Priorities of the Next SEC Chair Paul Atkins and the Future of Sustainable Investing
Paul Atkins, President Donald J. Trump’s nominee to lead the Securities and Exchange Commission (SEC) as chair, will have his first hearing before the Senate Banking Committee on Thursday, March 27th. Atkins is not a new face to the SEC. He served as a commissioner from 2002-2008, following his time as a staff member working under Commissioners Richard C. Breeden and Arthur Levitt. Atkins is currently CEO and Founder of Patomak Global Partners, a financial and cryptocurrency consulting firm.
What does it mean if Atkins is confirmed?
Atkins is nominated to serve out the remaining term of former SEC Chair Gary Gensler, which ends in June 2026, and he would likely be renominated at that time. If Atkins is confirmed by the U.S. Senate, the Commission will be comprised of a 3-1 majority, with Atkins joining fellow Republican Commissioners Hester Peirce and Mark Uyeda and Democratic Commissioner Caroline Crenshaw. Both Commissioners Peirce and Uyeda served as legal counsel for Atkins during his time at the SEC. Therefore, we can expect policy alignment amongst the majority.
What is on Atkins’ agenda and what does it mean for investors?
Based on Atkins’ time as a commissioner and his other statements, here is our assessment of his priorities and how his leadership will affect policies important to sustainable investors:
Cryptocurrency: Atkins has a history of working with FinTech companies and crypto advocacy groups. He believes that the SEC should accommodate activity that brings down costs for investors.
Disclosure: Atkins argues investors face an “information-overload” from disclosure on climate, corporate political spending, mineral extraction, and CEO pay ratios. Atkins typically uses the same three critiques of disclosures: 1) immaterial information 2) a failing cost-benefit analysis and 3) congressional disapproval. As for international disclosures like the CSRD, it is unlikely that Atkins would be supportive of these rules affecting US companies, although he has historically supported the EU’s rights to enact sustainability requirements.
Investor Impact: While this administration is not likely to mandate disclosures, many companies are still pledging to provide investors with this information. Voluntary disclosures and compliance with disclosure regimes in other jurisdictions will grow in importance.
Shareholder rights: Atkins has voiced concerns about the “tyranny of the minority” in reference to shareholder proposals under rule 14a-8. Citing a cost-benefit analysis, Atkins stated that a small number of investors account for the majority of environmental and social shareholder proposals, while boards require vast amounts of resources to contest shareholder proposals. The SEC under Atkins is likely to lean in favor of state regulations regarding shareholder proposals.
Investor Impact: Acting-chair Mark Uyeda has already led the SEC to replace staff legal bulletin 14L with 14M, which altered SEC staff interpretations of the micromanagement, ordinary business and relevance exclusions for shareholder proposals under rule 14a-8. The new guidance is expected to result in more social and environmental proposals being excluded from proxy materials going forward.
These changes have been implemented in the middle of proxy season, which has caused confusion for investors who filed proposals at companies under the previous staff guidance.
Staff legal bulletins are not voted on by the Commission or commented on by the public. Therefore, they are not legally binding, but they do influence how SEC staff operate. We can expect that under Atkins, the SEC will continue to challenge shareholder rights.
Fiduciary duty: Atkins has previously argued that states should remove their anti-ESG bills and focus on the sole investor standard under the Employment Retirement Income Security Act (ERISA), which “states that a trustee is required to consider only the interests of the beneficiary.” Previously, Atkins disapproved of both the SEC’s decision to recommend a new uniform standard of care in 2015, and the Department of Labor’s (DOL) 2015 proposed rule to amend ERISA and expand the definition of who qualifies as a fiduciary.
Investor Impact: Atkins’ focus on financial materiality makes it more important than ever for investors to demonstrate the business case for sustainable investing.
Future of the SEC
Given Atkins’ public positions, we expect that his leadership at the SEC will favor market efficiency and innovation, with a special focus on crypto. Atkins’ SEC is expected to take a more laissez-faire approach, scaling back regulation and enforcement, which were more prevalent components of Gensler’s tenure at the SEC. Under Acting Chair Mark Uyeda, the SEC is already on the path of deregulation. Acting Chair Uyeda signaled that the agency will step back from defending the SEC climate disclosure rule in the consolidated case in the Eighth Circuit Court of Appeals. To reverse the climate risk disclosure rule altogether, regardless of the litigation, the Commission must follow the Administrative Procedure Act (APA), which requires a similar process to change or rescind a rule as to create a rule. Regarding future rulemaking, the SEC and all other administrative agencies are under a “regulatory freeze” under President Trump’s Executive Order. Beyond rulemaking, the Commission has many policy tools at its disposal, and it is important to understand how Atkins’ views and history could impact investors and the market. Tune into Atkin’s nomination hearing on March 27 at 10am ET here.