SEC extends comment period for climate disclosure proposal

Yesterday, the SEC announced that it had extended or reopened the public comment period on three proposals, including the proposed rulemaking to enhance and standardize climate-related disclosures. (See this PubCo post, this PubCo post and this PubCo post.) The comment period was originally scheduled to close on May 20, 2022, but will now be extended until June 17, 2022. (And rumor has it that the SEC will often accept comments submitted within a reasonable time after the deadline.) According to SEC Chair Gary Gensler, the proposal had “drawn significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders….Commenters with diverse views have noted that they would benefit from additional time to review these three proposals, and I’m pleased that the public will have additional time to provide thoughtful feedback.” For example, in April, 36 trade and industry associations asked the SEC to provide a 180-day comment period, contending that, “given the size, scope, complexity, and ramifications of the rule,“ the time period allowed for comment was “woefully inadequate for the magnitude of this rule, which runs to 506 pages, contains 1,068 footnotes, references 194 dense academic and governmental reports, imposes a $10.235 billion cost on society, and seeks answers to 196 discrete questions.“ While the extension will certainly be welcome, will it be considered sufficient?

The SEC has recently come under fire for the length—or lack thereof—of the public comment periods associated with rulemaking proposals.  As reported by Center Forward, during the Obama administration, an executive order advised agencies that, to promote an open exchange of ideas, agencies should provide comment periods for new rule proposals “that should generally be at least 60 days.” The article indicated that, under former SEC Chair Mary Jo White, 82% of proposals had a 60-day comment period, 76% had a 60-day comment period under former Chair Jay Clayton, but under Gensler, only 11% allowed 60 days for comment. Initially, the SEC under Gensler provided only 30-day comment periods (after the date of publication in the Federal Register, but, after feeling some heat, the comment periods were extended to the greater of 30 days after publication in the Federal Register or 60 days after posting the notice of proposed rulemaking on the SEC’s website. According to the article, the rule proposals with 30-day comment periods issued under Gensler were “published in the Federal Register, on average, 13 days after being posted on the SEC website. Thus, applying the ‘whichever is greater’ standard to those rule proposals would have resulted in only 17 additional days, on average, for public comment on each rule.”

One current and one former Republican SEC Commissioner previously expressed their dismay about the abbreviated comment periods. In this statement in December 2021, Commissioner Hester Peirce objected that the comment periods were too short to allow for thorough analysis, including identification by commenters of possible unintended negative consequences of proposed rules. In her view, the

“regulatory conversation flows only when the Commission affords the commenting public sufficient time both to review and analyze proposals thoroughly and to formulate fully articulated opinions and suggestions. Analyzing a multi-hundred page rulemaking in the context of intricate markets and an already complicated set of securities and other relevant laws is not an easy task. Such analysis takes time. Thirty days is typically not enough time to get feedback on a rule proposal…. For complicated rulemakings or at times when we have many rulemakings outstanding simultaneously, 90-day comment periods are likely more appropriate. Short comment periods are particularly problematic when they coincide with holidays, end-of-year operational obligations, or other periods in which commenters’ staff are likely to be unavailable or occupied with other time-sensitive obligations.”

Shortly thereafter, then-Commissioner Elad Roisman expressed similar views, contending that a 45-day comment period was too short:

“Not only is 45 days shorter than our customary comment periods, which have typically been 90 or at least 60 days, these brief comment periods fall over the course of several major holidays.  They also overlap with comment periods for five other proposed Commission rules.  If the Commission votes to propose all four of the new proposals which we are considering at this meeting, the public will be left with hundreds of questions on which we are seeking input in this short amount of time.  I worry that we are not allowing enough time to receive the substantive kind of feedback we will need from the many types of market participants whom these rules will affect in order to adapt each of these proposals into workable rules.”

And in January of this year, the ranking member on the House Financial Services Committee, Patrick McHenry, and the ranking member on the Senate Banking Committee, Pat Toomey, sent a letter to Gensler raising concerns about rulemaking proposals made during his tenure that “have consistently provided unreasonably short comment periods, which will harm the quality of public comment and may run afoul of the Administrative Procedure Act.” The letter requested that the SEC “remedy this disturbing and unprecedented pattern—which contradicts executive orders from both Democratic and Republican administrations meant to encourage deliberative rulemakings—by  extending the comment period of all proposed rulemakings that have been released during your time at the SEC.”

The WSJ suggests that “progressives who support Mr. Gensler say much of the criticism about comment periods has come from groups that oppose the SEC’s proposals for other reasons.” These groups, they say, consider “the tight deadlines and the blitz of roughly two dozen rules the SEC has proposed in the past six months [as] a strategy designed to limit industry groups’ ability to organize opposition in Washington.” Nevertheless, the WSJ points to a bipartisan letter from members of Congress encouraging Gensler “to triple the comment period for a proposal that would place new requirements on hedge funds and private-equity firms.”

As reported by the WSJ, Gensler has “justified the shorter comment periods by noting that the Federal Register sometimes takes weeks to publish SEC rules. For instance, the SEC issued its proposal to regulate more Treasury-bond trading platforms on Jan. 26 with a 30-day comment period. In practice, the comment period remained open until April 18.” And during a virtual event in January of this year, Thomson Reuters reported, Gensler defended the shortened comment periods as a type of “discipline.”  In response to a question from the executive vice president of the Center for Capital Markets Competitiveness of the Chamber of Commerce, Gensler contended that

“‘[i]t’s really important to get the public feedback, but it’s also really important to move on, get that feedback and then have the staff—first step after the comment period closes—to do a comment summary file….Every regulatory agency does this. It has to read through, sometimes it’s two dozen comments, sometimes it’s thousands of comments. And so, it’s a discipline, just start the next stage of the work and help the staff move on, and sometimes a comment comes in a day later, three days late, we are still working on it.’ He emphasized that it is important to move to the next step in the rulemaking process to determine whether the SEC should repropose, modify, or adopt the proposed rules based upon the feedback.”