SEC Stays Climate Disclosure Rules After Legal Challenges Consolidated in MDL

Kelley Drye Client Advisory

On April 4, 2024, the U.S. Securities and Exchange Commission (SEC) issued a stay of its final rules on climate-related disclosures. As detailed in our previous advisory on the topic, days after the final rules were issued in March, the Fifth Circuit Court of Appeals granted a petition for an administrative stay of the final rules. Now, the SEC has issued its own stay, suspending the final rules’ requirements for certain companies to disclose climate-related information in their registration statements and in annual reports.

The final rules require subject companies to disclose information such as: greenhouse gas (GHG) emissions directly or indirectly emitted by the company’s operations; the effects of climate-related conditions and events on the company’s business, results of operations, or financial condition; any material climate-related targets or goals; and any material expenditures directly resulting from mitigation of climate-related risks.

While some believe the final rules exceed the SEC’s authority, others find them too lenient. Given numerous legal challenges to the rules pending in the Second, Fifth, Sixth, Eighth, Eleventh, and D.C. Circuits, the Judicial Panel on Multidistrict Litigation issued an order consolidating all petitions for review in the Eighth Circuit on March 21. Thereafter, the Fifth Circuit dissolved its administrative stay, and several petitioners sought stays pending judicial review. On April 1, thirty-one petitioners urged the Eighth Circuit Court to expedite briefing on their imminent emergency stay motions. In response, pursuant to the Exchange Act and the Administrative Procedure Act, the SEC exercised its discretion to stay its rules pending judicial review if it finds that justice so requires.”

The SEC asserts that it will continue defending the stay in court and that the stay does not reflect any change in its opinion that the rules are consistent with the SEC’s authority and with the law. Citing the procedural complexities of litigating a large number of consolidated petitions for review and the potential regulatory uncertainty if registrants were to become subject to the rules while the legal challenges were still pending, the SEC notes that the stay will allow the Court to focus on deciding the merits.

Subject companies, including those that qualify for SEC’s new GHG emissions tracking rules, have gained time to prepare as a result of the SEC’s stay pending resolution of legal challenges filed in numerous courts. How long the stay will remain in place, and if or how the final rules will be modified, remains uncertain for the time being. Regardless, companies potentially subject to the final rules are advised to monitor developments in the cases going forward and to use the breather for advanced early planning prior to the final rules’ eventual implementation.