SEC defends climate disclosure rule and requests case dismissal

The US Securities and Exchange Commission (SEC) has argued that its climate disclosure rule’s only goal is to protect investors in response to a raft of legal challenges seeking to invalidate it.

In a brief filed this week with the US 8th Circuit of Appeals, the SEC replied to the consolidated challenges brought forward by Republican states, energy companies and industry associations looking to block the implementation of its climate disclosure rule.

One of the arguments made by the challengers requesting a complete review of the rule is that it “exceeds the agency’s statutory authority and otherwise is arbitrary, capricious, an abuse of discretion”.

But the SEC has argued that because the rule only aims to protect investors – for whom climate-related risks are increasingly relevant – and not act as environmental policy, the Commission has statutory authority to impose it.

“Petitioners charge the Commission with exceeding its statutory authority by acting as an ‘environmental guardian’, and seeking to ‘pressure’ public companies to ‘alter their environmental policies and activities’. But this ignores that the Commission expressly acted to promote core securities law objectives, not regulate the environment,” the brief notes in a paragraph seeking to prove that the challengers’ arguments lack merit.

Concluding the brief, the SEC asked the court to deny the petitions for review.

SEC climate disclosure rule stayed since April

The Commission was forced to stay its climate disclosure rule in early April, less than a month after publishing it, in a bid to avoid regulatory uncertainty for listed companies in the US while legal challenges were resolved.

The rule was set to be phased in from 2025, but in the month after its publication, it was the object of at least nine lawsuits by Republican-led states including Iowa, Montana and North Dakota, as well as the American Free Enterprise Chamber of Commerce.

This is despite the SEC significantly watering down the final rule compared to its initial draft after two years of comments and intense debate – particularly around whether Scope 3 greenhouse gas emissions should be included. 

In the end, Scope 3 was left out of the final rule, which includes 12 climate-related disclosures, such as material climate-related risks, their impact on strategy, business model and outlook, mitigation spending, board oversight of climate-related risks and Scope 1 and/or 2 emissions deemed material.

California could delay its own climate disclosures

Meanwhile in California, which passed the most ambitious climate disclosure rules in the US last October, Governor Gavin Newsom recently suggested delaying implementation by two years – to 2028.

Lawmakers now have until the end of this month to pass the amendment – but its success is far from guaranteed, with two of the senators behind the climate disclosure bills vowing to keep it on schedule.

US Chief Sustainability Officers should prepare nonetheless

Speaking to CSO Futures in March, Brian O’Fahey, a partner in the corporate and finance team of Hogan Lovells in Washington DC, urged Chief Sustainability Officers not to “get too focused on the daily back and forth regarding the US rules and whether or not they ultimately survive”.

Instead, they should take steps to keep up with the global climate reporting movement ( the EU’s Corporate Sustainability Reporting Directive, for instance, will also apply to some US companies). These steps can include building an internal sustainability governance structure and integrating climate risks into general risk management.