Regulation Court Demands SEC to Either Defend Current, Revise, or Abandon Climate Reporting Guidelines
The United States Court of Appeals has declined to issue a ruling on the legality of the Securities and Exchange Commission's (SEC) climate disclosure rules, as the SEC has decided not to reconsider or defend the rules in court.
The SEC's climate disclosure rules, adopted in 2024 under the leadership of Gary Gensler, require public companies in the U.S. to provide disclosure on climate risks, plans to address those risks, the financial impact of severe weather events, and, in some cases, greenhouse gas emissions originating from their operations.
The rules faced immediate legal challenges, with nine court petitions filed within 10 days of their release. These petitions were consolidated in the Eighth Circuit court, and a lawsuit against the rule was filed by 25 Republican state attorneys general, led by Iowa AG Brenna Bird.
In April, the SEC paused the implementation of the climate disclosure rule pending a review of the legal petitions. However, in July, the SEC informed the court that it does not intend to review or reconsider the rules at this time. This decision has been criticized by Commissioner Caroline Crenshaw, who accused the Commission of trying to get around the process required to rescind the rule.
The court's order states that it is the agency's responsibility to determine whether its Final Rules will be rescinded, repealed, modified, or defended in litigation. If the SEC decides to reconsider the rules, it may be required to engage in notice-and-comment rulemaking.
The court's decision to hold the petitions in abeyance promotes judicial economy by waiting for the SEC to take further action on the rules. Another appeals court motion requesting a stay of the rules was led by the U.S. Chamber of Commerce.
In August, the SEC launched its defense of the rule in court. However, the court has held the petitions against the rule in abeyance, waiting for the SEC to reconsider the rules or renew its defense in litigation. The SEC's decision not to reconsider or defend the rules has potentially delayed the resolution of the legal challenges to the climate disclosure rules.
Despite the ongoing legal challenges, the SEC's climate disclosure rules remain in place, potentially pushing companies to address climate risks and disclose their strategies for managing these risks to investors. The court's decision to hold the petitions in abeyance indicates a commitment to allowing the SEC to take the necessary steps to address the legal challenges before making a ruling on the legality of the rules.
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