SEC Shifts Course: No Longer Defending Climate Disclosure Rules

In a regulatory pivot, the Securities and Exchange Commission (SEC) has officially withdrawn its support for a set of climate disclosure rules that would have required publicly traded companies to provide comprehensive reporting on climate-related risks and greenhouse gas (GHG) emissions. Proponents of the climate disclosure rules, such as institutional investors and asset managers, seek unified national standards for climate-related corporate governance matters while opponents see such rules as costly and unnecessarily intrusive.

The withdrawal of support for the rules marks a notable departure from the SEC’s recent efforts to prioritize transparency and consistency in environmental, social, and governance (ESG) reporting.

Background: A Push for Climate Transparency

The rules in question—known as the Enhancement and Standardization of Climate-Related Disclosures for Investors—were finalized by the SEC in March 2024. The regulations aimed to standardize climate-related reporting by mandating disclosures in annual reports and registration statements.

Companies would have been required to share an expansive list of data:

• The material impact of climate-related risks on their business strategy, financial performance, and future outlook;
• Details on governance and risk management practices around climate issues;
• Specific data on Scope 1 and Scope 2 greenhouse gas emissions for certain filers;
• Financial statement disclosures related to the effects of severe weather events and other natural conditions.

When finalized, these measures were intended to provide investors with consistent, comparable, and decision-useful information regarding climate-related risks and their potential impacts upon a company’s financial health and strategic direction.

Legal Challenges and Political Shift

However, the rules quickly became a lightning rod for legal challenges after finalization. A coalition of state attorneys general and private sector groups filed lawsuits challenging the SEC’s authority and the scope of the rules. These cases were consolidated in the U.S. Court of Appeals for the Eighth Circuit (Iowa v. SEC, No. 24-1522), and in April 2024, the SEC voluntarily stayed the implementation of the rules pending the outcome of the litigation.

The political winds shifted further following the most recent change in presidential administration. With new leadership direction, the SEC’s posture on ESG enforcement has softened considerably—culminating in last week’s formal withdrawal of the agency’s legal defense of the climate disclosure rules.

The SEC’s Withdrawal: A Turning Point

In a letter to the Eighth Circuit, SEC staff indicated that the SEC would no longer defend the challenged rules. The letter also noted that the SEC’s legal counsel had been instructed not to advance previously filed arguments and would forfeit any time allocated for oral argument.

Acting SEC Chair Mark T. Uyeda described the rules as “costly and unnecessarily intrusive,” backing away from the rules, and any commitment to aggressive ESG enforcement, as contemplated. Potentially the SEC’s pivot further evidences a broader shift toward deregulation in this area.

What This Means for Companies and Investors

For companies preparing for enhanced ESG reporting, this development introduces renewed uncertainty. While many businesses have proactively built internal frameworks to track and report climate risks—driven by investor expectations, global trends, and state-level mandates—this federal retreat may slow the momentum for a unified national standard.

That said, even without the backing of the rules, the broader ESG movement is and will remain far from impotent. Many institutional investors, asset managers, and stakeholders continue to demand clear, consistent disclosure of climate-related risks as part of their risk assessment and decision-making processes.

A Moment for Strategic Reflection

As regulatory tides shift, businesses and their legal advisors should reassess their ESG disclosure strategies. Even without an enforceable federal mandate, the expectations of the market—and the potential for future policy swings—make it prudent to evaluate investor needs for transparency and build resilient, data-driven reporting capabilities.

This moment underscores a fundamental truth: ESG is no longer just a compliance issue but a strategic one. Companies that proactively manage and communicate their environmental and climate-related risks will be better positioned to navigate uncertainty and build trust with stakeholders and investors.