April 5, 2024

SEC Order Stays Climate Disclosure Rules Pending Completion of Judicial Review

After the lightspeed pace of judicial developments in the challenges to the SEC’s final disclosure rules, it seemed like things were slowing down. Well, this might give you whiplash! Yesterday, the SEC posted this order issuing a stay of the final climate disclosure rules pending the completion of judicial review of the consolidated Eighth Circuit petitions.

The order details the various legal challenges and describes the multiple submissions to the Eighth Circuit requesting a stay pending judicial review. Following those submissions, the SEC moved to establish a consolidated briefing schedule encompassing all motions seeking a stay. That motion was opposed by 31 parties that urged the Eighth Circuit to expedite briefing on the already-filed emergency stay motions. It seems the SEC determined to use its discretionary authority under Exchange Act Section 25(c)(2) and Section 705 of the Administrative Procedure Act, which it may do if it finds “justice so requires,” after those oppositions were filed.

Don’t mistake the stay for an indication that the SEC is backing down from defending the rules in any way. The order makes this clarifying comment:

In issuing a stay, the Commission 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.

But the Commission finds that, under the particular circumstances presented, a stay of the Final Rules meets the statutory standard. Among other things, given the procedural complexities accompanying the consolidation and litigation of the large number of petitions for review of the Final Rules, a Commission stay will facilitate the orderly judicial resolution of those 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.

Keep in mind that the order says nothing about the phased-in compliance dates, so what this might ultimately mean for whether and when companies, especially large accelerated filers, have to comply with the rules is unknown at this point — it’s still dependent on SEC action and/or how the litigation progresses. While the order notes that the SEC has used this authority twice before, that doesn’t give us any precedent to point to for the compliance timeline since both referenced rules were ultimately vacated (plus, as we all know, prior results do not guarantee a similar outcome).

It seems unwise to scale back or slow down compliance efforts — “regulatory uncertainty” already exists. Ultimately, given requirements in numerous other jurisdictions, mandatory climate reporting of one kind or another seems inevitable for many SEC registrants regardless of the fate of the SEC rules. And, as the amount of publicly available climate data increases, keep in mind that the SEC will continue looking at that and issuing comments or taking other action, with or without the final rules, per its 2010 climate disclosure guidance. Footnote 8 of the order clarifies that the stay does not impact that guidance.

Meredith Ervine