The Fifth Circuit U.S. Court of Appeals has temporarily halted the enforcement of the U.S. SEC new climate-related disclosure rule.
According to ESG Today, this ruling comes as a response to petitions from Liberty Energy and Nomad Proppant, highlighting the ongoing legal challenges to the SEC’s efforts to mandate climate risk reporting among public companies.
The SEC’s rule, which had been finalized earlier this month after a two-year deliberation process, marked a historic move towards integrating climate risk into corporate reporting. It required U.S. public companies to disclose climate-related risks, their plans to address these risks, the financial implications of severe weather events, and their greenhouse gas (GHG) emissions. However, in a notable scale-back from its initial proposal, the final rule exempted companies from reporting on Scope 3 emissions—those produced by their value chains—and limited the reporting of operational emissions to larger companies when considered material.
This development has sparked a wide array of reactions. On one hand, the rule’s critics, including Liberty Energy and Nomad Proppant, have argued that it inappropriately entangles the SEC with climate politics and demands an excessive amount of speculative information. On the other hand, environmental groups and some investors have criticized the rule for not going far enough, with the Sierra Club lodging a lawsuit against the SEC for weakening the final rule compared to its initial proposal.
Moreover, the SEC’s climate disclosure rule has faced opposition from political quarters. Congressional Republicans, for instance, have accused the SEC under Chair Gary Gensler of overstepping its authority and pursuing a progressive social agenda detrimental to the U.S. economy. This political opposition has manifested in initiatives such as the GUARDRAIL Act, aiming to limit the SEC’s mandate to material disclosures only.
Despite the controversy and legal challenges, an SEC spokesperson has affirmed the commission’s commitment to defending the climate risk disclosure rules, underscoring the rule’s basis in law and the administrative process. Meanwhile, the economic implications of the rule’s potential enforcement, cited by its detractors, include a cumulative compliance cost exceeding $4bn for affected companies.
As this legal and political battle unfolds, the temporary pause on the SEC’s climate disclosure rule highlights the complex interplay between environmental policy, corporate governance, and the broader economic implications of climate change mitigation efforts.
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