In a recent development, the Fifth Circuit U.S. Court of Appeals has issued an administrative stay, temporarily suspending the implementation of the US Securities and Exchange Commission's (SEC) new climate-related disclosure rule. This decision marks a significant development in the ongoing debate surrounding the mandate for companies to report on climate-related risks and greenhouse gas (GHG) emissions.
The court's ruling comes in response to a petition filed by Liberty Energy, an oilfield services company, and Nomad Proppant, a frac sand company partly owned by Liberty. These companies raised concerns about the SEC's proposal, arguing that it would politicize the SEC's role and burden public companies with extensive and speculative reporting requirements regarding GHG emissions and climate-related risks.
Revised SEC Climate Rule Faces Legal and Legislative Opposition
Initially proposed two years ago, the SEC's rule aimed to establish requirements for public companies in the US to disclose information on climate risks, mitigation plans, financial impacts of severe weather events, and, in some cases, operational GHG emissions. However, the finalized rule, while marking a significant step in sustainability reporting, notably scaled back requirements, omitting the reporting of Scope 3 emissions and focusing primarily on Scope 1 and 2 emissions from larger companies when deemed material.
Despite the revised requirements, the SEC's rule faces legal challenges on multiple fronts. Ten US states have filed a lawsuit to block its implementation, alleging that it is arbitrary, capricious, and unlawful. Additionally, Congressional Republicans have introduced legislation aimed at restricting the SEC's authority in mandating climate-related disclosures, citing concerns about its impact on consumers, workers, and the economy.
Environmental organizations, such as the Sierra Club, have also voiced concerns, arguing that the finalized rule fails to provide sufficient information about companies' exposure to climate-related risks, relative to the SEC's initial proposal.
SEC's Defense Amid Legal Challenges
In response to these challenges, the SEC has reaffirmed its commitment to defending the rule in court, emphasizing its adherence to administrative processes and legal authorities. The petition by Liberty and Nomad raised several objections to the rule, including questioning the SEC's authority to regulate climate change issues effectively and alleging that the rule is arbitrary and lacks evidence of its potential benefits for company performance or shareholder value.
The court's decision to grant the stay did not provide specific reasoning but acknowledged the concerns raised by the petitioners, highlighting the complexity and contentious nature of the issue at hand. As the legal battle unfolds, the future of the SEC's climate disclosure rule remains uncertain, with stakeholders on both sides advocating for their respective positions.