SEC Halts Implementation of Climate Disclosure Rules Amid Legal Scrutiny

The U.S. Securities and Exchange Commission (SEC) has declared a temporary halt to the enactment of its recently unveiled climate disclosure regulations, mandating companies to report on climate-related risks and greenhouse gas (GHG) emissions. This pause comes as the commission awaits a judicial review of the regulations, prompted by legal challenges from various states and business organisations.

Nevertheless, despite the suspension of the rules, the SEC affirmed in a statement its commitment to "actively defending" the new climate disclosure mandates. It stated that these requirements are "in line with relevant legislation and fall within the Commission's established jurisdiction".

The SEC revealed the introduction and acceptance of the new regulations in early March, marking a two-year period since the Commission's initial draft release. These rules represent the first instance of mandatory requirements for public companies in the United States to furnish disclosures concerning climate risks affecting their operations, strategies to mitigate those risks, the financial repercussions of extreme weather events, and, in certain instances, greenhouse gas emissions emanating from their activities.

However, right from the start, and even prior to its final release, the new regulation has encountered a barrage of legal challenges. These include a court petition filed by energy services firms Liberty Energy and Nomad Proppant, seeking a suspension pending a review of the regulation, which was granted by the court. Additionally, there's a lawsuit against the regulation filed by 25 Republican state attorneys general, spearheaded by Iowa AG Brenna Bird. Another appeals court motion, led by the U.S. Chamber of Commerce, sought a suspension of the regulations.

Opponents of the regulations argue that they impose excessive burdens and costs on companies. They claim that the information requested, including greenhouse gas emissions data, is unreliable or overly speculative. Furthermore, critics contend that the regulations exceed the SEC’s jurisdictional authority.

In a statement issued after the SEC's decision, Iowa Attorney General Brenna Bird criticised the disclosure rules as an "outrageous climate mandate for businesses." She added, "The SEC's responsibility is to safeguard people from fraud. It has no place imposing extremist climate mandates on companies."

After the lawsuit from Republican states, a coalition of 19 Democratic Attorneys General initiated a campaign to uphold the SEC rule. Earlier this week, they filed a motion to intervene in the case. The motion contends that the rule will furnish investors with "standardised, comparable, and dependable data", facilitating the assessment of climate-related risks.

The SEC statement, elucidating its decision to temporarily halt the climate disclosure rule amidst the legal challenges, clarified that the stay "will aid in the systematic judicial resolution of those challenges and enable the appeals court to concentrate on deciding the merits." Additionally, it stated that the stay would prevent ambiguity in the event that the rules were enforced while the cases were ongoing.

Moreover, the statement affirmed that "the Commission will persist in vigorously defending the Final Rules' validity in court and anticipates a prompt resolution of the litigation".