SEC votes to stop defending climate disclosure rules

The Securities and Exchange Commission (SEC) has made a significant decision to discontinue its support for regulations mandating companies to disclose climate-related risks and greenhouse gas emissions. This move came as a result of a vote by the commission’s two Republican members, acting chair Mark Uyeda and commissioner Hester Peirce, to cease the agency’s defence of the rule.

In March 2024, the SEC finalized a rule that required registrants to disclose specific climate-related information in registration statements and annual reports. Notably, the initial proposal included a requirement to disclose Scope 3 emissions, although this was dropped from the final rule. The introduction of these rules was first suggested in March 2022, with an initial goal for implementation in December of the same year.

Despite the SEC’s efforts to put these regulations into effect, various lobby groups and Republican state attorneys general continuously challenged the rules in court. They argued that the regulations overstepped the SEC’s legal boundaries and would place excessive burdens on businesses. Consequently, the SEC faced mounting pressure and opposition to its climate disclosure rules.

With a deadline of March 28 looming, the SEC needed to inform the US Court of Appeals for the Eighth Circuit about its next actions. Prior to this, the SEC had requested a delay in scheduling oral arguments as it deliberated its options. Following the recent vote by the commission, the SEC conveyed to the court that it would no longer provide a defence for the rules, and its attorneys were no longer authorized to pursue the arguments set out in its brief. As a result, the SEC would forfeit its allocated time for oral arguments.

Acting chair Mark Uyeda explained the rationale behind the commission’s decision, stating that the goal of withdrawing the defense was to disengage from advocating for what he described as costly and unnecessarily intrusive climate change disclosure rules. This move signified a shift in priorities for the SEC regarding these regulations.

In light of these developments, it is essential for investors and stakeholders to stay informed about changing guidelines and regulations concerning environmental, social, and governance (ESG) issues. By monitoring updates in this field, individuals can make more informed decisions aligned with sustainable principles and navigate the evolving landscape of stewardship and proxy voting effectively. The decision by the SEC to halt its defence of climate disclosure rules marks a significant turning point in regulatory oversight of corporate environmental disclosures.