SEC climate disclosure rule paused due to legal challenges
The SEC said it will resume implementing the rule depending on the resolution of the legal challenges.
The United States Securities and Exchange Commission (SEC) has paused the adoption of its new climate disclosure rule after a barrage of legal challenges have questioned whether the agency possesses statutory authority. These challenges have been consolidated in the U.S. Court of Appeals for the Eighth Circuit in St. Louis, Missouri.
The SEC said it will resume implementing the rule depending on the resolution of the challenges.
“In issuing a stay, the Commission is not departing from its view that the Final Rules are consistent with applicable law and within the Commission’s long-standing authority to require the disclosure of information important to investors in making investment and voting decisions,” the SEC stated. “Thus, the Commission will continue vigorously defending the Final Rules’ validity in court and looks forward to expeditious resolution of the litigation.”
The commission added that the pause “avoids potential regulatory uncertainty if registrants were to become subject to the Final Rules’ requirements during the pendency of the challenges to their validity.”
A sharply divided SEC finalized its climate disclosure rule last month, requiring certain publicly traded companies to disclose information on their direct or indirect greenhouse gas emissions. Within hours of the commission’s 3-2 vote, industry groups and Republican-led states sued, saying the SEC, as a regulator of the investment community, lacks statutory authority to regulate on environmental matters.
The lawsuits have been consolidated in the St. Louis-based Eight Circuit.
The states challenging the rule include Alabama, Alaska, Georgia, Indiana, Kentucky, New Hampshire, Ohio, Oklahoma, South Carolina, Tennessee, Virginia, West Virginia and Wyoming.
University of Pennsylvania Carey Law School professor Jill Fisch said the pause has little practical effect as the rule’s reporting requirement does not begin until 2025. However, she added that the SEC’s action is a sign of the times.
“The agency seems to be very concerned that in the current political climate, a court is going to issue an adverse ruling,” said Fisch, who teaches securities regulation.
SEC Commissioner Mark Uyeda, a Republican who voted against the rule, told an audience of securities attorneys this week that “the climate rule’s fundamental flaw is that it mandates disclosures not financially material to investors.”
“Absent financial materiality, the commission lacks the authority to broadly regulate the operating activities of public companies under the pretext of disclosure requirements,” Uyeda said at an “SEC Speaks in 2024″ event hosted by the Practising Law Institute. “Issues of national economic or political policy beyond the commission’s narrow statutory remit should be addressed by Congress, not financial regulators.”
On Wednesday, a coalition of 18 Democratic-led states and the District of Columbia filed a motion to intervene in support of the SEC’s climate disclosure rule in the Eighth Circuit.
“Investors need reliable, comparable information about risks that registered companies face and how they are managing those risks,” the pending motion stated. “Climate-related impacts are undeniably one such category of risk.”
The states are Arizona, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington and Wisconsin.