SEC pauses climate disclosure rule

The Securities and Exchange Commission has temporarily stayed its climate-related disclosure rule amid a rash of lawsuits.

The SEC issued an order last Thursday pausing implementation of the rule. Last month, a federal court also issued a temporary stay in response to lawsuits from two fracking companies, Liberty Energy and Nomad Proppant Services. Attorneys general in 19 Republican-led states have also sued to stop the rule in two other lawsuits, as did the Sierra Club in a lawsuit of its own, as well as the U.S. Chamber of Commerce, the Texas Association of Business and the Longview Chamber of Commerce in Longview, Texas. 

The SEC approved the long-awaited climate rule last month nearly two years after proposing it. The final rule removed a number of provisions from the original proposal in response to industry pressure, removing the requirement to report on so-called Scope 3 emissions from suppliers, vendors and customers, and adding a materiality requirement that would mean reporting on only what a company believed would affect its profits.

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The SEC said in its order that in issuing a stay, it "is not departing from its view that the Final Rules are consistent with applicable law and within the Commission's long-standing authority to require the disclosure of information important to investors in making investment and voting decisions. Thus, the Commission will continue vigorously defending the Final Rules' validity in court and looks forward to expeditious resolution of the litigation."

However, the SEC believes a stay will facilitate an orderly judicial resolution of the various legal challenges and allow the court of appeals to focus on deciding the merits. "Further, a stay avoids potential regulatory uncertainty if registrants were to become subject to the Final Rules' requirements during the pendency of the challenges to their validity," said the SEC. "The Commission has previously stayed its rules pending judicial review in similar circumstances."

Some companies may nevertheless wish to prepare to comply with the rules in case they survive the various legal challenges.

"While the SEC's stay pauses the need for calculating the impact of certain climate-related events or conditions on the financial statements, the remaining provisions of the rule are required for other reporting regimes," said Maura Hodge, KPMG US audit ESG leader, in an advisory. "Therefore, companies should continue to move forward according to plan and carry out an interoperability analysis."

KPMG has been presenting a series of webinars on the SEC climate rule. "The rule is on pause, and as of today if the stay is in place on 1/1/25, it does give you time," Hodge said during a webcast Tuesday. "We tell clients don't stop. There are some actions you should take today to identify the risks to your business in the competitive landscape. You're responsible for protecting the value of your organization and enhancing it if you can."

"Companies should continue to consider existing disclosure obligations related to climate-related matters," recommended law firm Wilson Sonsini on JD Supra. "The stay is anticipated to impact companies differently based on specific sustainability drivers and compliance obligations. Many companies may opt to continue preparation for climate-related risk, emissions or financial disclosures despite the current challenges to the Final Rules and the SEC stay."

Another law firm, Debevoise & Plimpton, pointed out in a separate alert that compliance differs according to the type of company and disclosure, with the earliest disclosure for large accelerated filers set for 2026, reporting on fiscal year 2025. However, judicial review and the outcome of the November elections may change that timeline or stop the SEC climate rule from ever taking effect.