SEC climate rule prompts rush to courts; lawsuits filed
The U.S. Securities and Exchange Commission’s new rule requiring companies to disclose some emissions and climaterelated information was barely passed before the agency was being hauled to court.
The rule adopted in early March was watered down from what the nation’s top financial regulator had proposed two years ago, thanks to intense lobbying and talk of litigation from business and trade groups and some conservative lawmakers.
But weakening the rule didn’t stave off lawsuits, and what’s expected to be a lengthy legal battle is now underway. Here are some things to know about the rule and what’s ahead:
What is the SEC requiring?
The rule requires that U.S.listed
companies publicly report their greenhouse gas emissions, climate-related risks and information about their plans to transition to a low-carbon economy.
The agency dropped a requirement that would have had companies report some indirect emissions known as Scope 3. Those don’t come from a company or its operations, but happen along its supply chain — for example, in the production of the fabrics that make a retailer’s clothing — or that result when a consumer uses a product, such as gasoline.
The rule was also softened to allow companies to decide whether some direct and indirect emissions are “material” to their business before reporting them, giving them some discretion in whether to report.
Some smaller companies don’t have to report their emissions at all.
Who is challenging?
Just hours after the SEC adopted the rule March 6, a coalition of 10 states including West Virginia, Alaska and Georgia announced they were filing a challenge with the U.S. Court of Appeals for the 11th Circuit.
The U.S. Chamber of Commerce, a strong opponent of the regulation from the start, filed its own expected lawsuit the following week.
Sierra Club, the environmental group, and the Sierra Club Foundation also filed suit last week, arguing that the final rule will tell investors much less about the risks companies face from climate change compared to what was originally proposed.
On Friday, a federal appellate judge in Louisiana agreed to temporarily pause the rule pending a challenge from two oilfield services companies.
Why the challenges?
Many Republicans, some industry groups and companies accused the SEC of overreach when they first proposed the more robust rule in 2022. Criticism largely centered on whether the SEC went beyond its mandate to protect the financial integrity of security exchanges and investors from fraud.
What’s happening in the meantime?
Ropes & Gray attorney Michael Littenberg said companies will prepare for compliance while the lawsuits move forward.
Whatever the outcome, many companies will have to comply with similar rules in California and the European Union, which recently moved ahead with requirements for companies to disclose their emissions and other climate-risk information.
“What does the stay mean for companies subject to the rules? At this point, likely not much,” Littenberg said.