It’s official. Yet again. The Securities and Exchange Commission (SEC) has delayed its climate change disclosure rulemaking.
Now the agency will consider finalizing its March 2022 proposal in the spring of 2024, according to an updated rulemaking agenda, which was made public on December 6, 2023, but filed in late August.
The commission has delayed a final action a few times already, and the latest delay has been widely expected, given strong pushback by public companies against some of the more onerous proposed requirements, including scope 3 greenhouse gas (GHG) emission disclosures, 1%-materiality threshold for financial statement disclosures, and attestation of scope 1 and scope 2 GHG emissions for larger companies.
The SEC’s initial hope, which was quickly dashed, was much earlier. The agency discusses December 2022 as a potential effective date in its landmark proposal in Release No. 33-11042, The Enhancement and Standardization of Climate-Related Disclosures for Investors.
“It is not surprising that the SEC has once again pushed back the climate agenda. They have more work to do,” said Dave Brown, a partner with Alston & Bird LLP in Washington. “There have been significant developments since it was first proposed in 2022,” including the European Union’s Corporate Sustainability Reporting Directive, the International Sustainability Standards Board’s sustainability standards, and California’s climate reporting law.
The climate change disclosure rule is probably the most closely watched and one of the most consequential projects that the SEC will undertake during Chair Gary Gensler’s tenure in part because it will test the boundaries of the securities laws and the commission’s authority.
If adopted, it will represent a significant change for public companies. Many large companies today already provide voluntary sustainability reports. But the SEC’s proposal—with several extensive standardized and prescriptive requirements—is intended to provide investors with consistent, comparable, decision-useful information that is reliable.
Even though the SEC is planning to finalize climate rules around April 2024 as reflected in the most current agenda—which is updated twice a year—that is just a best estimate. It can happen before or after April.
During public events, Gensler has pointed to the record-breaking number of comment letters the SEC has received—over 16,000—that needs to be thoroughly analyzed in addition to assessing legal developments. He said that the commission is not working “against the clock.”
This rulemaking has been especially controversial as many critics—mainly business organizations and Republicans—questioned whether the agency even had the authority to prescribe extensive rules that they view are intended to manage the economy and businesses. The commission’s remit does not include business management or climate policy.
Adding fuel to critics’ fire, the Supreme Court’s ruling in June 2022 on West Virginia v. EPA threw cold water on the SEC’s pending rule, putting the commission on the defensive mode. “We know that’s significant and meaningful, and we look at it within those rulings as well,” Gensler said at a conference. “It is the Supreme Court.”
The U.S. Chamber of Commerce—while not officially saying it will sue the SEC when the rules are finalized—has threatened lawsuit privately. And it was clear that a lawsuit was on Gensler’s mind at a late October event hosted by the chamber.
In response, Gensler has been defending the SEC’s authority at various public events.
“It remains to be seen if the SEC will repropose the rule or immediately shift to a final rule in the interest of time,” Alston & Bird’s Brown said. “Given the Fifth Circuit case on the SEC’s shareholder repurchase rules, hopefully the SEC will engage in significantly more rigor when it comes to the economic analysis relating to the burden the climate rules will have on companies as the climate rules will most certainly be challenged in court.”
Brown was referring to the appeals court’s October 31 decision to send the stock buyback disclosure rules back to the commission. This represented a partial victory for the U.S. Chamber and other groups that challenged Release No. 34-97424, Share Repurchase Disclosure Modernization, published in May. The Fifth Circuit gave the SEC “to correct the defects” by November 30. The agency issued a stay on November 22.
“Companies are anxious to see what these climate rules will be so they can understand the overlay of the SEC disclosure requirements as they will fit alongside requirements in California and Europe,” Brown added.
This article originally appeared in the December 11, 2023, edition of Accounting & Compliance Alert, available on Checkpoint.
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