Gensler says the disclosures are grounded in material factors affecting investors' decision-making, though the disclosures will stop short of Scope 3 –– supplier and customer emissions. Democrats have signaled the rule doesn't go far enough without Scope 3, but Gensler explains the area is "less developed," with fewer issuers making the information available. Despite nine Republican-led states mounting a lawsuit against the rule, Gensler is "confident" the Commission can withstand the pressure, adding that it is "agnostic" on climate.
"We really stayed within, if I can use a tennis analogy, our chalk lines. Congress lays out a certain approach. And that's what we're doing. I would also note, if I could, how important it is to stay within one's chalk lines. That's when the confidence in our markets comes from a securities agency, SEC, that oversees $110 trillion capital markets and that we stay focused on investors' needs, what investors -- how they're making their decisions and that they get what President Roosevelt said was complete information, truthful information about those companies. That's what we did here."
So through a process called notice and comment rulemaking, we put out a proposal. We got 24,000 comments on it. And we finalized that rule this week.
Just as we've done for decades, it's grounded in this concept of materiality, that which is material to investors, a reasonable investor taking it into consideration for their investment decisions. You're asking about greenhouse gas emissions. We require in this rule a requirement that companies, larger companies, disclose so-called scope 1-- this is their own emissions-- so-called scope 2, the emissions about their energy purchases.
You're now going to a separate topic, is so-called scope 3, the emissions of their suppliers and their customers. And as we had said at the proposal stage, this area wasn't as developed. Fewer companies right now, fewer issuers are making such information available.
And we got a lot of comments that a lot of investors find it helpful to use this information, but we chose at this time not to have a requirement or rule. Companies could still make the disclosures. They could put the information out, but we really focused on that which was material around scope 1 and scope 2 for the larger filers, as well as some really important disclosures around how companies are managing material climate risk.
JENNIFER SCHOENBERGER: Democrats have said that the rule doesn't go far enough because of the elimination of scope 3. Would you ever consider adding that in at some point in the future?
GARY GENSLER: Well, again, we're a securities regulator. We are not a climate regulator. And we are agnostic as an agency as to the merits of particular investments.
That's how Congress laid out our authorities. In terms of developments in the market, we try to update our rules based upon developments in the market. So 14 years ago, my predecessor, who sat in this very office, Chair Shapiro, Mary Shapiro, she and that commission put out guidance how the then existing rules would be applicable to disclosure of climate risk.
14 years later, we've put in place the first actual rule for such disclosure. It will be for future commissions to consider whether to make adjustments to this, again, though, grounded in materiality, that which a reasonable investor finds important or significant for their investment decisions, buying and selling securities, voting, agnostic as to climate.
JENNIFER SCHOENBERGER: Democrats don't think you've gone far enough. On the flip side, nine Republican-led states now are mounting a lawsuit against this rule. The US Chamber of Commerce reportedly considering litigation, so is the Sierra Club, so coming from multiple sides. Do you think this rule can withstand court challenges?
GARY GENSLER: I feel very confident in the work of the staff and the work of the commission. We really stayed within, if I can use a tennis analogy, our chalk lines. Congress lays out a certain approach, and that's what we're doing.
I would also note, if I could, how important it is to stay within one's chalk lines. That's when the confidence in our markets comes from a securities agency, SEC, that oversees $110 trillion capital markets and that we stay focused on investors' needs, what investors-- how they're making their decisions and that they get what President Roosevelt said was complete information, truthful information about those companies.
That's what we did here. We've done this decade after decade. We've updated rules in the 1970s about environmental disclosures, risk factors, management discussion and analysis. And each time we've updated it, there's been lots of debate.
And there'll be some people that are disappointed across the spectrum. But of course, there's debate. We've got 24,000 comments. You would imagine that there's differences of points of view. And--
JENNIFER SCHOENBERGER: Do you think that over the next 10 years-- I know you're not a climate regulator, but do you think over the next 10 years that climate change could pose the risk of safety and soundness for publicly traded companies broadly or perhaps more narrowly, given the nature of a company's business?
GARY GENSLER: Again, it doesn't matter what I think. It's investors. Investors have asked for and have needed this information in their investment decisions. And just in the 14 years since my predecessor, Chair Shapiro, had put out that guidance, things have evolved and changed.
And literally, 90% of the top 1,000 companies, the Russell 1000, were already putting some information out, 60% putting information with regard to greenhouse gas emissions. I think it's in that realm we have a role to play. And we're merit neutral as to those investments that investors make.
They can go long, you know, buy something or go short and sell something. That's up to them. We're agnostic.
JENNIFER SCHOENBERGER: All right. Talking about a differency that you like, crypto--
GARY GENSLER: We're staying with the Cs today.
JENNIFER SCHOENBERGER: We're staying with the Cs today.
GARY GENSLER: Are you going to go to China too?
JENNIFER SCHOENBERGER: We could if you want.
GARY GENSLER: There you go.
JENNIFER SCHOENBERGER: Before that, though, it's been roughly, what, two months since you approved the spot Bitcoin ETF. Now, the industry is pushing to greenlight options for spot Bitcoin ETFs-- or ETPs, I should say. I know the commission in the past has approved options for Bitcoin futures funds. What's your thinking on this?
GARY GENSLER: For your viewers-- I know Jennifer knows this, that people in roles like mine try not to prejudge things that are in front of the commission. And we have an administrative process to consider such filings and the like. And that's what we'll do based on the law and based on the filings in front of us.
JENNIFER SCHOENBERGER: At least 10 firms have filed applications for spot Ether ETPs. I'm wondering, do you see the Grayscale court case that applied to spot Bitcoin ETPs as precedent setting that could apply in general to crypto spot ETPs? Or is there a different set of criteria depending on the underlying asset?
GARY GENSLER: Again, I don't want to prejudge any one filing. And as you said, there's 10 filings in front of us. So news alert, I'm not going to prejudge that.
But to your question, we look at the facts and circumstances. And that which was in front of us and we approved earlier in January were exchange-traded products for Bitcoin-- and it was solely to Bitcoin-- a important set of filings. I thought that it was the most sustainable path forward, along with the commission, to approve those.
And investors got additional disclosures based upon those exchange-traded products. They get certain protections on the stock exchanges. But they should also, I would say, be aware it's a highly speculative, volatile underlying asset, Bitcoin.
JENNIFER SCHOENBERGER: To your point, does the ability to stake Ether change your perspective on whether an Ether ETP is a suitable product like a spot Bitcoin ETP?
GARY GENSLER: Again, I'm not going to speak to the specifics of filings in front of us. I understand the question.
JENNIFER SCHOENBERGER: In general, though, can you talk, not about Ether?
GARY GENSLER: I think there's 15,000 to 20,000 of these crypto tokens. And for many of them, the investing public is looking for a better future based upon the efforts of others. And why do I say that?
Think about it. Most of them, Jennifer, you can find an entrepreneur, a CEO and actually interview her and sit down with the business leaders of that. You can find a website. You can find the investing public oftentimes, depending upon the facts, are investing their hard-earned funds into an investment contract, is what the law would call it when you're investing in something anticipating a profit based on the efforts of a group.
And this is the law of the land. And that's the Supreme Court that lays that out.
JENNIFER SCHOENBERGER: But do you view the issue-- I know you're talking about speculation, and you've been worried about fraud and manipulation as it relates to Bitcoin. Do you view that differently as it relates to Ether at all?
GARY GENSLER: I think the whole crypto field has challenges. The whole field is rife with abuses and fraud. Look at the series of bankruptcies in '22 and '23 when investors weren't getting the proper disclosures from the middle of the market, the intermediaries.
And by the way, for the viewing public, this is not that decentralized. That's part of the, you know, Satoshi Nakamoto and the folklore of decentralization. But in the middle, there are intermediaries that are pulling together your hard-earned assets, maybe not Jennifer's, but the hard-earned assets and pulling them together and not giving you the proper disclosures.
And they're doing things that we would never allow the New York Stock Exchange to do. They're trading against you. They're comingling your funds. They're maybe lending your funds out. They're operating as a clearinghouse, a broker, a dealer, an exchange. I think that puts the investing public at risk.
JENNIFER SCHOENBERGER: All right, well, we'll have to leave the conversation there. We're out of time. But, Chair Gensler, thank you so much, as always, for your insights. So appreciate it.
GARY GENSLER: Thank you. I'm sorry we didn't get to that third C.
JENNIFER SCHOENBERGER: Yeah, we'll have to talk about China next time-- next conversation.
GARY GENSLER: All right.