The U.S. Securities and Exchange Commission has decided to pause the implementation of its new climate disclosure rule as it faces legal challenges in court. The rule, which requires some public companies in the U.S. to report their greenhouse gas emissions and climate risks, was approved in March but immediately faced opposition. The SEC stated that it is putting a hold on the rule to prevent regulatory uncertainty for companies that may be affected by it while litigation is ongoing in the U.S. Court of Appeals for the Eighth Circuit.
The SEC believes that it acted within its authority to require disclosures that are important for investors and has stated that it will vigorously defend the validity of its climate rule. However, the rule has been criticized for being watered down from its original proposal due to pressure from business and trade groups, as well as Republican-led states. While environmental groups have also sued the SEC, claiming that the weakened rule does not go far enough in addressing climate risks.
Despite the pause on the implementation of the SEC’s climate disclosure rule, companies are continuing to gather data and information related to climate disclosure to comply with similar regulations in other jurisdictions. These include rules in California and the European Union which also require climate-related disclosures. However, the uncertainty surrounding the SEC’s rule is presenting challenges for smaller companies with limited resources, as they may be unsure about how much to invest in compliance efforts that may or may not be required in the future.
The SEC’s rule, which was set to require U.S.-listed companies to report greenhouse gas emissions and climate-related risks, also included information on transitioning to a low-carbon economy. The rule dropped a requirement for reporting indirect emissions known as Scope 3, which occur along a company’s supply chain. Additionally, the reporting requirements under the rule were not scheduled to take effect until 2026. The SEC’s decision to stay the rule is expected to allow the court of appeals to focus on deciding the merits of the case.
Experts in environmental, social, and governance (ESG) issues believe that the stay on the SEC’s climate disclosure rule is unlikely to significantly impact the final outcome. Companies, especially larger ones, are already investing in gathering climate-related data to comply with various disclosure requirements. The uncertainty created by the legal challenges surrounding the rule is seen as particularly challenging for smaller companies that may not have the resources to invest in compliance efforts. The outcome of the legal battle over the SEC’s climate disclosure rule remains uncertain, but the issue of climate reporting continues to be a key focus for investors and regulators worldwide.
