The acting chairman of the SEC, Mark T. Uyeda, requested Feb. 11 that the Eighth Circuit pause ongoing litigation concerning the Enhancement and Standardization of Climate-Related Disclosures for Investors rule — (known as Climate Disclosure Rules) — that was adopted by the Commission on March 6, 2024.
Pursuant to the Climate Disclosure Rules, publicly traded corporations registered with the SEC would have to include, among other items, the following information in their annual reports:
- Material climate-related risks: Climate risks that could materially affect the corporation.
- Impact on business: Both actual and potential material impacts of climate risks on the corporation’s outlook, strategy, and business model.
- Mitigation steps: Details of actions taken to mitigate or adapt to climate-related risks.
- Transition plan impacts: If a transition plan was adopted to manage a material transition risk, its impacts on the corporation’s business and financial plan, using a scenario-based analysis.
- Scenario analysis details: If a scenario-based analysis was used and a material impact on the corporation’s operations, financial condition, or business was determined, specific details of this analysis.
- Internal carbon price: Details on the internal carbon price if it is material to how the corporation manages and evaluates climate-related risks.
- Board oversight/managerial actions: Oversight by a board of directors and actions taken by management to assess and manage climate-related risks.
- Risk management processes: Processes for identifying and managing material climate-related risks and their integration into the overall risk management system.
- Climate-related targets/goals: For any climate-related targets or goals set that would materially impact the corporation’s business, operations, or financial condition, details of expenditures or actions taken towards these targets or goals.
- Greenhouse gas emissions: For certain larger, non-exempt corporations, details regarding greenhouse gas emissions.
The adopted rules were to apply for reports for this year ending in December 31, but, instead, dozens of parties filed petitions in various appellate courts, including 19 state attorneys general, the U.S. Chamber of Commerce, and environmental groups. The cases were then consolidated to nine lawsuits in the Eighth Circuit Court of Appeals. As a part of this move, the SEC voluntarily stayed the enactment of the Climate Disclosure Rules pending judicial review.
The arguments by the various petitioners can be summarized as follows: 1) The SEC acted beyond its authority by adopting these disclosures 2) There is a lack of evidence to support these complex and costly disclosures 3) There was not sufficient notice given for these disclosures and 4) The disclosures violate the First Amendment by requiring corporations to make statements on the hot button topic of climate change.
Previously, the SEC filed a brief supporting the Climate Disclosure Rules, arguing that it had not overstepped its authority, and the rules were necessary as under the existing climate related disclosures investors could not easily assess a corporation’s climate-related risks and the impact to their securities.
The goal of the SEC in changing course, according to Chairman Uyeda, is to give the SEC additional time to determine and evaluate the next steps for these cases. Although the future for these Climate Disclosure Rules remains uncertain, should they ultimately fail to take effect, certain companies are still subject to existing climate disclosure rules from California and the European Union.
The full Climate Disclosure Rules can be found here. The latest SEC information and updates can be found here.
