Days after the SEC mandated its landmark climate-related disclosure rules, the SEC paused implementation amid court proceedings regarding the rules’ legality.
The pushback from opponents, who claimed that the rules overreached the agency’s authority, did not come as a surprise. Since their initial proposal in 2022, the disclosure rules have been widely debated, with detractors claiming they would negatively impact public companies, raise costs, and stifle economic opportunity.
The early and successful pushback led the SEC to scale back on the rules, particularly Scope 3 emissions requirements. These final rules, enacted into law on March 6, then faced further criticism from once-longtime supporters, who said that the “watered-down” didn’t do enough.
And then came the lawsuits.
Most notably, a U.S. appeals court granted a request for an administrative stay on the rules after companies operating in the oil and gas industry successfully challenged them. The SEC accepted the stay and paused enforcement.
Why Pause?
While the SEC still supports its ruling, believes it to be lawful, and plans to “vigorously defend it,” the pause will help the agency avoid regulatory uncertainty as litigation plays out.
During this period, the SEC plans to solicit additional public input, which may result in a change of direction for the climate disclosure rule overall.
A Benefit to Filers
As the SEC strengthens and defends its position on ESG, companies have been given the gift of more time to gain compliance.
However, that should not slow down ESG compliance efforts. A pause is only temporary; regulation is coming in some form. A lawyer for the SEC told the Wall Street Journal, “There is an obligation, which the SEC underscored a few years back, to consider the impact of climate change and climate events on the business, regardless of the new rule.”
Additionally, the climate-related disclosure mandates in question are only the latest in a string of sustainability regulations being enforced worldwide.
Last year, for example, the European Union adopted the Corporate Sustainability Reporting Directive (CSRD), which requires EU and non-EU companies with activities in the EU to file annual sustainability reports. The State of California also passed two new ESG disclosure laws—the Climate Corporate Data Accountability Act and Greenhouse gases: climate-related financial risk—which affect companies doing business in California.
And for anyone who may think they don’t need to worry about global or California regulators, be aware that other stakeholders are demanding transparent ESG data with or without regulator support. Retail and institutional investors are increasingly interested in ESG criteria for evaluating businesses and making investment decisions.
DFIN can help
In summary, don’t wait. Use this time to get started or improve your current data reporting strategy. DFIN has the tools needed to enable companies to measure and report their climate-related data easily and affordably. We stay on top of regulatory requirements so you can be compliant. Learn more about DFIN’s ESG reporting solution at dfinsolutions.com.
