SEC Signals Retreat on Climate Reporting
Last year, we wrote about the Securities and Exchange Commission’s (SEC) controversial rules mandating climate-related disclosures in the annual reports of public companies. The original ruling required reporting on direct and indirect carbon emissions, material risks, strategies for mitigation and board oversight.
The rule faced significant criticism for overstepping the SEC’s authority. Critics also argued that it would impose high compliance costs on issuers and that disclosures would often be immaterial to investors and ultimately prove unreliable. As we noted in our earlier piece, we shared these concerns.
Within a month of the new rule’s March 2024 passage, several businesses, industry groups and states filed lawsuits, arguing that the SEC exceeded its statutory authority by mandating climate disclosures that go beyond financial materiality. The SEC halted implementation of the new climate disclosure rule while it faced legal uncertainty.
With the recent change in the SEC’s leadership and a regulatory freeze from the White House, the rule appears unlikely to survive. Commissioners Hester Peirce and Mark Uyeda, both of whom originally voted against the rule, continue to challenge its legitimacy. Notably, Acting Chair Uyeda recently directed the SEC to notify the 8th Circuit Court of Appeals, which is hearing the state of Iowa’s challenge, of “changed circumstances” and to request a delay in the litigation schedule. He contends that the rule is fundamentally flawed, burdens businesses with excessive costs and oversteps the SEC’s authority.
These recent actions suggest the commissioners will reconsider the SEC’s stance on defending the rule and, most likely, decide against the climate disclosure mandate. We commend the Commission’s decision to reconsider the appropriateness of climate disclosure requirements and believe investors are better served when the SEC focuses on financial disclosures rather than deciding which non-financial information might be relevant to investors.
u003ca href=u0022https://poole.ncsu.edu/people/rwhited/u0022u003eu003cemu003eRobert Whitedu003c/emu003eu003c/au003eu003cemu003e is an associate professor of accounting. His research focuses on the role of the auditor in efficient capital markets, applied econometrics in accounting research, costs and benefits of financial reporting regulation, and economic incentives influencing auditor selection and auditor performance.u003c/emu003e
u003ca href=u0022https://poole.ncsu.edu/people/rwhited/u0022u003eu003cemu003eRobert Whitedu003c/emu003eu003c/au003eu003cemu003e is an associate professor of accounting. His research focuses on the role of the auditor in efficient capital markets, applied econometrics in accounting research, costs and benefits of financial reporting regulation, and economic incentives influencing auditor selection and auditor performance.u003c/emu003e