In March 2024, the SEC adopted rules aimed at standardizing climate-related disclosures for public companies and offerings. These rules mandate that SEC filings, such as annual reports and registration statements, include disclosures on climate risks. According to the SEC rules, organizations must disclose information such as climate-related risks that have had or are likely to have a material impact on their strategy, operations, or finances; the actual and potential effects of climate-related risks on their strategy, business model, and outlook; oversight by the board of directors on climate risks; the costs and losses from severe weather events and other natural disasters; and the capitalized costs, expenditures, and losses related to carbon offsets and renewable energy credits. In short, the SEC’s final rule considerably broadens SEC registrants’ climate disclosure requirements.
However, in April 2024, the SEC voluntarily paused their climate disclosure rules in response to pending litigation across multiple federal circuit courts. In its announcement, the SEC maintained that it would continue to defend the rule against all court challenges. The Eighth Circuit was chosen via a lottery system to hear a consolidation of several actions, including an action by nineteen state attorney generals who had previously filed petitions for review in the Eighth and Eleventh Circuits; an action filed by the U.S. Chamber of Commerce, which had filed a petition for review in the Fifth Circuit; and an
action by the Ohio Bureau of Workers' Compensation, the Attorney General of Kentucky, and the Attorney General of Tennessee, which had previously been filed in the Sixth Circuit.
Most recently, on August 27th, a group of former SEC employees – including chairs, commissioners, and attorneys – filed an amici curiae brief in the Eighth U.S. Circuit Court of Appeals, arguing that the Securities Act of 1933 and the Securities Exchange Act of 1934 authorize the SEC to mandate company climate disclosures. The SEC employees argued that the Securities Act of 1933, “reflected the sensible conclusion that Congress itself could not reasonably work out in detail the choices needed to develop and keep up to date an appropriate securities disclosure regime.” The employees also argued that the Securities Exchange Act of 1934 gives the SEC authority to determine the necessary content of additional disclosures.
Those challenging the SEC climate disclosure rule claim that the SEC is overstepping its authority and violating the separation of powers and the major questions doctrine. Proponents of the rule argue that it is crucial for investors to consider climate risks, especially as the ongoing impacts of climate change become increasingly evident.
As of now, the compliance deadline remains uncertain, with the earliest possible start not before early 2026. In an interesting twist, states, such as California, have begun to initiate their own disclosure rules on top of multiple voluntary programs that already exist. It will be interesting to see how this plays out, especially with the upcoming election. In the meantime, companies should at least begin understanding how implementation of these rules could impact them, and how they could demonstrate compliance should these disclosure rules take root.
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