While it fights the regulation in court, the U.S. Securities and Exchange Commission is delaying the implementation of its new climate disclosure rule.
The final regulation, which mandates that certain public firms in the United States publish their greenhouse gas emissions and climate risks, was put to a vote by Wall Street’s top regulator in March. Legal objections to the measure almost quickly arose.
In part to prevent regulatory confusion for businesses that may have been subject to the rule while litigation against it continues, the SEC announced on Thursday that it has suspended the rule. The U.S. Court of Appeals for the Eighth Circuit is currently reviewing the rule.
The nation’s top financial regulator had proposed a regulation two years ago, but it was whittled down for adoption in early March after facing criticism and lobbying from trade and business associations as well as Republican-led states that claimed the SEC had overreached its authority.
However, that did not prevent legal action. Environmental organizations, such as the Sierra Club, filed a lawsuit following the approval of the final rule, claiming that the SEC’s weaker rule did not go far enough.
The SEC declared that it would keep “vigorously defending” the legality of its climate regulation and that it had behaved lawfully in requiring disclosures that were significant to investors.
The SEC said in a statement that a stay would “allow the court of appeals to focus on deciding the merits.” The head of Ropes & Gray’s environmental, social, and governance (ESG) division, Michael Littenberg, said that the stay was not likely to have an impact on how the SEC’s regulation turned out in the end.
Furthermore, Littenberg said, “it’s not pencils down on climate disclosure more generally,” even though some businesses may postpone their efforts to comply with the SEC’s rule.
In order to comply with comparable regulations in other jurisdictions, like California and the European Union, which recently advanced its own disclosure requirements, companies are already gathering data and climate-related information. A legal challenge has also been made to California’s rule.
Smaller businesses face greater difficulties than larger ones due to the uncertainties around the SEC’s rule, according to Vinson & Elkins attorney Jon Solorzano, who counsels them on ESG matters.
They don’t have limitless resources, which is where things become complicated, according to Solorzano. “This is really expensive for their company; how much should they be spending on something that might or might not happen?
The SEC rule mandates that publicly traded corporations in the United States disclose not just their greenhouse gas emissions but also their plans to transition to a low-carbon economy and the risks associated with it.
Laptops 1000The government repealed Scope 3, a rule requiring businesses to disclose certain indirect emissions. These occur in a firm’s supply chain, such as during the manufacturing of the textiles used to produce garments for retailers, rather than from the company or its activities.
The reporting obligations set forth by the SEC would not have gone into force until 2026.
