The Securities and Exchange Commission (SEC) delayed implementation of its climate-related disclosure rule until the courts can rule on appeals filed in response to the controversial policy.
The SEC issued a stay of the rule Thursday, acknowledging such requests contained in appeals by two fracking companies and a number of business groups. The cases have been consolidated into the U.S. Court of Appeals for the Eighth Circuit.
A previous stay of the rule issued March 15 by the U.S. Court of Appeals for the Fifth Circuit was already lifted before the SEC made its announcement.
The agency said it still believes it has the authority to require public companies to disclose their climate-related risks to investors.
“Thus, the commission will continue vigorously defending the final rules’ validity in court and looks forward to expeditious resolution of the litigation,” the order said.
The legal actions opposing the rule argue the SEC is overstepping its authority.
The stay will temporarily halt the rule from taking effect, though its earliest disclosure compliance date—fiscal year beginning in the calendar year 2025—only applies to large accelerated filers, according to an SEC fact sheet. All other filers wouldn’t have to begin complying until at least a year after that.
Legal experts still advise public companies to continue to prepare for compliance with the rule, whenever—or whether—it takes effect.
“While it shows a confidence by the SEC to make this move, it does not clear up the uncertainty companies that are subject to the final rules can face,” said Julie Rizzo, a partner at law firm K&L Gates. “They should continue to consider their compliance with these climate-related disclosure requirements as they prepare to make other voluntary disclosures, such as in corporate sustainability and ESG (environmental, social, and governance) reports.”
Other experts said the appeals to the rule could take months or years.
Christian Schultz, partner at law firm Arnold & Porter and former assistant chief litigation counsel in the SEC’s Division of Enforcement, added the Eighth Circuit could reject the new regulation. The commission, he said, had “little choice” but to issue a stay.
“How this plays out in the next year or so may be unclear, but the SEC maintains an antifraud toolbox that it can use to monitor and investigate companies’ efforts to address climate-related disclosure and reporting obligations already required by some U.S. states and foreign jurisdictions,” he said.
Jane Norberg, partner at Arnold & Porter and former head of the SEC’s Office of the Whistleblower, added a new presidential administration could issue revisions or even unwind the rule.
“This is not unprecedented and happened with respect to rules that governed the SEC whistleblower program,” she said. “Certain rules were proposed under the Trump administration and promptly got unwound when the new chair was appointed. Those rules were also the subject of a pending lawsuit at the time.”
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