US climate disclosure rules on hold over slew of lawsuits

April 16, 2024|Written by Katy Lee|Securities & Exchange Commission

The US Securities and Exchange Commission (SEC) has decided to hit pause on its climate disclosure rules in response to a barrage of lawsuits challenging its implementation – but companies are being encouraged to push ahead towards compliance regardless.

The SEC had adopted the hotly contested rules last month requiring public companies to report their greenhouse gas emissions and disclose their climate-related risks, as well as how they plan to transition to a low-carbon economy.

The final rules had themselves been watered down since the original proposal, following significant lobbying by conservative and business groups.

The US Court of Appeals for the Eighth Circuit is now preparing to hear nine petitions filed to challenge the final rules – seven of which are seeking to have them scrapped, while two have been launched by environmental groups which argue the requirements should have been tougher.

The SEC told the court on 4 April that it would pause the requirements pending the court’s review. The regulator insists it has not overstepped its mandate in requiring “the disclosure of information important to investors in making investment and voting decisions”.

“The Commission will continue vigorously defending the Final Rules’ validity in court and looks forward to expeditious resolution of the litigation,” it said in its stay order.

It added that the decision to pause the implementation of the rules would “facilitate the orderly judicial resolution” of the various challenges before the court. The deliberations are expected to take a considerable amount of time, with the eventual losing side likely to demand a review by the US supreme court.

Republicans on the House of Representatives’ financial services committee have accused SEC chair Gary Gensler of “regulatory overreach”, arguing that the rules amount to environmental regulation and therefore go beyond the SEC’s mandate.

On the opposing side, 18 US states with attorneys general aligned with the Democratic party filed a motion just ahead of the SEC’s decision to stay the rules, stating their support for regulation which they said provided “information about climate-related risks that is critical to making informed investment decisions”.

Despite the delay, ESG experts have encouraged companies to get on with preparing for the requirements to come into force – especially given that many of them will already need to collect climate-related data to comply with similar rules in California and the EU.

“They really should start working on their compliance now,” Sonia Barros, co-leader of public companies and ESG practices at US law firm Sidley, told the company’s podcast.

“Waiting until the lawsuits get figured out could put a lot of strain on a company’s resources. It may not give them a lot of time.”

Laura Zizzo, CEO of climate risk company Manifest Climate, said the demand for climate disclosures extended “beyond regulatory requirements, driven by investor expectations and market needs”.

“Let’s say that the train has left the station,” she wrote on LinkedIn.

Larger companies would not have had to start disclosing the information under the new SEC rules until 2026, with smaller companies following two years later.

The diluted final version had already dropped the requirement for companies to report scope 3 emissions – those happening along its supply chain. The requirements for disclosing companies’ direct emissions, known as scope 1 and 2, had also been loosened.

This page was last updated April 17, 2024

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