SEC’s Climate Disclosure Rule Faces Legal Challenges: What You Need to Know

SEC’s Climate Disclosure Rule Faces Opposition from Both Sides

The Securities and Exchange Commission (SEC) recently finalized a landmark climate disclosure rule that has drawn criticism from both industry groups and environmental activists. The rule, which was initially proposed in 2022, has been met with a flood of opposition from anti-ESG Republicans and has sparked a lawsuit from a coalition of ten states.

States Sue SEC Over Climate Disclosure Rule

The coalition of states, led by West Virginia, alleges that the SEC’s final rule exceeds the agency’s statutory authority and is arbitrary, capricious, an abuse of discretion, and not in accordance with the law. The lawsuit includes Virginia, Georgia, Alabama, Alaska, Indiana, New Hampshire, Oklahoma, South Carolina, and Wyoming.

Congressional Republicans Aim to Overturn SEC Rule

In addition to the lawsuit, Congressional Republicans are working to overturn the SEC’s new rule using the Congressional Review Act, an oversight tool that allows Congress to overrule federal agency actions, according to Bloomberg Law. Representative Bill Huizenga (R-MI) and Senator Tim Scott (R-SC) are leading this effort, with Huizenga stating in a statement:

Investors should realize this overreach by the SEC will significantly hurt our economy while serving as boon for special interests and far-left activists.

Environmental Activists Disappointed with SEC Rule

While the SEC’s rule faces opposition from industry groups and Republicans, many environmental activists are also unhappy with the rule, arguing that it doesn’t go far enough to address climate-related risks. The most contentious issue is the SEC’s decision to drop the requirement for companies to disclose indirect emissions from their supply chains and the end-use of their products, which typically represent the largest portion of a company’s carbon footprint.

The Sierra Club, represented by nonprofit environmental law organization Earthjustice, expressed disappointment in a statement, noting that the SEC’s final rule “eliminates key requirements for companies to quantify climate-related impacts to their assets and expenditures in financial statements.” The group is considering challenging the SEC’s removal of key provisions from the final rule while also defending the SEC’s authority to implement such a rule.

As an investor, we expect full transparency about a company’s fundamentals, especially climate-related risks that pose serious negative financial consequences. Without higher accountability standards, companies can withhold critical information that prevents us from making informed investment decisions rooted in full due diligence.

– Dan Chu, Sierra Club Foundation executive director

SEC Chair Defends Compromises in New Rule

Despite the criticism from both sides, SEC Chair Gary Gensler stands by the compromises made in the new rule. In a statement, Gensler said:

I think today’s action is an important step for our U.S. capital markets. These rules will enhance the disclosures that investors have been relying on to make their investment decisions.

As the debate surrounding the SEC’s climate disclosure rule continues, it remains to be seen how the legal challenges and Congressional efforts to overturn the rule will unfold.