SEC must justify or revise climate rules

The U.S. Court of Appeals has declined to issue a ruling on the legality of the U.S. Securities and Exchange Commission’s (SEC) climate disclosure rules. The SEC had sought a decision from the court regarding the fate of these rules, which mandate climate-related reporting by public companies. Instead, the court has instructed the SEC to choose between revisiting the regulation through ordinary rulemaking processes or renewing its legal defence of the rules.

The rulemaking process could be extensive, involving the publication of the proposed rule, explanations and legal authority for the rule, a public commentary period, and a requirement for agency staff to address significant issues raised in comments. The final rule may also face legal challenges.

The climate reporting rules were adopted by the SEC in 2024 under the leadership of former Chair Gary Gensler. These rules introduced requirements for U.S. public companies to disclose climate risks, strategies to mitigate those risks, the financial impact of severe weather events, and, in some cases, greenhouse gas emissions from their operations. The regulations encountered immediate legal challenges, with nine court petitions filed within ten days, including a lawsuit from 25 Republican state attorneys general led by Iowa’s Brenna Bird and a motion from the U.S. Chamber of Commerce seeking a stay of the rules.

These petitions were consolidated in the Eighth Circuit court. The SEC announced in April that it would pause the implementation of the climate disclosure rule while reviewing the legal petitions. By August, the agency had begun defending the rule in court, asserting that the proposed disclosures are directly relevant to investment value and fall within the Commission’s authority to mandate.

Following the Trump administration’s election and Gensler’s resignation, the SEC announced it would cease its court defence of the rule. In a July status report, the SEC informed the court that it did not intend to review or reconsider the rules at that time and requested the court proceed with litigation. SEC Commissioner Caroline Crenshaw, the sole remaining supporter of the rule’s adoption, criticised the SEC’s stance, accusing it of circumventing the process required to rescind the rule.

In its recent order, the court rejected the SEC’s request to decide the case, stating that the petitions “will be held in abeyance to promote judicial economy until such time as the Securities and Exchange Commission reconsiders the challenged Final Rules by notice-and-comment rulemaking or renews its defence of the Final Rules.” The court emphasised that it is the agency’s responsibility to decide whether to rescind, repeal, modify, or defend its Final Rules in litigation.