Key Takeaways

  • The U.S. Securities and Exchange Commission (SEC) has asked the Eighth Circuit Court of Appeals—where challenges to its climate risk disclosure rule have been consolidated—to move forward with the litigation and rule on the petitions against the rule. The agency had earlier this year withdrawn its legal defense of the rule.
  • The SEC's request was included in a status report filed Wednesday in response to an April order from the Eighth Circuit. The agency also stated it has "no current intention to review or reconsider these rules."
  • However, the agency declined to directly answer the court's inquiry about whether it would maintain and enforce the climate rule if the legal challenges against it fail. The SEC wrote in its July 23 report: "Any future action the Commission may take would not pose any obstacle to this Court's issuance of a decision."

Deep Dive

The fate of the SEC's climate risk disclosure rule remains uncertain as the agency, now under President Donald Trump, seeks to distance itself from the rulemaking efforts of the previous administration.

In March, the SEC announced it would no longer defend in court its rule requiring companies to disclose certain climate-related risks, as its attorneys were "no longer authorized to advance" the arguments the agency had put forward under the Biden administration to defend the rule.

Shortly thereafter, the Eighth Circuit issued an order pausing the litigation over the validity of the SEC's climate disclosure rule until the SEC informed the court of its intent to review or reconsider the rule. The appellate court issued its order on April 24 in response to a motion from a coalition of Democratic-led states, which had initially intervened in the litigation alongside the SEC but are now defending the rule on their own. In the same order, the Eighth Circuit directed the SEC to file a status report informing the court of its plans for the rule.

While the SEC stated it has no intention to review or reconsider the rule, the agency did not directly answer the court's question about whether it would comply with the rule if the challengers' petitions fail. Instead, the agency asked the court to lift the litigation stay, proceed with considering the parties' arguments, and "exercise its jurisdiction to rule on this case."

The SEC wrote on Wednesday: "If the Court upholds the rules in whole or in part, any reconsideration of them would depend on Commission deliberations and a vote of the members, and the Commission cannot prejudge that action."

The SEC claimed that a court ruling on the legal issues in this case would help determine the scope and necessity of further rulemaking and "ultimately resolve the dispute over the Commission's authority to adopt mandatory climate risk disclosure obligations in the rules."

The agency passed the climate disclosure rule last spring in a 3-2 vote, with the three Democrats—former SEC Chair Gary Gensler, Commissioner Caroline Crenshaw, and Commissioner Jaime Lizárraga—voting in favor, while the two Republicans—Commissioners Hester Peirce and Mark Uyeda—voted against it. Central to that split vote was the commissioners' differing views on whether the SEC had the authority (or lacked it) to require climate-related disclosures from companies.

Gensler has since been replaced by Trump-appointed SEC Chair Paul Atkins, and Lizárraga left the commission in January, leaving Crenshaw as the agency's only Democratic commissioner and the sole supporter of the climate rule.

In a statement following the release of its status report, Crenshaw criticized the SEC for providing a "wholly unresponsive" answer and accused the agency of attempting to evade its legal obligations under the Administrative Procedure Act, which governs how agencies create and repeal rules.

Crenshaw said Wednesday: "The court asked us, without ambiguity: 'If the petitions for review of the rules are denied, will the Commission comply with the rules?' We did not—but should have—answered that question. The unspoken truth of this Commission is that the answer is 'no.'"

She added: "The Commission simply does not want to say what we all now know to be true—that it has no intention of letting the Climate-Related Disclosure Rules take effect."