Republicans Plan to Scrutinize SEC, Companies Following Midterms

In a bid for control in the November midterms, last week House Minority Leader Kevin McCarthy, R-Calif., launched the four-part GOP agenda entitled “The Republican Commitment to America.” Items on the agenda include “conduct rigorous oversight of government” and “stop companies from putting politics ahead of people.” Republicans are expected to closely scrutinize rulemaking by the SEC and to investigate corporations for their support of ESG principles which they view as political and in alignment with Democratic initiatives. 

Just last week the top ranking Republicans on several House committees sent a letter to SEC Chair Gary Gensler demanding he provide Congress with the clear authorities delegated to the Commission that justify its current and upcoming rulemakings. The letter is in response to the Supreme Court’s ruling in West Virginia v. EPA that held that government agencies must have a clear directive from Congress before engaging in major rulemaking. If Republicans win the majority, they certainly cannot prohibit Chair Gensler from pursuing rulemaking. However, they can slow down the Commission’s process by calling Chair Gensler to testify before Congress to justify rulemaking the Commission is undertaking. 

The SEC is not the only group that will face pressure from the GOP. If the GOP retakes the majority in the House of Representatives they plan to launch investigations into the U.S. Chamber of Commerce and many of its largest member corporations for endorsing ESG principles. Congressional conservatives argue that companies that follow ESG principles are breaking with their fiduciary duty to maximize profits for investors. Some GOP lawmakers have accused major oil companies and financial institutions of being too “woke” through their support of ESG initiatives that align with Democratic priorities. As a result, companies should be on the alert that ESG efforts will be under a microscope and company representatives may be called before the House of Representatives to justify ESG criteria and disclosure.

As of this publication, the Republican party is favored to win the majority in the House of Representatives. If the GOP takes control in the midterms, anti-ESG legislative proposals will be priority in the 118^th Congress and will likely pass out of congressional committee. However, chances of enactment of legislation into law are not likely as President Biden is expected to veto such efforts. As a result, GOP oversight of the new SEC climate proposal that would require publicly traded companies to disclose climate risks and greenhouse gas emissions and investigations into corporations’ ESG initiatives promises to be intense.