against them to advance a liberal agenda.
    And you just finally admitted on the record that you don't 
review whether or not an action is legal, and the proxy 
advisors said they rely on you to do that part of the job. I 
think we have identified a massive problem at the SEC. I think 
we are highlighting what happened when the SEC gutted the 
Chairman Clayton proxy advisor rule, and I think it is all the 
more reason that we have to go in and actually put some 
controls with the proxy advisors. We are marking up that bill 
next week, and it is essential that we get that passed on 
behalf of the American people. Madam Chairwoman, I yield back.
    Chairwoman Wagner. The Chair now recognizes the gentleman 
from North Carolina, Mr. Nickel, for 5 minutes.
    Mr. Nickel. Thank you so much, Madam Chairwoman. Director 
Gerding, it's good to see you here. I represent North 
Carolina's 13th District, which includes Raleigh, the Raleigh 
suburbs, and out to Durham and Duke. But I get this question a 
lot, which is, Duke-Carolina or Duke-NC State? You get those 
versions. For me, that is always a trick question. You don't 
want to answer any of those if you want to get elected in the 
triangle, but for you, if I say Duke-Carolina, who do you 
choose?
    Mr. Gerding. Congressman, my dad is a Tar Heel, so I am 
going to choose not to answer that question----
    Mr. Nickel. I saw you went to Duke. My wife is a Tar Heel, 
too, so I also avoid answering that question. But for me in the 
13th District, housing is consistently one of my constituents' 
biggest concerns. Escalating costs have created significant 
barriers to entry, making it increasingly difficult for 
aspiring homeowners to fulfill that American Dream of owning a 
home.
    And I am concerned that the SEC's proposed conflicts of 
interest rule may have negative effects on the housing market 
by preventing the securitization of assets. I certainly share 
the Commission's goal of preventing conflicts of interest, but 
I hope that the final rule isn't overly broad. In 2021, over 65 
percent of mortgages were securitized, which is the key to 
providing stability in the housing market. How important do you 
think securitization is to mortgage lending?
    Mr. Gerding. Congressman, I think securitization is 
incredibly important. As we proposed the rule, we carefully 
considered the statutory mandate from Congress to pass the 
conflicts of interest rule. We carefully considered our 
recommendations to the Commission on the scope of the rule and 
the hedging, market-making liquidity commitment exemptions. And 
we have received comments on the scope of the rule, and the 
definition of, ``conflicts of interest,'' in those three 
exemptions, and are carefully considering those and the 
economic analysis of those provisions.
    Mr. Nickel. So if firms aren't able to participate in 
securitization because of an overly-broad rule, just taking 
that hypothetical, how would this impact the liquidity and 
stability of the housing market?
    Mr. Gerding. Congressman, the proposed rule contained an 
extensive economic analysis of the economic benefits and costs 
of the rules. We have also solicited comments on what the 
economic costs and benefits would be and are taking those 
comments very seriously as we formulate any recommendations to 
the Commission on that.
    Mr. Nickel. So, you have conducted a cost-benefit analysis 
that examines how this proposal would impact affordable 
housing?
    Mr. Gerding. The overall economic analysis, which I refer 
to you in the proposal, looks at the potential economic costs 
of the proposal, including on a number of securitization 
markets.
    Mr. Nickel. I have also heard from industry participants 
that mortgage insurance-linked notes could be inadvertently 
captured by this regulation. These are used by private mortgage 
insurers to manage capital and serve homebuyers across the 
country who continue to experience affordability barriers. Has 
the SEC considered tailoring the regulation to ensure that this 
isn't an issue?
    Mr. Gerding. The proposal solicited a number of comments on 
tailoring the rule, changing the scope of the rule, and 
changing the scope of the exemptions. We have received a number 
of comments, including comments expressing the type of concern 
that you have mentioned, and we are going to carefully consider 
those comments as the Division formulates any recommendations 
to the Commission.
    Mr. Nickel. Thanks so much. I yield back.
    Chairwoman Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from New York, Mr. Garbarino, for 5 
minutes.
    Mr. Garbarino. Thank you, Madam Chairwoman, for having this 
hearing today. And thank you, Director Gerding, for being here.
    Congress plays a important role in encouraging agencies to 
achieve regulatory harmonization across the Federal Government 
in order to ensure that any additional incident reporting 
requirements do not create duplicative regulations. I am 
speaking specifically to cybersecurity. The SEC's proposed 
cybersecurity disclosures require issuers to publicly disclose 
a material cybersecurity incident within 4 days, using Form 8-
K. This, I believe, falls under your Division.
    Additionally, there are rules that introduce new 
obligations on risk management and governance, including 
disclosure of policies, procedures, and board members' 
expertise in cybersecurity. All of this comes when the SEC has 
proposed five additional cyber disclosure rules. I have heard 
from a number of stakeholders who have said that about 40 
percent of their cyber staff's time is spent on compliance 
matters instead of the day-to-day protective mission, and some 
experts in the field believe that this could rise to 50 percent 
in the near future with all of hese other regulations coming 
out.
    With all this in mind, Mr. Gerding, has your Division 
worked with or received technical assistance from other 
agencies, such as the Cybersecurity and Infrastructure Security 
Agency (CISA), on the implementation of this proposed rule, and 
how it may interact with existing regulations and laws?
    Mr. Gerding. Congressman, we have consulted with a number 
of Federal agencies on the rule proposal. We are also carefully 
considering the interactions of this particular rule proposal 
with other Federal statutes and other Federal regimes. We have 
also received a number of comments on the proposal related to 
the issues that you are mentioning and are carefully----
    Mr. Garbarino. Did you speak to CISA about this?
    Mr. Gerding. That is one of the Federal agencies that we 
have spoken to about the rule, yes.
    Mr. Garbarino. They have a 72-hour disclosure rule. Why 
make yours 4 days, and why make it public, because CISA's rule 
is public? When you talked to them, did you get a differing 
opinion as to what you should not do with this rule, or what 
was the discussion? Did you just say, hey, we are doing this?
    Mr. Gerding. One clarification, Congressman. The cyber 
incident security reporting provision that you are talking 
about is for business, days after a public reporting, a company 
will determine that a cyber incident is material.
    Mr. Garbarino. Material, yes.
    Mr. Gerding. I will note that we are closely following our 
statutory authorities, which may differ from those of CISA 
under other rules.
    Mr. Garbarino. I understand that, but do you understand 
that there are businesses out there which have cyber employees, 
and a lot of them have shortages. There are 750,000 open jobs, 
and when their employees have to spend 40 percent of their time 
doing compliance matters, wouldn't it be better for the SEC and 
CISA and other agencies to say, hey, you know what? Maybe 72 
hours works for all of us instead of 72 hours for you, and 48 
hours for somebody else. What I am saying is we need to get 
these people back into the job that they are supposed to be 
doing: protecting the companies.
    So I think when you have these discussions in the future, 
it doesn't matter about statutory authority, there is still 
supposed to be harmonization, and that is what Congress wants 
to see. So next time, if these rules come up, I hope the SEC 
takes that into consideration, especially considering there are 
six rules that the SEC is proposing. They are not all under 
your Division, but they don't make sense together, so I think 
that is something on which the SEC really has to focus.
    Because I have a little bit of time left, I want to move 
over on to the changes to Bulletin 14L. How do you justify the 
shift? How does the SEC justify the shift in their position? 
Did they study how the increased number of ESG proposals would 
affect shareholder value and the ability of corporations to 
make efficient and effective business decisions?
    Mr. Gerding. I think you are referring to Staff Legal 
Bulletin No. 14L?
    Mr. Garbarino. Yes.
    Mr. Gerding. Congressman, that is informal views of the 
staff as we conduct our shareholder review process. It is not 
legally binding. It is not a rule or a notice. It is not a 
notice-and-comment rulemaking.
    Mr. Garbarino. How much discretion do staff members have 
when they are determining whether something is exempt?
    Mr. Gerding. I think you are asking about the informal 
shareholder review process----
    Mr. Garbarino. Yes.
    Mr. Gerding. ----that we have. That is driven by 
professional career staff. It is something that offers informal 
views to both management and shareholder proponents as 
management elect to seek a shareholder--I'm sorry no action 
from the----
    Chairwoman Wagner. The gentleman's time has expired. You 
can respond in writing with the rest of your answer.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman, and thank you for 
holding the hearing. Let me just take a few seconds to 
associate myself with the earlier comments of my colleague from 
California, who talked about the impact of weather. The 
projected temperature today in Phoenix is 115, going into the 
12th day above 110. And I am going to go around the country, 
and frankly, around the world to point out how the weather is 
dramatically and dangerously changing. But let me go on to 
another issue about which I am very concerned.
    My colleague, Blaine Luetkemeyer, and I sent a letter to 
the SEC on May 23rd, to Chair Gensler, on this issue you 
addressed a bit earlier, Section 27B, the one my colleague 
raised a few minutes ago. And we sent a letter in May to raise 
the concern that mortgage insurance-linked notes could be 
interpreted, as has been suggested, to be a conflict of 
interest under this rulemaking.
    After hearing from a number of housing organizations, 
mortgage insurance-linked notes are used by mortgage insurers, 
they believe, to disperse concentrated risk and provide 
protections against elevated losses. And I don't believe that 
they are the sort of transactions the rule is targeting, but 
given the fact that the Division of Corporation Finance 
oversees the Office of Structured Finance Responsibility, for 
the rule, have you had any time or have you spent any time with 
your staff to work through these concerns raised by Congressman 
Luetkemeyer and myself?
    Mr. Gerding. Congressman, thank you for that. I have read 
your letter and the letter that you co-wrote with 
Representative Luetkemeyer, and we have put it in the comment 
file for that rule. We have read a number of comments and heard 
a number of concerns, including the ones that you have 
expressed. I will note that I don't want to pre-judge the 
particular facts until I fully understand them, but I am not 
sure that the particular financial product that you are 
mentioning would, in fact, be covered by the rule. And we will 
carefully consider your comments and all comments as we address 
those particular concerns, including on the scope of the rule.
    Mr. Cleaver. Obviously, I have a lot of concerns about 
housing and real estate, the real estate industry as it relates 
to this rulemaking. But I think I can speak for Mr. Luetkemeyer 
when I say that we would be very much interested in sitting 
down with you or even having members of our staff sit down with 
your staff to do some final discussions before the publication 
of the final rule. Is it possible that we can have some kind of 
conversation on that rule?
    Mr. Gerding. I would be happy to meet with your staff. I 
would have to work with our Office of Legislative Affairs, and 
we may have to put together a memo, a little file, obviously, 
if we are considering facts or data on the rule, but I assume 
that you and Representative Luetkemeyer would be comfortable 
with that.
    Mr. Cleaver. Yes, I believe we would. Mr. Chairman, I yield 
back.
    Mr. Garbarino. [presiding]. The gentleman yields back. The 
Chair now recognizes the gentleman from New York, Mr. Lawler, 
for 5 minutes.
    Mr. Lawler. Thank you, Mr. Chairman. Staff Legal Bulletin 
No. 14L explains that the SEC has shifted its focus from the 
materiality of a shareholder proposal of a company to the 
social policy significance of the issues. This change has made 
it significantly easier for politically-motivated proposals to 
be included in annual proxy statements. The result is clear, as 
we have seen a 51-percent rise in environmental proposals, a 
20-percent increase in social proposals, and a 25-percent 
decrease in companies seeking no-action relief. By focusing on 
costly non-material ESG issues at the expense of sound 
financial regulation, this shift detracts from the primary 
purpose of public markets: to enable companies to raise capital 
and foster economic growth.
    Mr. Gerding, Staff Legal Bulletin No. 14L states that 
certain exclusions under Rule 14a-8 should not apply to a 
proposal that staff determines to be significant social policy 
issues, regardless of whether the issue has a nexus to the 
business: ``For these reasons, staff will no longer focus on 
determining the nexus between a policy issue and the company, 
but will instead focus on the social policy significance of the 
issue that is subject to the shareholder proposal. In making 
this determination, the staff will consider whether the 
proposal raises issues with the broad societal impact such that 
they transcend the ordinary business of the company.''
    Under this aligned approach, proposals that the staff 
previously viewed as excludable because they did not appear to 
raise a policy issue of significance for the company may no 
longer be viewed as excludable under Rule 14a-8. You say this 
is informal, not a big deal, but yet, this obviously is having 
a dramatic impact. Can you explain to this committee two or 
three criteria that the Division of Corporation Finance uses to 
determine whether an issue has a broad societal impact?
    Mr. Gerding. Congressman, when you refer to Staff Legal 
Bulletin 14L, that was reverting to a previous position that 
the staff had taken and had followed for several decades of not 
tying that particular inquiry to a particular company, and we 
believe that is consistent with the Commission's statements in 
that regard. So, we were reverting to earlier views and 
earlier----
    Mr. Lawler. Okay. That is wonderful, but I asked you a 
different question. I asked you, what criteria you use to 
determine whether a particular issue has a broad societal 
impact? Who elected you to determine a broad societal impact?
    Mr. Gerding. Congressman, the overall inquiry there that 
the staff engages in a non-political way in formulating 
informal----
    Mr. Lawler. In a non-political way? Are you kidding? Come 
on, let's be real here. This has been entirely political. And 
again, I asked you a question: What criteria do you use to 
determine a broad societal impact? Stop trying to circumvent 
the question. Answer it directly.
    Mr. Gerding. Congressman----
    Mr. Lawler. What criteria?
    Mr. Gerding. Congressman, in formulating the career staff's 
informal views on particular grounds for exclusion, the staff 
considers whether a particular matter has become a question of 
widespread public debate.
    Mr. Lawler. Who are you to determine what has become 
widespread public debate? Did you run for elected office?
    Mr. Gerding. I am not an elected official, Congressman.
    Mr. Lawler. Right.
    Mr. Gerding. I am here to carefully follow our statutory 
authorities, including protecting investors and promoting 
capital making.
    Mr. Lawler. So, what statutory authority do you have to 
determine broad societal impact? What criteria are you using to 
determine that?
    Mr. Gerding. Congressman, when the Commission's career 
staff are looking at the ordinary management grounds for 
exclusion, we are carefully considering Rule 14a-8. We are 
carefully considering----
    Mr. Lawler. You are having exceptions for it based on some 
undefined criteria that you still can't explain.
    Mr. Gerding. Again, Congressman, the criteria that we are 
looking for and offering informal views on is whether a matter 
has become a subject of widespread public debate, and the 
current----
    Mr. Lawler. Give me an example of one.
    Mr. Garbarino. The gentleman's time has expired. The Chair 
now recognizes the gentleman from Iowa, Mr. Nunn, for 5 
minutes.
    Mr. Nunn. Thank you very much, Mr. Chairman, for calling 
today's hearing and for the groups on both sides of the aisle 
who have, I think, some legitimate concerns here.
    My colleagues and I protect the interests of everyday 
retail investors and foster a competitive capital market system 
that upholds market integrity and maximizes the opportunity for 
all Americans, including those Iowans in my district, not just 
to uphold their wealth, but to make sure that they are able to 
be successful in their long-term retirement planning and 
investment decisions.
    Since the 1990s, the cost of entering the U.S. public 
market has doubled, leading to a two-thirds decrease in the 
number of companies that have chosen to go public with an 
initial public offering (IPO). In contrast, our foreign 
adversary, China, has seen a significant IPO increase, 
contributing to its global competitiveness. I would offer that 
the rogue SEC and its overregulation has as many as 52 
rulemaking proposals pending, none of which deal with 1 of 3 
three missions, facilitating capital formation. Instead, this 
SEC before us has prioritized increasingly-costly regulatory 
and disclosure obligations, making our U.S. capital markets 
less attractive.
    Let's start from the bottom up here. In our overall 
perspective, the SEC rules are not only overly burdensome, 
particularly to small businesses and Main Streets, as I shared 
with Mr. Scott here concerns about our family farms, our local 
ranchers, but it is also allowing foreign-owned proxy 
companies, which make up over 97 percent of the market space, 
to overwhelmingly have a voice in America's retirement 
portfolios. And as we have seen, politically-motivated 
portfolios have, in general, a 14-percent less return on 
investment than those that are market-driven.
    Mr. Gerding, in your opinion, will small businesses like 
the ones I just highlighted, that are not registered with the 
SEC and have never had any business dealings with the SEC, be 
compelled to collect and submit information to the BDC as a 
result of the proposed Scope 3 requirements?
    Mr. Gerding. Congressman, the climate risk disclosure 
proposal, again, only requires public disclosure from publicly-
registered companies. That being said, we have heard companies 
express comments in the comment file on the scope of the Scope 
3 requirement, including impacts on----
    Mr. Nunn. And wouldn't you agree that those businesses 
would face additional costs because of this new regulation?
    Mr. Gerding. Congressman, the climate risk disclosure 
proposal includes an extensive economic analysis of all aspects 
of that proposal. We solicited----
    Mr. Nunn. Would they be paying more as a result of having 
to meet your regulatory requirements?
    Mr. Gerding. As I mentioned, the economic analysis, what we 
often call the EA----
    Mr. Nunn. Mr. Gerding, we recognize that there will be an 
increased burden on small businesses, particularly the first 
time out there, correct?
    Mr. Gerding. The economic analysis solicited comments on 
that economic analysis----
    Mr. Nunn. I understand you asked for their feedback, and 
they said overwhelmingly that it will create an increased 
burden for them. I am going to move on to my next question, 
since you are non-responsive on the first. In your opinion, how 
many of our rulemaking proposals are specifically focused on 
capital formation?
    Mr. Gerding. Congressman, all of our rule proposals focus 
on all aspects of our statutory----
    Mr. Nunn. I want to follow up with a speech given by then-
SEC Commissioner Allison Lee, who argued in favor of highly-
malleable interpretations of the SEC's material standard. She 
said, ``The idea that the SEC must establish the material for 
each specific piece of information required to be disclosed in 
our rules is legally incorrect, historically unsupported, and 
inconsistent with the needs of modern investors.'' Do you share 
former Commissioner Lee's views regarding the material 
standard? Yes or no?
    Mr. Gerding. Congressman, I don't have that speech in front 
of me. I wouldn't know that any time a Commissioner speaks or 
an Acting Chair speaks, she----
    Mr. Nunn. You have supported her in the past. Have you 
changed your position on this?
    Mr. Gerding. The view of materiality that my Division 
follows is, as I mentioned to one of your colleagues earlier, 
the same definition of materiality that the Supreme Court has 
articulated. That is the definition that animates and guides 
all of our rulemakings.
    Mr. Nunn. Regulation S-K requires that companies provide a 
discussion of the material factors that make an investment 
speculative or risky, yes. Can you explain why after less than 
2 months on the job, Chair Gensler sought to overhaul the 2020 
adopted rule, issued a redo proposal, changing from Chairman 
Clayton's tenure?
    Mr. Gerding. Congressman, as I noted to one of your 
colleagues earlier, there are important provisions of the 2020 
rule that remain in effect. Proxy voting advisory business----
    Mr. Nunn. Thank you, Mr. Chairman. I yield back the 
remainder of my time.
    Mr. Garbarino. The gentleman's time has expired. I would 
like to thank our witness for his testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, 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 this witness and to place his 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.
    This hearing is adjourned.
    [Whereupon, at 11:43 a.m., the hearing was adjourned.]

                            A P P E N D I X

                             July 18, 2023
                             
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