SEC voluntarily stays climate disclosure rules – what now for registrants?

Yesterday afternoon, the SEC voluntarily stayed its recently adopted climate disclosure rules pending the completion of judicial review by the Court of Appeals for the Eighth Circuit. In the days following their adoption, challenges to the rules were brought in six federal appellate courts. The petitions were consolidated for review in the Eighth Circuit, as discussed in our earlier post.

Excerpts from the stay order:

“[t]he Commission has discretion to stay its rules pending judicial review if it finds that ‘justice so requires.’ The Commission has determined to exercise its discretion to stay the Final Rules pending the completion of judicial review of the consolidated Eighth Circuit petitions.

“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. … 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.” 

What now for registrants? – quick takeaways

• It’s likely pencils down for now on compliance with the SEC climate rules. It’s hard to envision many registrants devoting time and resources to preparing for compliance with rules that have been stayed.
• The case is likely to go on for some time. The litigation concerning the SEC’s conflict minerals rule went on for more than four years (see our earlier post here). The climate rules stay order cites two other rules stayed by the SEC pending judicial review in similar circumstances: a rule establishing a transaction fee pilot in NMS stocks and proxy access rules. It took approximately a year for the appellate court decision on the proxy access rules. In the transaction fee pilot case, the court took slightly under a year-and-a-half. The current stay order contemplates that the challenges to the climate rules may extend beyond 2025.
• If the SEC prevails in the litigation, we expect it will push back at least some of the disclosure requirements. Large accelerated filers will not be in a position to make their first disclosures for 2025 (due in 2026) if they do not begin their supporting work well in advance. It seems unreasonable for the SEC to expect registrants to move forward with their compliance preparation while the stay is in effect.
• Furthermore, if there is a Republican administration next year, expect efforts to scrap or scale back the rules. Coupled with the stay, we expect this will keep registrants on the compliance sidelines.
• But, it’s not pencils down on climate disclosure more generally. SEC registrants will continue to provide voluntary climate-related disclosures on websites and in sustainability reports, stand-alone TCFD reports and CDP reports. In addition, under other regimes, registrants will be required to make climate disclosures that in many respects go further than SEC requirements. 
• The SEC has stayed the climate rules, not climate disclosure. Footnote 8 in the stay order  explicitly notes that the stay order does not stay the Commission’s 2010 climate guidance.
• As we noted in an earlier post, investors will want what they want, irrespective of the rules. Now that the rules have been stayed, we expect many registrants will face additional investor pressure to provide climate disclosures.
• Disclosure aside, companies will (and should) continue to devote time and resources to assessing and addressing climate risk as part of prudent business practices.

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