The U.S. Securities and Exchange Commission is formally proposing to eliminate climate-related disclosure rules it adopted in March 2024, setting the stage for the most significant rollback of environmental reporting requirements in the agency's recent history.
The move affects virtually all public companies that file registration statements and annual reports under the Securities Act of 1933 and the Securities Exchange Act of 1934.
The proposed rescission comes after a short and tortured history of the ambitious initiative that, after years of debate and heated discussion, ultimately left no one satisfied.
Formally titled the Enhancement and Standardization of Climate-Related Disclosures for Investors, they were approved by a 3-2 vote under then-Chairman Gary Gensler in March 2024, immediately attracting legal challenges from progressive quarters and critics alike.
Those petitions were consolidated in the U.S. Court of Appeals for the Eighth Circuit. The Commission entered a stay of the rules in April 2024 pending the outcome of that litigation, and in March last year voted to withdraw its legal defense of them entirely.
In September, the Eighth Circuit issued an order holding the consolidated cases in abeyance, directing the SEC to either reconsider the rules through a formal notice-and-comment rulemaking process or resume its defense in court.
Fast forward eight months, and the federal regulator is now inviting comments from stakeholders on its potential rescission of the rules via a 60-day public comment period, which is set to start upon publication of the proposing release in the Federal Register.
The Commission's rationale for rescission rests on two independent pillars. The first is legal: the SEC's proposing release argues that the climate rules exceed the statutory limits on its disclosure authority under the Securities Act and the Exchange Act. The second is policy-based, focusing on the more free-market inclinations of its current leadership.
As laid out in a fact sheet from the SEC, the agency contends the rules are "unnecessary and inconsistent with a registrant-specific, materiality-based approach to disclosure," stray beyond the policy concerns of federal securities law.
The rules also impose costs on public companies and shareholders that are not justified by the informational benefits they may provide, and run counter to the agency's objectives of facilitating capital formation and encouraging companies to seek public status, according to the fact sheet.
The three current sitting commissioners – Atkins, Mark Uyeda, and Hester Peirce, who's set to depart in November – all voted against the original rules under Gensler and have publicly expressed doubt about the agency's authority to require such disclosures.
"We must re-examine the costs, burdens, and benefits of disclosure mandates to make becoming and remaining a public company more attractive again," Atkins said in a statement published in parallel with the SEC's announcement on the climate disclosure rules Friday.
"SEC disclosure obligations should comply with the Commission’s statutory authority, be guided by materiality as the North Star, avoid the practical effect of dictating corporate behavior, and be imposed only when the expected benefits justify the likely costs and burdens," Atkins said.
The 2024 rules would have required companies to disclose climate-related risks with material financial impacts, any climate-mitigation actions taken as part of corporate strategy, and – for large accelerated filers and accelerated filers – phased-in greenhouse gas emissions data covering Scope 1 (direct emissions) and Scope 2 (purchased energy) sources. A proposal to require Scope 3 emissions reporting, which covers emissions in a company's supply chain and from the use of its products, was dropped before the final rule was adopted.
The rules would also have mandated disclosure in financial statement footnotes of costs and losses from severe weather events, subject to applicable de minimis thresholds. Independent assurance requirements would have applied to emissions data, escalating from limited to reasonable assurance over time for the largest filers.
Critics, including business groups and Republican lawmakers, had long argued the rules were an overreach and would impose disproportionate compliance burdens.
Read more: Senators push back against SEC climate rule
Despite the proposed federal rescission, not all companies operating in the U.S. are stepping into a regulatory vacuum.
As noted by ESG Dive, California enacted its own climate disclosure regulations requiring companies doing business in the state to report emissions data. On the East Coast, New York has been advancing comparable legislation.
Internationally, a growing number of jurisdictions have adopted or are in the process of implementing climate risk reporting frameworks.
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