On April 4, 2024, the Securities and Exchange Commission (SEC) voluntarily agreed to delay implementation of its new climate disclosure regulations to allow ongoing legal challenges to play out. Lawsuits challenging the SEC's authority to mandate the climate disclosures have been consolidated before the Eighth Circuit Court of Appeals and will now proceed with the rules on hold.
As discussed in greater detail here, the SEC's climate disclosure regulations, entitled The Enhancement and Standardization of Climate-Related Disclosures for Investors, require public companies to make new climate-related disclosures for investors in their registration statements and annual reports. Among other requirements, companies must disclose climate-related risks that have had or are reasonably likely to have a material impact on their business strategy, results of operations, or financial condition. Many companies must also disclose information about their direct and indirect greenhouse gas (GHG) emissions.
The SEC rules have been controversial since first proposed in 2022. Following the publication of the Final Rules, more than ten lawsuits were filed, some alleging that the SEC has exceeded its authority and others arguing that the agency did not go far enough.
In response to the numerous legal challenges to the rules, the U.S. Judicial Panel on Multidistrict Litigation consolidated the suits before the Eight Circuit Court of Appeals. Following the consolidation order, Liberty Energy Incorporated and Nomad Proppant Services LLC asked the appeals court to stay the rules pending resolution of the litigation. While the SEC initially opposed the stay, it has now agreed to voluntarily delay implementation. Under the Exchange Act and the Administrative Procedures Act (APA), the SEC "has discretion to stay its rules pending judicial review if it finds that 'justice so requires.'"
In its Order, the SEC emphasized its commitment to the climate disclosure rules and vowed to continue defending them in court. "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," the SEC said.
Nonetheless, the SEC acknowledged that staying the rules will allow the litigation to proceed more smoothly and reduce regulatory uncertainty. "[G]iven the procedural complexities accompanying the consolidation and litigation of a large number of petitions for review of the Final Rules, a Commission stay will facilitate the orderly judicial resolution of those challenges and allow the court of appeals to focus on deciding the merits," the SEC explained. "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 Eight Circuit will now proceed with its judicial review of the SEC's climate disclosure rules, which will likely take time. Although the rules are now on hold, companies should stay on top of legal developments. Should the regulations ultimately survive, companies will need to resume preparing to meet their disclosure obligations.
Additionally, the SEC's stay does not mean that climate disclosures are entirely off the table. Investors continue to pressure companies to provide disclosures, and companies may be subject to other reporting requirements, including those established by the State of California and the European Union.
With a multidisciplinary team of experienced corporate, environmental, and securities attorneys, Scarinci Hollenbeck is ready to help companies navigate the ever-evolving legal landscape surrounding climate-related disclosures. We encourage companies to contact us with any questions about the SEC's Final Rules, disclosure obligations under other regulatory regimes, or voluntary disclosures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
