The SEC has issued an order staying its rules requiring public companies to disclose certain climate-related information, including material Scope 1 and Scope 2 GHG emissions. (For a discussion of the climate rules, see SEC Adopts Landmark Climate Change Disclosure Rules, March 2024 Update.) The effect of the stay order is to suspend the effectiveness of the new rules pending judicial review of their validity.
The Commission adopted the climate rules on March 6 and was almost immediately sued. Several parties allege that the rules exceed the Commission’s authority, while others assert that the rules do not go far enough, particularly in that they do not require companies to disclose Scope 3 GHG emissions (i.e., those from use of the company’s product and from its supply chain). The stay order lists nine petitions for review filed in various federal courts of appeal. These cases have been consolidated in the Court of Appeals for the Eighth Circuit and, absent the Commission’s voluntary stay, it is likely that the court would have suspended the effectiveness of the rules, pending its decision.
The Commission makes clear in its order that issuance of the stay does not suggest that the agency lacks confidence in the validity of the rules:
“In issuing a stay, the Commission is not departing from its view that the Final Rules are consistent with applicable law and within the Commission’s long-standing authority to require the disclosure of information important to investors in making investment and voting decisions. Thus, the Commission will continue vigorously defending the Final Rules’ validity in court and looks forward to expeditious resolution of the litigation. *** [A] Commission stay will facilitate the orderly judicial resolution of those challenges and allow the court of appeals to focus on deciding the merits. Further, 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.”
The stay has no immediate direct impact. Under the phase-in schedule in the rules, the first climate disclosures would be required in large accelerated filer financial statements for fiscal years beginning in calendar 2025 (which would be filed in 2026). The litigation, including any effort to seek review in the U.S. Supreme Court, is likely to continue for several years and, even if it is victorious, the SEC may need to adjust the phase-in schedule.
Despite the stay, it would be prudent for companies to continue to make plans to implement the new rules. Especially for companies that are currently making limited climate disclosure, the necessary systems and controls will take time and resources to build. It may not be practical to delay that effort until the conclusion of the litigation – or to gamble that the courts will strike down the rules. Also, regardless of the fate of the SEC’s climate disclosure regime, many companies will need to comply with similar – or broader – climate disclosure laws, such as those recently adopted in California and the European Union. See California Outflanks the SEC on Climate Disclosure and E.U. ESG Disclosure Requirements Will Affect Many U.S. Companies, both in the October 2023 Update.
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