In Response To Legal Challenges, SEC Halts Implementation Of Climate Disclosure Rule

The U.S. Securities and Exchange Commission (SEC) recently announced that, due to the number of lawsuits filed against its climate disclosure rule, it has halted implementation of the regulation. The SEC said this pause would “facilitate the orderly judicial resolution of those challenges and allow the court of appeals to focus on deciding the merits.”

The agency made it clear it is not abandoning the rule, however. In fact, the SEC pledged to “continue vigorously defending the final rules’ validity in court.” As The Hill explained, Republican attorneys general from nine states have challenged the rule in federal court, arguing that it, in issuing it, the SEC exceeded its congressionally-mandated authority. That lawsuit is one of three launched against the regulation.

A coalition of 18 Democratic attorneys general, meanwhile, has filed a motion to intervene in defense of the rule, arguing “investors need reliable, comparable information about risks that registered companies face and how they are managing those risks.”

As Connecting the Dots reported in March, while the final SEC rule would not be as burdensome for companies as the agency’s initial draft would have been, companies in the metals industry and in the wider manufacturing industry still would face new cost burdens if the regulation is implemented. Indeed, when it issued the rule, the SEC provided a dozen bullet points explaining what public companies must disclose. Among these items are:

• Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition;
• The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook; and
• If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates, and assumptions that directly result from such mitigation or adaptation activities.

Those requirements are not all companies must disclose. Find a complete list of disclosure requirements at this link. It is worth noting that, in its final rule, the SEC dropped its onerous Scope 3 emissions mandate that would have forced public companies to divulge information about emissions coming from anywhere in their supply chains, including from the small and family-owned businesses with whom they work.

The SEC also exempted smaller public companies from Scope 1 and Scope 2 emissions reporting and proposed to give all companies longer to comply with the regulation. Additionally, the final rule is more narrowly focused on so-called “material” information, or data that investors truly need to know in order to make informed decisions.