Gensler Lags Predecessors in SEC Rulemaking as ESG Plans Linger

The SEC under Chair Gary Gensler is issuing regulations at its slowest pace in decades for a new presidential administration, risking leaving climate disclosure rules and other planned ESG reporting priorities unfinished.

The Securities and Exchange Commission has adopted only 22 rules since Gensler became the agency’s leader in April 2021, according to a Bloomberg Law analysis. The tally was higher at the same point for the first SEC chairs of every administration since at least George W. Bush’s presidency, though Gensler is closing the gap.

Gensler has less than a year and a half before Republicans could take control of the SEC in a new administration, raising expectations the commission intends to finalize a flurry of environmental, social and governance regulations and other rules in the coming months. He has proposed 49 rules, 21 more than his Trump administration predecessor in the same period.

Legal and congressional threats to derail Gensler’s plans for corporate greenhouse gas emissions reporting, workforce disclosures and other rules are growing as 2025 nears, with the possibility of a GOP-controlled government.

“That’s clearly a problem,” Bartlett Naylor, financial policy advocate at progressive activist group Public Citizen, said of the risk to Gensler’s ambitious agenda. “We just have to hope that America is wiser than it was in 2016.”

Gensler is proud of the SEC’s work, an agency spokesperson said.

“He’s focused on getting things right—based upon the economics, the Commission’s legal authorities, and promoting the SEC’s mission—not the clock,” the spokesperson said in a statement to Bloomberg Law.

Clock Ticking

Trump’s win in 2016 ushered in Jay Clayton as the SEC’s chair. The right-leaning independent finalized 25 rules in the same amount of time Gensler has led the SEC. Mary Schapiro. President Barack Obama’s first SEC chair, finalized 28 rules during the same length of time. Harvey Pitt finished 34 as Bush’s inaugural chair.

Clayton’s work included the release of Regulation Best Interest, the 2019 broker conflict-of-interest rule that helped define his chairmanship. The industry-backed regulation requires brokers to act in their clients’ best interest, which investor advocates have said is weaker than investment advisers’ fiduciary requirement to put customers’ interests first.

The climate disclosure rule—poised to become Gensler’s marquee regulation—is expected this fall. The SEC is aiming to adopt the rule by October, a year after an October 2022 completion date the agency initially targeted, according to commission rulemaking agendas. President Joe Biden’s 2020 campaign climate plan included a pledge to require “public companies to disclose climate risks and the greenhouse gas emissions in their operations and supply chains.”

When the SEC released a draft proposal of the plan in March 2022, several business interests and about two dozen Republican state attorneys general threatened legal action if it moved ahead. The agency’s plans to require big companies to disclose the Scope 3 emissions from their supply chains and other indirect sources are a major point of contention.

Gensler has said he’s heard concerns “loud and clear.” But the chair has declined to say how the climate disclosure proposal may change before it’s finalized—or confirm whether October is a realistic target for finishing it.

Gensler still appears to have Biden’s confidence as the chair pursues his agenda. SEC chairs serve at the president’s pleasure, even though they lead an independent agency.

“The SEC is continuing to fulfill its mission to protect investors and consumers, facilitate capital formation, level the playing field among firms, and maintain fair and resilient markets,” White House spokesperson Michael Kikukawa said in a statement.

Risky Strategy?

Time may be running out for the SEC to defend a climate rule against lawsuits, if Republicans take control of the agency in January 2025.

Prospective court challenges to a final rule are unlikely to be resolved by then. A Republican-led SEC would have the power to end its defense of the rule, though litigation could continue. The Sierra Club and Earthjustice are strongly considering defending the regulation in court. They also may sue the SEC, if its rule is weaker than what the agency proposed.

A final climate rule also faces a different challenge if the SEC punts the regulation too far into next year. A federal law, the Congressional Review Act, would let a Republican-controlled House and Senate in the next Congress quickly revoke regulations the SEC and other agencies issued in late 2024, if they avoid a presidential veto.

Gensler only has to finalize the climate rule within about a year to sidestep the Congressional Review Act, however. Other agenda items are more likely to encounter that challenge if they’re in the earlier stages of the rulemaking process.

One such agenda matter is a plan to require companies to report more details about their workforces. The SEC is looking to release a formal proposal by October. But the agency usually takes at least a year to turn a proposal into a rule, increasing the risk of a Republican Congress easily overturning it under the CRA.

The list of rules already proposed under Gensler and waiting to become final is more than two dozen items long. They include proposals to combat ESG fund greenwashing and stem conflicts of interest for Wall Street firms using artificial intelligence with their customers, in addition to climate disclosures.

Gensler has faced concern from Republicans and the business community about the number of proposals he’s released so far.

Others have cited a risk of unintended consequences from the SEC’s actions. A 2022 report from the SEC’s then-acting inspector general, Nicholas Padilla, found Gensler’s rulemaking approach was too rushed and could hurt the agency’s health.

The Securities Industry and Financial Markets Association, a Wall Street trade group, has warned its members about what it says is Gensler’s “far-ranging and aggressive rulemaking agenda,” projecting that he’s on track to propose and finish 65 rules. (Bloomberg Law is an affiliate of Bloomberg LP, which is an associate member of SIFMA.)

Tyler Gellasch, president and CEO of investor advocacy group Healthy Markets Association, said he’s hopeful Gensler’s rush to propose rules and caution at adopting them quickly will lead to stronger regulations.

“There’s risks with this strategy,” said Gellasch, who was a counsel to former Democratic SEC Commissioner Kara Stein. “But the reward is that they have a more informed rulemaking that’s more likely to withstand legal challenge.”

Busy Months Ahead

Gensler came to the SEC with a reputation as an aggressive rule-maker, earned as the chair of the Commodity Futures Trading Commission after the 2008 financial crisis. The 2010 Dodd-Frank Act required the CFTC to issue more than 60 rules in response to the economic downturn. Gensler finished most before he left in 2014.

Bloomberg Law reviewed SEC records from 2001 to 2023 to determine the number of final rules and proposals the SEC released in the first two years, four months and one week into the tenures of Gensler, Clayton and Schapiro, who were confirmed to lead the agency at the start of a new administration.

The review also covered Pitt, who led the SEC at the beginning of the George W. Bush administration, but served less than two years. (Schapiro is now vice chair for global public policy at Bloomberg LP, and special adviser to Michael Bloomberg.)

The final rules don’t include technical amendments, corrections and other rules that were issued without first seeking public comment. Some are based on proposals released under previous chairs. The proposals were counted by skipping the reopening of comment periods, extensions of comment periods, releases of supplemental information for comment and corrections.

Despite trailing his recent predecessors on final rules, Gensler’s proposal tally of 49 exceeds Clayton’s 28 and Pitt’s 48, but is less than Schapiro’s 65.

Schapiro’s active rulemaking agenda came after the 2008 financial crisis and included Dodd-Frank mandates. Pitt’s high numbers on both proposals and final rules came during a tenure that included Enron’s collapse and the 2002 Sarbanes–Oxley Act, which sought to bolster accounting rules after the company’s downfall.

The SEC has no mandates like Sarbanes–Oxley or Dodd-Frank to drive Gensler’s agenda, said former Republican SEC Commissioner Paul Atkins, who served with Pitt.

“He’s coming up with these proposals,” said Atkins, now CEO at consulting firm Patomak Global Partners. “A lot of them are very much overreaching.”

The SEC’s two sitting Republican commissioners, Hester Peirce and Mark Uyeda, have opposed much of Gensler’s rulemaking agenda. But their resistance is unlikely to stop Gensler, if he continues to have the support of the SEC’s two other Democratic commissioners, Caroline Crenshaw and Jaime Lizárraga.

Peirce said she’s bracing for busy months ahead.

“When he puts something on the agenda, it’s not on there for fun,” Peirce said about Gensler. “It’s something that he’s actually looking at doing.”