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The U.S. Securities and Exchange Commission (SEC) said Thursday that its commissioners had voted to stop defending a climate disclosure rule in court.
In choosing to stop fighting in favor of the rule, which took a President Joe Biden-era SEC years to develop and finalize, the current SEC is effectively stating that it doesn’t believe the rule merits a proper defense. The decision was an expected one; last year, experts told Sourcing Journal that, if President Donald Trump won the 2024 election, they expected a Republican-led SEC to repeal or refuse to acknowledge the climate disclosure rule.
The rule would have required many companies to include information in their financial statements about how climate change may impact their business strategy, financial wellbeing or overall operations in the future, as well as details about what they have done to mitigate climate-related risks from impacting their company.
It also would have seen thousands of large companies required to report information about their Scope 1 and Scope 2 emissions. One iteration of the rule had included Scope 3, but the agency watered down the rule to exclude Scope 3 emissions reporting in the final rule.
Still, Republicans and some corporations lined up to sue the SEC over the rule as soon as the agency released it, alleging that the agency had gone too far and asserting that the rule is unconstitutional.
When the rule first passed, both Mark Uyeda, acting chair of the SEC, and Hester Peirce, the SEC’s other Republican commissioner voted against it. Last month, Uyeda made it clear that he still had questions about the rule’s validity. At the time, he asked teh court to refrain from scheduling the case for argument to give the agency time to evaluate “the statutory authority of the Commission to adopt the Rule, the need for the Rule, and the evaluation of costs and benefits.”
Given Uyeda’s comments in February, it’s not surprising that he and Peirce voted to collapse the SEC’s defense of the rule.
“The goal of [Thursday’s] Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules,” Uyeda said in a statement Thursday.
The SEC’s decision signals that, even if a court upholds the climate disclosure rule as constitutional, it would be unlikely that the agency, as it stands today, would do anything to enforce the provisions set forth in the original rule.
Caroline Crenshaw, the agency’s lone Democratic commissioner, voted against dropping the defense for the rule and scorned her Republican colleagues for what she views as a mishandling of process.
“We are apparently letting the Climate-Related Disclosures Rule stand but are withdrawing from its defense in court,” Crenshaw said in a statement. “This leaves other parties, including the court, in a strange and perhaps untenable situation. In effect, the majority of the Commission is crossing their fingers and rooting for the demise of this rule, while they eat popcorn on the sidelines.”
In her statement, Crenshaw calls on the presiding court to “appoint counsel to do what the agency will not—vigorously advocate in the litigation on behalf of investors, issuers and the markets.”
Crenshaw isn’t the only one disappointed in her colleagues’ decision. The Sierra Club, which originally filed a lawsuit against the SEC over the climate disclosure rule alleging that the agency didn’t go far enough to protect investors’ interests because it excluded Scope 3 reporting from the final rule, denounced the agency’s decision to walk away from the lawsuit challenging the constitutionality of the rule.
Ben Cushing, director of the Sierra Club’s sustainable finance campaign, said the SEC’s decision stands to harm investors.
“Climate change is a growing financial risk, and ending the SEC’s defense of its own climate disclosure rule is a dangerous retreat from investor protection. Letting companies hide climate risks doesn’t make those risks any less real—it just makes it harder for investors to manage them and protect their long-term savings,” Cushing said in a statement. “The SEC is trying to leave investors in the dark at exactly the moment when transparency and action are most needed—but states across the country are stepping up to ensure corporations can’t conceal their climate risks.”
