SEC abandons defense of carbon emission disclosure rules in the US

The decision by the US Securities and Exchange Commission (SEC) to stop advocating for rules that would require companies to disclose their carbon emissions has stirred up a wave of backlash from various stakeholders such as congressional leaders, trade associations, state attorneys general, and business groups.

SEC acting chairman Mark Uyeda stated that the main purpose of their action was to end the Commission’s involvement in defending the costly and intrusive climate change disclosure rules. These rules, which were finalized on March 6, 2024, aimed to create a structured framework for companies to report detailed information about their exposure to climate risks and greenhouse gas emissions.

Despite being put on hold in April of the same year due to legal challenges, the final rules outlined the need for disclosures about climate risks that could have a significant impact on a company’s strategic direction, operations, or financial well-being. Furthermore, companies were required to include details about extreme weather conditions and natural events in their audited financial statements.

The legal battle over these regulations was centered in the Eighth Circuit Court, where the SEC had temporarily suspended the implementation of the rules pending the resolution of the litigation. Following a recent vote, the SEC informed the court through a letter that they would no longer defend the regulations and would not carry on advocating for their previously stated positions.

Even though the SEC has opted to abandon their climate disclosure rules, businesses may still be bound by similar laws in other regions such as the European Union’s Corporate Sustainability Reporting Directive and California’s existing climate disclosure regulations. Legislative proposals resembling California’s “Climate Corporate Data Accountability Act” have emerged in states like New York, Colorado, New Jersey, and Illinois, requiring businesses with over $1 billion in annual revenue to report their greenhouse gas emissions annually.

Recently, concerns were voiced by members of the US Senate and House of Representatives regarding the potential impact of the European Union’s Corporate Sustainability Due Diligence Directive on the competitiveness of US companies. Despite the SEC’s decision, it is evident that the conversation around climate disclosure rules and corporate responsibility is far from over, as various states and jurisdictions continue to push for greater transparency and accountability from businesses.