SEC Unable to Enforce Climate Reporting Mandate for Businesses

The U.S. Securities and Exchange Commission (SEC) has temporarily paused the implementation of its climate disclosure requirements for companies as legal challenges against the rules are pending in a circuit court. The SEC’s Final Rules, finalized in March, required publicly traded companies to disclose climate-related risks to their business and reveal the amount of CO2 emitted from their operations. However, several Republican states, companies, and business groups filed lawsuits against the regulations, leading to a stay being granted by the Fifth Circuit court. Other legal challenges were also filed in different circuit courts.

The lawsuits claim that the SEC breached its rule-making authority by asking public firms to disclose climate risks without approval from Congress. Critics argue that the climate rules create costly and unnecessary “red tape” for businesses and are part of the Biden administration’s push to prioritize climate considerations over financial returns in investment decisions.

In response to the litigation, SEC Secretary Vanessa Countryman issued an order staying the agency’s climate rule requirements while the cases proceeded in court. The SEC continues to believe that the regulations are consistent with applicable law and within its authority. The agency plans to vigorously defend the validity of the rules in court.

Republican Attorney General Brenna Bird, one of the leaders of the states filing lawsuits against the climate rules, celebrates the SEC’s stay as a “victory” that shuts down an “outrageous” climate mandate for businesses. She argues that the SEC’s role is to protect people from fraud and that Biden must follow the law like everyone else. Bird believes that halting this mandate protects businesses from costly burdens and secures supply chains.

The SEC estimates that around 2,800 American firms will be impacted by the climate rules. When the rules were finalized in March, agency commissioners voted 3-2 along party lines, with Democrats in favor and Republicans against. Republican commissioner Hester Peirce expressed concerns about the expense and burden placed on businesses by the rules, as well as the potential for inconsistent information overwhelming investors.

Critics of the SEC rules argue that they enforce viewpoint discrimination by forcing companies to endorse certain assumptions about climate change. Some suggest that the rules are politically driven or aimed at appeasing institutional asset managers who profit from ESG portfolios.

In conclusion, the SEC’s climate disclosure requirements for businesses have been temporarily paused due to legal challenges. Critics argue that the rules create unnecessary burdens for businesses and prioritize climate considerations over financial returns. Supporters believe that the rules are necessary to protect against climate risks and promote transparency. The fate of these regulations now lies in the hands of the courts, which will determine their validity and potential impact on businesses and investors.