SEC seeks pause in litigation over climate disclosure rule

Acting SEC chair Mark Uyeda has asked an appeals court to pause litigation over the agency’s high-profile climate risk disclosure rule.

The commission adopted the rule on a 3-2 vote last March. It has subsequently been challenged in litigation consolidated in the Eighth Circuit Court of Appeals. The SEC under former chair Gary Gensler, an appointee of former President Joe Biden, had stayed the effectiveness of the rule pending an outcome to the litigation in which it defended the rule.

Uyeda and fellow Republican commissioner Hester Peirce have long expressed serious concerns about the climate disclosure rule. Following the presidential election in November, which will lead to a Republican-led commission, many observers have expected the SEC to stop defending the climate rule and allow it to be overturned in court, overturn it themselves or simply decline to enforce it.

Governance professionals have noted that regardless of the outcome for the rule, many US companies will have to comply with the CSRD and Californian legislation (which is also facing litigation). They will also face the expectations of investors, many of whom wish to see detailed climate-related disclosures.

In a statement announcing the pause, Uyeda says the climate rule ‘is deeply flawed and could inflict significant harm on the capital markets and our economy.’

‘The commission’s briefs previously submitted in the cases consolidated in the Eighth Circuit do not reflect my views,’ Uyeda says. ‘The briefs defend the commission’s adoption of the rule but I continue to question the statutory authority of the commission to adopt the rule, the need for the rule and the evaluation of costs and benefits. I also question whether the agency followed the proper procedures under the Administrative Procedure Act to adopt the rule.’

He adds: ‘These views, the recent change in the composition of the commission [with Gensler’s departure last month following the election] and the recent presidential memorandum regarding a regulatory freeze bear on the conduct of this litigation. I believe that the court and the parties should be notified of these changes.

‘Therefore, I have directed the commission staff to notify the court of the changed circumstances and request that the court not schedule the case for argument to provide time for the commission to deliberate and determine the appropriate next steps in these cases.’

Commissioner Caroline Crenshaw in a separate statement says: ‘The only things that have changed since the rule was passed have been matters of politics and not substance. As such, I disagree with the position unilaterally taken today by the acting [chair].’

Crenshaw reiterated her previous arguments that, among other things, investors have wanted ‘consistent, comparable and reliable climate-risk disclosures.’ She argued that the commission ‘has clear authority under the Securities Act and the [Securities] Exchange Act to require disclosures that are in the public interest... This well-established authority has been consistently relied upon and affirmed and reaffirmed across dozens of disclosure rulemakings over multiple decades.’

She had also argued when the rule was adopted: ‘The critiques that I have heard about our rulemaking attempt to disguise our authority as something that it is not. It is said that we are not an environmental agency and that we should not be in the business of supporting green agendas or setting pollution standards. Those statements are true. But we are in the business of requiring public company disclosure about risk. We have done it myriad times without having our authority questioned.’