A landmark climate disclosure rule passed yesterday by the U.S. Securities and Exchange Commission (SEC) is already facing growing legal and legislative challenges. Ten states filed suit yesterday, shortly after the rule was finalized. Environmental advocates have also said they are considering challenging the rule.
If implemented, new SEC rules would force large public companies to disclose the risks they face from climate change and share some information about their greenhouse gas emissions. This would result in significantly greater transparency than in the past, but would still not paint a complete picture of a company’s environmental footprint, as companies are only required to disclose a portion of their emissions.
Rather than appease everyone with weaker rules, the SEC appears to be taking on Republicans and climate activists
The final rule is a watered-down version of a 2022 SEC proposal that sparked fierce opposition from industry groups and anti-ESG Republicans. But rather than appease everyone with weaker rules, the SEC appears to be fighting with Republicans and climate activists.
A coalition of ten states suing the SEC claimed that “the final rule exceeds the agency’s statutory authority and is otherwise arbitrary, capricious, an abuse of discretion, and inconsistent with the law.” It includes West Virginia, Virginia, Georgia, Alabama, Alaska, Indiana, New Hampshire, Oklahoma, South Carolina and Wyoming.
Congressional Republicans are also working to overturn the SEC’s new rules, Bloomberg method Report. Rep. Bill Huizenga (R-MI) and Sen. Tim Scott (R-SC) aim to use the Congressional Review Act, an oversight tool that allows Congress to veto actions by federal agencies.
“Investors should be aware that this overreach by the SEC will severely harm our economy while providing a boon to special interests and far-left activists,” Huizenga said in a statement yesterday. ”
However, many environmental activists are also unhappy with the rule, saying it does not go far enough in addressing climate-related risks. The most contentious issue is whether companies should disclose how much pollution their supply chains and end-use products cause. While these are considered indirect emissions, they also often represent the largest portion of a company’s carbon footprint. Trade groups, particularly banking and agricultural trade groups, strongly opposed this provision in the SEC’s original proposal. The SEC ultimately abandoned the bill, angering environmental groups.
The Sierra Club said it was also disappointed that the SEC’s final rule “eliminates a key requirement that companies quantify climate-related impacts on their assets and expenses in their financial statements.” The group, represented by nonprofit environmental law group Earthjustice, said in a statement yesterday that it was “considering challenging the SEC’s arbitrary deletion of key provisions in the final rule while taking action to defend the SEC’s authority to enforce such rules.”
“As investors, we expect full transparency about companies’ fundamentals, especially climate-related risks that can have serious negative financial consequences. Without higher standards of accountability, companies may withhold critical information, thereby preventing We make informed investment decisions based on full due diligence,” said Zhu Dan, executive director of the Sierra Club Foundation, in a statement.
SEC Chairman Gary Gensler stood by the compromises made in the new rules. “I believe today’s action is an important step for our U.S. capital markets,” he said in a statement yesterday. “These rules will enhance the disclosures that investors rely on to make investment decisions.”