The U.S. Securities and Exchange Commission (SEC) is reconsidering its climate-related disclosure rule, which was adopted in March 2024 but has since faced legal challenges. Acting SEC Chairman Mark T. Uyeda has raised concerns about the ruleās legality, costs, and overall necessity, directing staff to notify the court that the SEC needs more time to evaluate its stance.
Why Is This Rule Controversial?
The rule, officially known as The Enhancement and Standardization of Climate-Related Disclosures for Investors, was designed to require companies to provide detailed reports on climate-related risks that could impact their financial performance. However, Uyeda and Commissioner Hester Peirce, both of whom voted against the rule last year, believe it oversteps the SECās authority. Their main concerns include:
- Lack of Legal Authority: Uyeda argues that the SEC was never given the power by Congress to regulate climate issues.
- Unnecessary Costs: Opponents say the rule would force companies to disclose too much non-financial information, making compliance expensive.
- Existing Rules Are Enough: They argue that companies are already required to disclose any climate risks that are financially significant, so no new rule is needed.
What Happens Now?
The rule is currently tied up in lawsuits, and the SEC had already paused its implementation while legal battles play out. But Uyeda is taking it a step furtherāgiven recent changes in SEC leadership and a new White House order freezing certain regulations, he wants the court to hold off on scheduling arguments. This will give the SEC more time to reconsider its position.
What Does This Mean for Businesses?
For now, companies do not need to follow the new climate disclosure rule while the SEC reviews its approach. If Uyedaās concerns lead to changes or even the repeal of the rule, businesses may not have to comply at all. However, the final outcome will depend on both legal proceedings and decisions made by the SEC in the coming months.
Final Thoughts
This move signals a shift in how the SEC handles climate-related regulations. While some investors and environmental advocates see the rule as essential for transparency, othersālike Uyedaāargue that financial regulators shouldnāt be in the business of climate policy. The next steps will determine whether this rule stays, changes, or disappears altogether.
You can read the Acting Chairman statement on climate-related disclosure rules here.