SEC prepares to back away from defending climate rule in court

SEC prepares to back away from defending climate rule in court
Acting Chairman Mark Uyeda directed SEC staff to initiate a pause in court while the commission awaits a quorum. The SEC may decide to withdraw from defending itself in a lawsuit over last year's climate disclosure rule.
FEB 11, 2025

The new, Republican-controlled SEC has a convenient way to get rid of a climate-disclosure rule it doesn’t like: Deferring to plaintiffs in a lawsuit challenging it.

On Tuesday, acting Securities and Exchange Commission Chairman Mark Uyeda hinted that such a course is likely. In a public statement, Uyeda said he is directing SEC staff to notify the court about a change in circumstances, including a shift in the commission’s makeup and a freeze on regulations ordered by President Donald Trump.

That is in regard to a rule the SEC passed last year that, while it set a new standard in making public companies disclose certain climate risks and greenhouse gas emissions, left both supporters and opponents of it unhappy. That rule, the Enhancement and Standardization of Climate-Related Disclosures for Investors, was approved on a party-line basis and was walked back significantly from the version that was initially proposed.

Public issuers were left to decide for themselves whether the climate risks their companies face are material in nature – and if so, they would have to disclose them. But the final version of the rule also only covered “Scope 1” and “Scope 2” greenhouse gas emissions, or those that companies directly produce or those related to the energy they consume. The initial version addressed the much more encompassing Scope 3 emissions, which cover everything in the supply chain and associated with end users – think, the greenhouse gases that an auto maker might have to report for the use of a car during its lifetime.

Not long after the rule was approved last year, the SEC faced opposing court challenges – one led by an energy company and another by the Sierra Club.

“The rule is currently being challenged in litigation consolidated in the Eighth Circuit and the commission previously stayed effectiveness of the rule pending completion of that litigation. The rule is deeply flawed and could inflict significant harm on the capital markets and our economy,” Uyeda said in a statement Monday. “Both Commissioner [Hester] Peirce and I voted against the rule’s adoption.” Their opposition was largely due to a view that the SEC was acting outside of its authority and expertise, he noted.

Currently, the SEC has only three sitting commissioners: Uyeda, Peirce, and Caroline Crenshaw, the latter of whom is the remaining Democrat, since former chair Gary Gensler and commissioner Jaime Lizárraga stepped down.

“In a new administration, it’s no secret that they probably don’t want to see that rule become real,” said Bryan McGannon, managing director at US SIF: The Sustainable Investment Forum. “This is a signal to delay the court process, so once [chairman nominee Paul] Atkins is confirmed, then they can vote to either withdraw from litigation or settle it.”

That is not presently an option, as the SEC doesn’t have a quorum, McGannon said.

In her own statement Monday, Crenshaw objected to the decision.

“Today acting Chairman Uyeda, without the input of the full commission, has instructed the staff to ask the Eighth Circuit Court of Appeals to delay scheduling oral arguments in litigation challenging the Climate-Related Disclosure Rule,” she said.

“I agree wholeheartedly with the acting chairman that agencies and those who lead them must act within the boundaries of constitutional and statutory authority. Nonetheless, I dispute with equal vigor the notion that the agency acted outside of its remit. It did not. The only things that have changed since the rule was passed have been matters of politics and not substance.”

Part of the necessity of the rule was to address the fact that many public companies report greenhouse gas emissions and climate risk information, and there were not previously any standards for doing so, leaving investors without the means of comparing data between companies, supporters have said.

“Mark Uyeda is yet another independent regulator doing Trump’s bidding. This move demonstrates a fundamental disregard for retail investors who need clear and consistent financial risk disclosures so they can invest their hard-earned savings wisely,” Clara Vondrich, senior policy counsel with Public Citizen’s Climate Program, said in a statement.

“We are barreling toward a financial crisis that will harm everyone, and transparency around climate risk is more needed now than ever before. Corporations must come clean about their financial vulnerability to climate-related financial risk so investors, including pension fund trustees and fiduciaries, can move their money into smarter investments that will ensure prosperity for themselves and the planet.”

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