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Yesterday, just over a year after adopting its climate change disclosure rules, the SEC announced that it had voted to discontinue its defense of those rules. The announcement went on to say that a letter had been sent to the court stating that the agency was withdrawing its defense of the rules and that its counsel was no longer authorized to advance the arguments in the brief that the SEC had filed. Here’s an excerpt from the SEC’s press release:

SEC Acting Chairman Mark T. Uyeda said, “The goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.”

The rules, adopted by the Commission on March 6, 2024, create a detailed and extensive special disclosure regime about climate risks for issuing and reporting companies.

States and private parties have challenged the rules. The litigation was consolidated in the Eighth Circuit (Iowa v. SEC, No. 24-1522 (8th Cir.)), and the Commission previously stayed effectiveness of the rules pending completion of that litigation. Briefing in the cases was completed before the change in Administrations.

Commissioner Crenshaw filed a blistering dissenting statement to the Commission’s decision. Here’s an excerpt:

By its letter, we are apparently letting the Climate-Related Disclosures Rule stand but are withdrawing from its defense in court. This leaves other parties, including the court, in a strange and perhaps untenable situation. In effect, the majority of the Commission is crossing their fingers and rooting for the demise of this rule, while they eat popcorn on the sidelines. The court should not take the bait.

Rather, the SEC should do its job. It should defend its existing rule in litigation. If the agency chooses not to defend that rule, then it should ask the court to stay the litigation while the agency comes up with a rule that it is prepared to defend (be it by rescission or otherwise, but certainly in accordance with APA mandates). At the very least, if the court continues without the Commission’s participation, it should appoint counsel to do what the agency will not – vigorously advocate in the litigation on behalf of investors, issuers and the markets.

The Commission’s actions are inconsistent with the APA, historical practice, and they embody bad governance. We do not have license to wholesale abandon agency action simply because the now-constituted Commission would not have supported the rule when it passed. The new majority cannot now rewrite history to change the outcome of a properly held Commission vote.

The SEC’s action does appear to leave things in some kind of weird judicial limbo, but I’m sure we’ll hear more about what happens next on the climate change disclosure rules – from the court and others – over the weeks and months to come.

By the way, if you’re wondering whether the fact that yesterday was Opening Day had anything to do with the title of this blog, the answer is of course it did!

– John Jenkins