What a long, strange trip it has been with the SEC’s climate-related disclosure rules!
On Friday, the SEC announced that it is proposing to rescind its own climate related disclosure rules, just a little over two years after those rules were adopted by the Commission. The SEC’s adoption of those rules back in March 2024 marked the culmination of well over a decade of active debate as to what role the SEC’s public company disclosure requirements could play in requiring companies to describe their climate-related risks and opportunities, but the contemplated disclosures never actually materialized as the disclosure rules were bogged down in litigation.
Over the course of the past two years, the fate of the SEC’s climate disclosure rules was far from certain. The litigation challenging the rules was consolidated in the U.S. Court of Appeals for the Eighth Circuit, and in March 2025, the SEC announced that it had voted to discontinue its defense of the climate-related disclosure rules. But the litigation did not go away, and the SEC subsequently provided a status update to the Eighth Circuit indicating that the Commission did not intend to review or reconsider the climate-related disclosure rules, and instead the Commission wanted the Court to continue the proceedings so that it could address the SEC’s authority to adopt the climate-related disclosure requirements. In September 2025, the Eighth Circuit ruled that the litigation should continue to be held in abeyance, noting that it was the SEC’s responsibility to determine whether the climate-related disclosure requirements should be rescinded, repealed, modified, or defended in litigation. Now the SEC has determined to go down the route of rescinding the rules, which requires the full notice and comment rulemaking process to strike the requirements from the SEC’s rulebook.
It is very clear from the proposing release and the statements of the Chairman and Commissioners that the current Commission is very much opposed to the climate-related disclosure requirements. The proposing release notes:
The Final Rules were a dramatic overreach of the Commission’s statutory authority and, independently, unsound as a matter of policy. Based on an incorrect view of the scope of its authority, the Commission determined that it was appropriate to prescribe dozens of pages of highly specific disclosure rules solely about climate-related matters and apply the bulk of those rules to virtually all public companies, regardless of size, industry, or specific circumstances.
The Commission’s Fact Sheet describing the proposed amendments summarizes the key policy reasons that the Commission is relying on to propose rescission of the rules now, including:
– They are unnecessary and inconsistent with a registrant-specific, materiality-based approach to disclosure.
– They stray well beyond the policy concerns of the federal securities laws.
– They impose substantial costs that are not justified by the informational benefits they may provide to some investors.
– They are at odds with the Commission’s policy objectives of facilitating capital formation and promoting public company status.
Chairman Atkins described his concerns with the climate-related disclosure requirements in his statement in support of the rulemaking:
I have been concerned about the 2024 Climate Rules for some time because of questions raised about the Commission’s authority to adopt them and the soundness of the policy basis to support them. Careful compliance with the statutes governing the exercise of the Commission’s authority and a comprehensive effort to review and reshape the current SEC public company disclosure requirements are key components of my agenda, and I believe serious consideration must be given to rescission of the 2024 Climate Rules to help accomplish both of those goals.
We must re-examine the costs, burdens, and benefits of disclosure mandates to make becoming and remaining a public company more attractive again. SEC disclosure obligations should comply with the Commission’s statutory authority, be guided by materiality as the North Star, avoid the practical effect of dictating corporate behavior, and be imposed only when the expected benefits justify the likely costs and burdens.
In his statement supporting the action, Commissioner Mark Uyeda noted:
The Climate Rule should serve as a cautionary tale to financial regulators that their expertise is narrow and their authority is not without limit. We should focus our regulations on matters within our areas of core competency and not attempt to interject our subjective judgment on topics minimally related to that which the legislature has tasked us to oversee. If Congress had wanted the Commission to regulate environmental emissions and other non-financial issues, then Congress knows how to direct the Commission to do so.
In her statement in support of the proposal, Commissioner Hester Peirce notes that “[a]dhering to a merit-neutral, materiality-centric disclosure framework is not only consistent with the SEC’s statutory authority, but also good for the health of our capital markets.”
The comment period on the proposal will remain open until 60 days after publication of the proposing release in the Federal Register. The rules themselves continue to be stayed and presumably the litigation challenging the rules will be held in abeyance while the rulemaking process plays out.
– Dave Lynn
Public companies and their advisors have been struggling with what to disclose about climate-related matters in their SEC filings for decades now, and the SEC’s action on Friday to propose to rescind the 2024 climate-related disclosure requirements will not necessarily change anything about that struggle. While the line-item disclosure requirements of the SEC’s climate-related disclosure rules would have brought some certainty to that ongoing struggle, it was obviously never meant to be, as litigation and a change in Administration doomed any chance of those requirements seeing the light of day.
It is important to note that the SEC’s action to rescind the climate-related disclosure rules will take some time. The proposing release indicated that there will be a 60-day public comment period following publication of the proposing release in the Federal Register, and then it will inevitably take time for the Commissioners and the Commission Staff to consider those public comments and prepare an adopting release. All told, that process could take another six to nine months or so, such that adoption of the amendments rescinding the rules may not even happen this year.
In the meantime, one important thing for companies and advisors to note from the proposing release is that the Commission relied on the 2010 guidance about climate-related disclosures as a basis for rescinding the new rules, stating:
When climate change or other environmental issues, including transition risk, have materially affected the operations or financial performance of a specific company, existing disclosure rules require discussion of the effects. Indeed, the Commission’s Guidance Regarding Disclosure Related to Climate Change lists a variety of specific existing disclosure obligations that, depending on the particular circumstances of a company, could require disclosure of climate change matters. For example, Item 303 of Regulation S-K requires, among other things, a company to disclose and discuss any known trend or uncertainty that has had a material positive or negative consequence for the company’s results of operations. The fact that existing disclosure obligations already serve to provide investors with material information about climate-related matters reinforces the conclusion that the Final Rules are not “necessary” to protect investors. Indeed, they may even serve to harm investors by eliciting information about climate-related matters that goes well beyond what a reasonable investor needs to make an informed investment decision.
The proposing release goes on to note:
Similarly, the Final Rules contrast with the approach taken by the Commission in the 2010 Guidance, when it explained that, in certain circumstances and for some companies, regulatory, legislative, and other developments related to climate change “could have a significant effect on operating and financial decisions.” 2010 Guidance at 6291. As such, the Commission’s existing disclosure requirements—like those that require disclosure of a registrant’s description of its business, legal proceedings, risk factors, and management’s discussion and analysis—might apply to climate-related issues. In contrast to the Final Rules, these prior initiatives are consistent with the Commission’s long-held recognition that types of information “which are of importance only in certain circumstances have generally not been made the subject of specific disclosure requirements.”
With these and other statements in the proposing release, the Commission clearly signals that the 2010 climate change guidance remains in effect (and likely will continue to remain in effect), such that consideration of climate-related issues is still an important element of the overall disclosure process. For example, the 2010 guidance highlighted four disclosure areas where climate-related disclosure issues may arise for public companies:
– Item 101 of Regulation S-K, which requires a company to disclose material effects of compliance with environmental laws that have been “enacted or adopted.”
– Item 103 of Regulation S-K, which requires a description of “any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party.”
– Item 105 of Regulation S-K, which requires a company to discuss risk factors.
– Item 303 of Regulation S-K, which requires disclosure of “known trends, events, demands, commitments, and uncertainties” that are reasonably likely to have a material effect on a company’s “financial condition or operating performance.”
This leads us to conclude that while the SEC’s action to rescind the rules is pending – and probably even after the rules are rescinded – the status quo of the past 16 years will continue to prevail, and we will be left to our own devices to consider the materiality of climate-related matters under the existing framework of the SEC’s line item disclosure requirements, unless of course those line items also change as part of the SEC’s efforts to revamp the disclosure system.
– Dave Lynn
Back in March, I blogged about the SEC’s historic memorandum of understanding with the CFTC, which was intended to guide coordination and collaboration between the two agencies. Last month, the SEC announced that it had entered into a memorandum of understanding with the National Futures Association (NFA), which is the industrywide, self-regulatory organization for the U.S. derivatives industry. The NFA has been designated by the CFTC as a registered futures association.
The SEC’s announcement of the MOU notes:
The MOU will enhance SEC and NFA staff’s ability to share information on matters of mutual regulatory interest such as emerging risks, examination planning, and financial markets’ conditions. The MOU will also provide for periodic meetings between staff. This improved coordination will further enhance the SEC and NFA’s ability to promote compliance with derivatives and securities laws, maintain the highest level of oversight quality, and minimize duplicative efforts.
“Regulatory bodies working together should not be a novel concept. It should be the norm. Coordination between regulatory organizations provides businesses a predictable, straightforward path to compliance and comprehensive protections for investors that build trust in our markets,” said SEC Chairman Paul S. Atkins. “This memorandum is another step in furthering the SEC’s efforts to streamline cooperation with other regulatory organizations and alleviate the potential for duplicative or conflicting oversight.”
“We look forward to continuing our coordination efforts with the SEC under this formal framework,” said NFA President and CEO Thomas W. Sexton. “We believe this memorandum represents an important milestone for NFA and will allow us to further foster our mission of protecting customers and ensuring market integrity.”
– Dave Lynn
