The U.S. Court of Appeals has told the U.S. Securities and Exchange Commission (SEC) that it will not issue a ruling on the legality of its climate disclosure rules, as requested by the SEC, leaving the agency on its own to decide on the fate of the rules requiring climate-related reporting by public companies.
While the SEC’s request would have effectively let the court decide what became of the climate reporting rules, the court instead ordered the agency to either reconsider the regulation through ordinary rulemaking procedures, or to renew its defense of the rules in court.
Notably, the rulemaking procedure could be a lengthy process, involving publishing the proposed rule along with explanations and legal authority justifying the rule, opening a public commentary period, with agency staff required to consider and respond to significant issues raised in the comments, and with the final rule itself being potentially open to legal challenges.
The climate reporting rules were adopted by the agency in 2024, under prior Biden-appointed SEC Chair Gary Gensler, establishing for the first time requirements for public companies in the U.S. to provide disclosure on climate risks facing their businesses, plans to address those risks, the financial impact of severe weather events, and, in some cases, greenhouse gas emissions originating from their operations.
The rule faced a series of legal challenges immediately following its release, with nine court petitions filed within 10 days, including a lawsuit against the rule filed by 25 Republican state attorneys general, led by Iowa AG Brenna Bird, and another appeals court motion requesting a stay of the rules led by the U.S. Chamber of Commerce.
The petitions were subsequently consolidated in the Eighth Circuit court, and the SEC announced in April that it would pause the implementation of the climate disclosure rule pending a review of the legal petitions, and in August, the agency launched its defense of the rule in court arguing that the proposed disclosures in the rule provide “information directly relevant to the value of investments,” and that it is within the Commission’s authority to mandate climate risk disclosures.
Following the election of the Trump administration, and the subsequent resignation of Gensler, the SEC announced that it would drop its defense of the rule in court. In a subsequent status report filed by the agency in July, the SEC told the court that it “does not intend to review or reconsider the Rules at this time,” and instead “requests that the Court proceed with the litigation and decide the case.”
At the time, SEC Commissioner Caroline Crenshaw, the only remaining Commissioner who supported the rule’s adoption, criticized the SEC’s response, accusing the Commission of trying to get around the process that would be required to rescind the rule.
In its new order, the court appeared to decline the SEC’s request to decide the case, stating that the petitions “will be held in abeyance to promote judicial economy until such time as the Securities and Exchange Commission reconsiders the challenged Final Rules by notice-and- comment rulemaking or renews its defense of the Final Rules.”
The court added:
“It is the agency’s responsibility to determine whether its Final Rules will be rescinded, repealed, modified, or defended in litigation.”
