Earlier this month, Congressmen Bill Huizenga and Andy Barr cosponsored a bill titled the Mandatory Materiality Requirement Act of 2022. The bill is a manifestation of the current anti-ESG trend sweeping the Republican Party. A mere one page long, it seeks to amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to add the following language:
“(A) IN GENERAL.—Whenever pursuant to this title the Commission is engaged in rulemaking regarding disclosure obligations of issuers, the Commission may impose a disclosure requirement on an issuer only if the Commission expressly determines that there is a substantial likelihood that a reasonable investor of the issuer would consider the information disclosed to the Commission under the requirement to be important with respect to an investment decision regarding the issuer.
(B) APPLICABILITY.—Subparagraph (A) shall not apply with respect to the removal of any disclosure requirement with respect to an issuer.
(C) RULE OF CONSTRUCTION.—For the purposes of this paragraph, information is important with respect to an investment decision made by an investor if there is a substantial likelihood that the investor would view the failure to disclose that information as having significantly altered the total mix of information made available to the investor.”
Readers versed in U.S. securities law will recognize that some of the key language is “borrowed” from TSC Industries v. Northway – the 1976 U.S. Supreme Court decision that established the current definition of materiality. One interesting note is the TSC ruling has not previously been codified into federal law/regulation. Technically, the context here would only relate to SEC’s “rulemaking regarding disclosure obligations of issuers.”
Whether such a law would have the anti-ESG intended effect is up in the air. If investors make it clear that ESG disclosures remain “important with respect to an investment decision made by an investor if there is a substantial likelihood that the investor would view the failure to disclose that information as having significantly altered the total mix of information made available to the investor,” then the current tide most likely won’t change.
Of course, there is a long way for H.R. 9408 to go but with a new – albeit slight – Republican majority in the House coming next month, I suspect this may see some daylight. I am reminded of these words which are among those that defined my generation.
