In a move that was expected and represents a win for corporations, Securities and Exchange Commission (SEC) Acting Chairman Mark Uyeda on February 11, 2025, said in a statement that the commission will pause litigation of the climate disclosure rule.
The rule was adopted in March 2024 during Gary Gensler’s tenure as chair of the agency under the Biden administration which had made tackling the effects of climate change a priority. Now with the new Trump administration, which is taking a reverse course on climate change, it is almost certain that the rule will not become effective as long as a Republican is President. The SEC last year stayed the rule pending the lawsuit outcome.
Paul Atkins, President Trump’s nominee to run the SEC, is awaiting Senate confirmation. And Atkins is expected to pursue a deregulatory agenda.
The climate disclosure rule is currently being challenged in litigation consolidated in the Eighth Circuit, and Uyeda said that he has instructed the staff to request the court not to schedule oral arguments so that the SEC could determine next steps in these legal cases. He added that the agency will promptly notify the court of its determination about its positions in the litigation.
What This Means
In a policy note, Jaret Seiberg of TD Securities LLC said that Uyeda’s action will give the SEC “time to reverse its position on the rule, which we see as the first step to using the court to rescind the climate change reporting requirements.”
Seiberg noted that this was expected given opposition by Uyeda and the other Republican-appointed Commissioner Hester Peirce of the rule.
“We had argued when the rule was first proposed early in the Biden administration that the only way to protect it from election risk was for it to be firmly implemented to the point where companies would rather keep reporting the data than incur the cost of reverting to their prior disclosures,” Seiberg wrote. But it was adopted late.
In TD Securities’ view, the climate change disclosure rule was one of many Biden-era rules whose outcomes was going to depend on the presidential election outcome.
“We expect the SEC next will withdraw its defense of the rule,” Seiberg wrote. “This will then clear the way for the courts to find in favor of the companies challenging the disclosure regime. By having the courts block the rule, the agency does not need to go through a formal rulemaking to rescind it. As a rulemaking can take two years, the courts are a faster process for terminating the reporting requirement.”
The SEC under Gensler had argued that the rule is necessary to provide important information that investors need. And as a disclosure agency, the commission has the authority to adopt the requirements.
But 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.
In addition, the Supreme Court’s ruling in June 2022 on West Virginia v. EPA indicated that the SEC will likely lose if the case reached the high court. In the EPA case, the Supreme Court curtailed the agency’s ability to limit power plant emissions under a provision of the Clean Air Act. Since the ruling, legal scholars as well as law firms specializing in securities laws have offered varying opinions of how so-called “major questions doctrine” would be applied in the SEC’s case.
This is because for the first time, the Supreme Court invoked explicitly the doctrine in striking down the agency’s rule. A major questions case requires Congress to first give specific authority to agencies in certain extraordinary circumstances, such as whether a rule has broader social implications.
“We presume that Congress intends to make major policy decisions itself, not leave those decisions to agencies,” Chief Justice John Roberts wrote in his opinion of the EPA ruling.
While some legal scholars argued that this major questions doctrine may have little impact on the SEC’s rulemaking, many others believe that—given the current conservative makeup of the Supreme Court—the high court might well rule against the securities regulators as government overreach.
In his statement, Uyeda once again said that the rule “is deeply flawed and could inflict significant harm on the capital markets and our economy.”
In dissenting when the rule was adopted, Uyeda said that the commission was “without statutory authority or expertise” to address climate change issues.
“The lack of statutory authority is a weighty factor,” Uyeda said. “Commissioners have a constitutional obligation to determine the bounds of the agency’s statutory authority, and my views on the Commission’s authority here were the result of lengthy study and research informed by many comments on all sides of the issue.”
Mixed Reactions
SEC Commissioner Caroline Crenshaw, who said in March 2024 that she was disappointed that the commission did not adopt a stronger rule, criticized Uyeda’s unilateral action.
“I agree wholeheartedly with the acting Chairman that agencies and those who lead them must act within the boundaries of constitutional and statutory authority. Nonetheless, I dispute with equal vigor the notion that the agency acted outside of its remit. It did not,” she said in a statement shortly after Uyeda’s statement was issued. “The only things that have changed since the Rule was passed have been matters of politics and not substance.”
She is currently the only Democrat on the commission as Gensler and Democratic Commissioner Jaime Lizarraga stepped down shortly before the change in administration.
The U.S. Chamber of Commerce executive vice president of economic policy Tom Quaadman said he welcomes any effort from the new SEC leadership to reevaluate the climate disclosure rule.
“We sued the Biden Administration’s SEC, which, in finalizing its climate rule, acted outside of its legal authority and sought to micromanage business when the majority of public companies already disclose climate risks,” Quaadman said in an emailed statement. “While we are ready to continue our legal case, we are prepared to work with the agency to correct this wrong and to preserve a competitive capital market system.”
However, Ceres, which has been a strong proponent of the climate change rule, said Uyeda’s action is “truly unfortunate.”
“The SEC was established to protect investors, and for more than 20 years, investors have clearly and overwhelmingly stated that they need more clear, consistent, and decision-useful information on companies’ exposure to climate-related risks,” Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres, said in an emailed statement.
He pointed to the increasing physical climate risks, including the wildfires in Los Angeles shows the importance of transparency about such risks.
“The rule the SEC adopted last March marked the most significant improvement to the climate-related disclosure landscape in U.S. history, and the final rule was very responsive to the record-breaking 24,000 public comments the agency received on its proposal,” Rothstein added. “This decision by the SEC to walk away from defending its own rule in court is an abdication of the agency’s investor protection mission.”
This article originally appeared in the February 12, 2025, edition of Accounting & Compliance Alert, available on Checkpoint.
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