SEC Withdraws Defense of Climate Disclosure Rules

The Securities and Exchange Commission announced, in a letter to the Eighth Circuit court, that it has voted to no longer defend rules requiring companies to disclose climate-related risks, greenhouse gas emissions, and their impact on business operations. The original rules requiring sch disclosure was adopted last year under the Biden administration for the purpose of providing information on climate risk to investors.

In February, acting SEC Chair Mark Uyeda requested that the court pause a lawsuit that challenged the validity of the disclosure rules in order for the SEC to assess whether it would like to proceed with its defense of the rules. Uyeda requested that the court give the SEC 45 days to decide whether it would like to move forward with the case. Now that the 45 days is up, Uyeda informed the court that the SEC decided to drop its defense of the climate disclosure rules.

“The rule is deeply flawed and could inflict significant harm on the capital markets and our economy,” according to Uyeda “The goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.”

SEC’s Decision Faces Criticism from One Commissioner 

Although, a majority of the SEC Commissioners opposed the rules, Commissioner Caroline Crenshaw, who originally voted in favor of the rules, denounced the Agency’s decision to step away from the lawsuit. According to Crenshaw, the SEC’s decision to step away goes against the procedures set out by the Administrative Procedure Act in effectively rescinding the rules.

“In effect, the majority of the Commission is crossing their fingers and rooting for the demise of this rule, while they eat popcorn on the sidelines,” Crenshaw said in a statement. “We are now firmly in a period of policy-making through avoidance and acquiescence, rather than policy-making through open, transparent, and public processes. This approach does not benefit the markets, capital formation, or investors.”

Crenshaw now requests that the court appoint someone else to take the SEC’s former place in defending the rules. It is not clear whether the court will do so or if someone will voluntarily step up to the plate.

For now, the climate disclosure rules will not be defended in terms of their validity and legality. As a result, unless someone is appointed or voluntarily takes action, the rules will be rescinded, and companies will no longer be required to disclose the impact of climate change on their businesses.