SEC Forced to Halt Climate Reporting Mandate for Businesses

The U.S. Securities and Exchange Commission in Washington on Sept. 18, 2008. Chip Somodevilla/Getty Images

The U.S. Securities and Exchange Commission (SEC) paused the implementation of its climate disclosure requirements for companies as legal challenges against the rules are pending in a circuit court.

In March, the SEC finalized a controversial rule requiring publicly traded companies to disclose any climate-related risks to their business. The SEC’s Final Rules also required some midsize and large firms to reveal how much CO2 is emitted from their operations. This led to several Republican states, companies, and business groups filing lawsuits against the regulations, asking for the SEC rule to be stayed. Two energy companies—Liberty Energy Inc. and Nomad Proppant Services LLC—sought an administrative stay on the rule, which was granted by the Fifth Circuit court on March 15.

According to SEC rules, businesses must report on the potential impact climate risks may have on their financial condition as well as the strategies undertaken to mitigate such risks. Businesses have to disclose their climate targets and the losses suffered due to severe weather events.

Other legal challenges against the rule were filed at the Second, Sixth, Eighth, Eleventh, and D.C. Circuit courts. All the lawsuits, including the Fifth Circuit one, were consolidated into a single case, with the Eight Circuit set to hear the challenge.

On March 26, the Chamber of Commerce of the United States of America, the Texas Association of Business, and the Longview Chamber of Commerce filed a motion in the Eighth Circuit, seeking a stay of the SEC rules pending judicial review.

Challenging SEC

Lawsuits from Republican states claim that the SEC breached their rule-making authority by asking public firms to disclose climate risks while such regulations have not received approval from Congress.

SEC’s rules create costly, unnecessary “red tape” for businesses. They accused the climate rules of being part of the Biden administration’s push to make sure investment decisions in the country are driven by climate considerations rather than financial returns.

On April 4, SEC Secretary Vanessa Countryman issued an order staying the agency’s climate rule requirements while litigation proceeded in the Eighth Circuit.

Ms. Countryman argued that given the procedural complexities involved in litigating the multiple cases filed against the climate rules, the SEC’s stay “will facilitate the orderly judicial resolution of those challenges.”

In addition, “a stay avoids potential regulatory uncertainty if registrants were to become subject to the Final Rules’ requirements during the pendency of the challenges to their validity.”

Though the SEC is issuing a stay on the climate rule, the agency continues to hold the view that the regulations are “consistent with applicable law” and within the authority of the commission, the order stated.

“Thus, the Commission will continue vigorously defending the Final Rules’ validity in court and looks forward to expeditious resolution of the litigation.”

‘Outrageous’ Climate Mandate

Iowa Attorney General Brenna Bird, one of the Republican AGs that led 25 states to file lawsuits against the climate rules, called the SEC’s April 4 stay a “victory” that “shuts down the most outrageous climate mandate for businesses since Biden took office.”

“The SEC’s job is to protect people from fraud. It has no business slapping companies with extremist climate mandates. We are making it clear that Biden has to follow the law like everyone else,” she said.

“By halting this mandate, we are protecting businesses from costly red tape, securing our supply chain, and defending family farms. Next, we are going to make this win permanent!”

In addition to Iowa, other states in the lawsuit are Alabama, Alaska, Arkansas, Georgia, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.

The SEC rule “will also require businesses to disclose climate-related risks, including higher insurance rates from weather disasters, and release a plan to adapt to climate-agenda recommendations. The plan is estimated to cost businesses billions of dollars every year.”

SEC Votes

When the SEC finalized its climate rules in March, agency commissioners had voted 3–2 to pass the measure. The votes were done along party lines, with all Democrats voting in favor of the rule and Republican commissioners voting against it.

Republican commissioner Hester Peirce had pointed out that the climate rules would be expensive and burdensome for businesses while creating a large amount of inconsistent information overwhelming investors.

“However well-intentioned, these particularized interests don’t justify forcing investors who don’t share them to foot the bill,” he said. The SEC estimates the climate rule to impact around 2,800 American firms.

The rules adopted in March were a watered-down version of an earlier draft that contained more stringent measures, including requiring companies to report certain indirect emissions. These stringent measures triggered intense opposition from the business community.

In an interview with The Epoch Times in June 2022, Sean Griffith, a professor at Fordham University School of Law, suggested that SEC rules enforce viewpoint discrimination since the regulations are essentially forcing companies to endorse certain assumptions about how the earth’s climate is being affected by human actions.

“The reason why the climate rules are so problematic is that either they’re politically driven—which is very plausible—or they are driven by this desire to appease the institutional asset manager community, which has its own profit interest because they generate revenue from the assets under management of those ESG portfolios. At the end of the day, it’s not about investors.”