April 10, 2024

SEC Climate Disclosure Rules: Pencils Down?

The SEC’s order staying its climate disclosure rules pending the resolution of challenges currently pending in the 8th Circuit has some companies questioning whether they can take a “pencils down” approach to their compliance efforts.  This recent Ropes & Gray memo weighs in with some thoughts on this topic:

It’s likely pencils down for now on compliance with the SEC climate rules. It’s hard to envision many registrants devoting time and resources to preparing for compliance with rules that have been stayed.

The case is likely to go on for some time. The litigation concerning the SEC’s conflict minerals rule went on for more than four years (see our earlier post here). The climate rules stay order cites two other rules stayed by the SEC pending judicial review in similar circumstances: a rule establishing a transaction fee pilot in NMS stocks and proxy access rules. It took approximately a year for the appellate court decision on the proxy access rules. In the transaction fee pilot case, the court took slightly under a year-and-a-half. The current stay order contemplates that the challenges to the climate rules may extend beyond 2025.

If the SEC prevails in the litigation, we expect it will push back at least some of the disclosure requirements. Large accelerated filers will not be in a position to make their first disclosures for 2025 (due in 2026) if they do not begin their supporting work well in advance. It seems unreasonable for the SEC to expect registrants to move forward with their compliance preparation while the stay is in effect.

These are all valid points, but for many companies a “go slower” approach may be preferrable to a “pencils down” alternative. For now, the SEC hasn’t said anything about pushing back compliance dates, and the panelists in our recent webcast on the rules made it clear that building the climate disclosure infrastructure necessary to comply with them is going to be a heavy lift. Furthermore, even if the SEC ultimately decides to extend the compliance dates, it’s unclear how long they’ll give companies to get their acts together.

Also, keep in mind that the compliance dates vary depending on filer status and the provisions of the rules in question, and there’s no telling whether later compliance dates would also be pushed out as part of any extension. Finally, even if you’re betting on the rules being thrown out, the SEC isn’t the only game in town. For many companies, building out their climate disclosure infrastructure will be necessary to comply with the EU’s CSRD or with California’s climate disclosure laws (assuming they survive their own legal challenges).

John Jenkins