Rep. Vargas Remarks at House Financial Services Committee Hearing on SEC Climate Disclosure Rule
WASHINGTON - At a House Financial Services Committee hearing today, U.S. Representative Juan Vargas (CA-52), co-chair of the Congressional Sustainable Investment Caucus, voiced strong support for the U.S. Securities and Exchange Commission’s (SEC) recently finalized climate disclosure rule.
“Climate change is happening no matter what people think. I'm from San Diego, and you don't think of floods… and we just had a gigantic flood in San Diego, a 1,000-year event. And it flooded a good portion of San Diego, we had all these problems, something we normally don't get,” said Rep. Vargas. “This stuff is real. Investors know it, companies know it, the information is there, they should disclose it. And that's what this rule attempts to do.”
Last year, Reps. Vargas and Sean Casten (IL-06) founded the Congressional Sustainable Investment Caucus to create a forum to protect Americans’ freedom to invest while increasing the information available to market participants about the risks posed by climate change.
Rep. Vargas’s Corporate Governance Improvement and Investor Protection Act, which passed the House in the 117th Congress, encouraged corporations to address important issues such as climate change and worker rights by requiring the SEC to create standard definitions for environmental and social responsibility metrics. The bill also included language from Rep. Casten’s Climate Risk Disclosure Act that required public companies to disclose additional information about their exposure to climate-related risks.
A rough transcript of an excerpt from Rep. Vargas’s remarks and questions for witness Professor Jill E. Fisch, University of Pennsylvania Law School Saul A. Fox Distinguished Professor of Business Law, is available below.
Rep. Vargas:
In your view, how was the rule consistent with the SEC’s three-part mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation?
Professor Fisch:
Thank you. So as my written testimony details, this is information that investors have been demanding, this is a small tip of the information that investors have been demanding with respect to business risks, sustainability challenges for companies, and it responds to the long-standing information asymmetry. Companies have this information, investors don't.
And that information asymmetry, reducing that information asymmetry, is what produces more efficient markets so that investors can choose the companies in which they want to invest, so they can evaluate whether a business plan is resilient for the future, and so they can evaluate the quality of management.
And something we haven't really focused on today is investors do that not just by buying and selling securities, they also do that through exercising their governance rights. And part of the SEC's mandate is to provide meaningful disclosure so that investors can vote, so that they can vote to elect directors who are monitoring material risks, so that they can vote for or against shareholder proposals based on how well they think the company is doing. And how does that facilitate capital formation? Well, obviously, if you've got strong quality markets, that's going to make it easier for companies to raise capital. And that's going to tailor the costs of capital to a company's business plan. And we see that in the fact that so many companies come to the U.S. capital markets to raise capital.
Rep. Vargas:
Now, I do want to say this, you talked about the corporations, a lot of these corporations do in fact, collect this information, as you said, because they think it's real… The reality is that they do compile this information because it’s important.
And climate change is happening no matter what people think. I mean, I'm from San Diego, and you don't think of floods and San Diego, we just had a gigantic flood in San Diego, a 1,000-year event. And it flooded a good portion of San Diego, and we had all these problems, something we normally don't get. Now you can't buy insurance in large parts of California, because of climate change.
This stuff is real. Investors know it, companies know it, the information is there, they should disclose it. And that's what this rule attempts to do.
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