Dive Brief:

• The Securities and Exchange Commission proposed a rule Friday to formally rescind the climate-risk disclosure regulation adopted under prior SEC Chair Gary Gensler in 2024. Though adopted in 2024, the final rule never went into effect. 
• The proposal would rescind the climate disclosure rules “in their entirety,” according to a Friday press release. The agency said the rules exceeded the SEC’s statutory authority, but also said there were "independent, compelling reasons” to rescind them, “even if it had authority to adopt such final rules.”
• The 2024 rules would have required companies to disclose climate-related risks with material impacts on companies, as well as other climate disclosures. The agency signaled its intention to rescind the rules earlier this month in filings to the Office of Information and Regulatory Affairs and the federal appeals court overseeing lawsuits to the rule.

Dive Insight:

The agency’s proposal called the 2024 climate disclosure rules “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 rule proposing the rescission said.

The SEC also argued in the proposed rescission that, even if the agency had the authority to promulgate the rules, the rules were “inconsistent with a registrant-specific, materiality-based” disclosure approach. The agency also said the rules would have imposed unjustified “substantial costs,” were “at odds” with the agency’s objectives and “well beyond the policy concerns of federal securities laws.”

The SEC first proposed the climate risk disclosure rule in 2022, and it was approved nearly two years later by a 3-2 vote. The rule faced multiple lawsuits after its approval, with challenges consolidated into the Eighth Circuit Court of Appeals, and the agency stayed the regulation while they played out.  

After initially proposing to require all public companies to disclose their scope 1, scope 2 and scope 3 emissions, the final rule would have only included scope 1 and scope 2 emissions reporting for a more limited group of public filers. 

Following President Donald Trump’s inauguration, the SEC first looked to withdraw the agency’s defense of the rule in court, but the federal judge overseeing the case said in September that “it is the agency’s responsibility” to determine whether to rescind, repeal, modify or continue defending the final rules. An SEC spokesperson told ESG Dive earlier this month that the agency staff was working on the rescission proposal at the direction of SEC Chair Paul Atkins.

“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,” Atkins said in Friday’s press release.

The agency’s rescission said the costs imposed on companies by the 2024 rule “are not justified by the information benefits they may provide to some investors.” However, nonprofit Better Markets said in a Friday press release that companies’ climate-related risks “matter to their bottom line, and investors deserve to know about those risks and then weigh their significance for themselves.”

“This action threatens to leave investors in the dark,” Benjamin Schiffrin, the nonprofit’s director of securities policy, said in the release. “The risks public companies face matter to investors, and the SEC’s proposal fails to acknowledge that climate-related risks are no exception.”

SEC Commissioner Hester Peirce said in a Friday statement that she understands “why some people strongly support” the agency’s climate disclosure rule. She said that “many people believe that climate change is an existential threat that justifies commandeering any tool,” including corporate disclosure frameworks.

“Designing securities disclosure to be a lever of change, however, exceeds the authority Congress gave to the SEC,” Peirce said. ”Adhering 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.”

Despite the proposed rescission of the SEC’s disclosure rules, climate disclosure regulations remain on the books in California and a growing number of global jurisdictions.