SEC withdraws support for climate disclosure regulations

The US Securities and Exchange Commission (SEC) recently made a noteworthy decision regarding the defense of climate disclosure regulations put forth during the Biden administration. On March 27, the SEC revealed that it would no longer back these mandatory requirements for large corporations to disclose the effects of climate change on their operations. The SEC’s three-member governing body voted to halt the defense of the rule due to criticisms claiming that it exceeded the SEC’s jurisdiction.

This move by the SEC comes after a series of changes in the US government’s stance on climate change starting with the Trump Administration’s actions, including the scaling back of regulations at the US Environmental Protection Agency. The SEC’s acting chair criticized the climate disclosure mandates as burdensome and overly intrusive.

The rule in question, known as the Enhancement and Standardization of Climate-Related Disclosures for Investors, aimed to be the initial federal directive in the US mandating sustainability disclosures. It aimed to educate investors by compelling registrants to disclose data regarding emissions, financial disclosures related to extreme weather events, and details about climate governance, goals, and risks. Among other requirements, publicly traded companies needed to address significant climate-related risks and their potential impacts in registration statements and annual reports.

Nevertheless, the rule never went into effect as it faced opposition immediately after being adopted in March 2024 and was put on hold. It has since become embroiled in ongoing legal battles consolidated in the Eighth Circuit. In February, the SEC hinted at its unwillingness to defend the rule before the Eighth Circuit, with the acting chairman condemning it as inherently flawed.

The SEC’s decision to stop defending the climate disclosure rule will reduce the compliance burden related to climate change for publicly traded companies. However, it is essential for companies and investors to bear in mind the increasing global awareness of how climate change affects investment performance. Furthermore, existing climate disclosure requirements in California and the European Union will persist, although the EU’s Corporate Sustainability Reporting Directive may experience some modifications.

As the situation evolves, our team will continue to monitor developments closely and provide updates as they arise. It remains crucial for all stakeholders to stay informed about the changing landscape of climate-related information disclosure.