ESG and enforcement seen as potential Gensler targets

Jan 21, 2021
Pick to lead SEC viewed as having track record as firm regulator

ESG-related reforms and tougher enforcement are among the potential items on the agenda for Gary Gensler, President Joe Biden’s pick to lead the SEC, according to observers.

The new administration’s official White House website states that ‘President Biden will take swift action to tackle the climate emergency.’ One area where governance professionals say that action could manifest itself is in rules on corporate disclosures regarding climate risks. Investors are increasingly pressing companies to release such information and many are already doing so.

Law firm Linklaters states in a recent notice: ‘Biden will take action to require public companies to disclose climate risks and greenhouse gas emissions in their operations and supply chains. Former SEC chairman Jay Clayton took a principles-based approach to recent amendments to the SEC’s disclosure rules, generally avoiding mandating ESG disclosures. However, it is expected that the SEC will institute broader rulemaking and guidance on the federal monitoring of ESG Issues under the new administration.’

If Gensler approaches this issue, he will likely have support on the commission. For example, SEC member Allison Herren Lee has suggested the agency should help create standards for banks to release information about the climate-change risks that associated with their decisions to finance companies and their activities.

ESG issues are not the only area where Gensler may be focused. Bryan Cave Leighton Paisner partner Ashley Ebersole says there are clues in Gensler’s previous roles. As chair of the Commodity Futures Trading Commission (CFTC), he was involved in implementing rules governing the complex swaps market following the financial crisis.

‘His regulatory approach to swaps is a good indicator of how he may approach more esoteric instruments at the SEC, including digital assets,’ Ebersole says. ‘This would be a positive development for those who believe the lack of regulation is hampering growth of the digital asset space.’

Ebersole says that, as chair of the Maryland Financial Consumer Protection Commission, Gensler focused on beefing up consumer protections, including standards of conduct and care for regulated entities.

‘We could see initiatives around ESG and we may also see an attempt to strengthen the fiduciary obligations owed to investors,’ Ebsersole tells IR Magazine sister publication Corporate Secretary. ‘I would not be surprised if we see an uptick in enforcement around regulated entities on Wall Street.’

Senator Elizabeth Warren, D-Massachusetts, also welcomes Gensler as Biden’s pick, tweeting: ‘Gary Gensler and I worked together after the 2008 crisis to hold Wall Street accountable. He is a tenacious regulator who stood up to the industry titans to rein in their risky behavior. He will be an excellent SEC chair during this economic crisis.’

In a statement, Americans for Financial Reform executive director Lisa Donner says: ‘Gary Gensler has a strong track record from his time at the [CFTC] of being willing to take on powerful industries. Under his leadership, this small and underfunded agency led the way to the first comprehensive regulation of US over-the-counter derivatives markets, despite heavy opposition from industry lobbyists. Gensler will need to bring the same spirit and drive to the even greater task of bringing needed reform to the [SEC].’

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