The U.S. Securities and Exchange Commission has decided to halt the enforcement of its new climate disclosure rule as it faces legal battles in court. The regulation, which was approved in March, mandates certain U.S. public companies to disclose their greenhouse gas emissions and climate risks. However, the rule encountered immediate legal opposition, prompting the SEC to put it on hold.
The SEC's decision to stay the rule is aimed at preventing regulatory uncertainty for affected companies during the ongoing litigation process. The rule is currently under review in the U.S. Court of Appeals for the Eighth Circuit.
The finalized rule, issued in March, was a diluted version of the original proposal put forth by the financial regulator two years ago. The SEC faced pushback from business entities, trade groups, and Republican-led states, leading to modifications in the rule. Despite the revisions, lawsuits were filed challenging the rule, including objections from environmental organizations like the Sierra Club.
The SEC has expressed its commitment to vigorously defend the legitimacy of the climate disclosure rule, asserting that it was well within its jurisdiction to mandate disclosures crucial for investors. The stay on the rule is intended to allow the appeals court to focus on the substantive aspects of the case.
In addition to reporting greenhouse gas emissions, the rule requires U.S.-listed companies to disclose climate-related risks and outline their strategies for transitioning to a low-carbon economy. Notably, the requirement for reporting Scope 3 indirect emissions, originating from a company's supply chain activities, was removed from the final rule.
Although the SEC's reporting obligations were scheduled to take effect in 2026, many companies are already preparing to comply with similar regulations in other regions such as California and the European Union. Both California and the EU have advanced their own disclosure requirements, with California's rule also facing legal challenges.
Overall, the SEC's decision to pause the implementation of the climate disclosure rule reflects the complex landscape of environmental regulations and underscores the ongoing debate surrounding corporate transparency on climate-related matters.
