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GOP will look to defang SEC, DOL regulations

Democrats have narrowly controlled both chambers of Congress for nearly two years, but with polls tightening and early voting underway in some states ahead of the Nov. 8 midterm elections, that control could change hands come January.

If the House or Senate were to flip to Republicans, rule-making efforts underway at the Securities and Exchange Commission and Department of Labor, particularly around environmental, social and governance investing, will become infinitely more painful, sources said.

Democrats currently have a 220-212 seat majority in the House (there are three vacancies) and the Senate is split 50-50 with Vice President Kamala Harris, who serves as president of the Senate, tipping control to Democrats.

The pain could come in the form of added oversight — mostly congressional hearings and document requests.

Elected Republicans have criticized rule proposals from the Labor Department and SEC that fall under the ESG umbrella.

The Labor Department in October 2021 proposed a rule that would explicitly permit retirement plan fiduciaries to consider climate change and other ESG factors when selecting investments and exercising shareholder rights.

The proposal garnered mostly support from asset managers, and in October, a final version of the rule was sent to the White House’s Office of Management and Budget for review, indicating its forthcoming publication.

At the SEC, Chairman Gary Gensler has led an ambitious rule-making pace — the agency currently has more than 50 rule proposals on its agenda — but the most talked-about proposal would require public companies to disclose a host of climate-related information in their registration statements and periodic reports. The proposal, released in March, has broad backing from institutional investors and asset managers, but will likely be challenged in court by the business community.

If Republicans win control of the House and/or Senate, those rule-making initiatives, among others, would come under intense scrutiny, sources said.

“From an oversight perspective, (Republicans) would now be asking questions from a position of authority that the Biden administration would have to respond to more robustly than they do now,” said Bradford P. Campbell, a Washington-based partner at law firm Faegre Drinker Biddle & Reath LLP and former assistant secretary of labor for Employee Benefits Security Administration during President George W. Bush’s administration. “That lends lots of opportunities for Congress to try to change the direction of the department or make it particularly hard to deal with that oversight.”

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