Takeaways

• The U.S. Court of Appeals has ordered the SEC to either defend, revise, or repeal its climate disclosure rules.
• The SEC cannot rely on the court to decide the rules’ fate and must use proper rulemaking or litigation.
• The climate reporting rules, first adopted in 2024, have faced strong legal and political opposition.

The U.S. Court of Appeals has told the U.S. Securities and Exchange Commission (SEC) that it must decide whether to defend, modify, or repeal its climate reporting rules, instead of leaving the decision to the court.

The SEC had asked the court to rule on the legality of the rules, but the court declined, saying it was the agency’s responsibility to determine the next steps. The order leaves the SEC facing a difficult choice: Either re-enter litigation to defend the rules, or reconsider them through the lengthy rulemaking process.

The climate disclosure rules were adopted in 2024 under then-SEC Chair Gary Gensler. They required public companies to report on climate-related risks to their businesses, disclose strategies to manage those risks, outline the financial impact of severe weather events, and, in certain cases, report greenhouse gas emissions from their operations.

Read More: SEC Drops Climate Rules as States and Global Powers Push Ahead

The rules immediately sparked legal challenges. Within 10 days of their release, nine petitions were filed, including one from 25 Republican state attorneys general led by Iowa AG Brenna Bird, and another from the U.S. Chamber of Commerce. These challenges were consolidated in the Eighth Circuit Court.

In April, the SEC paused implementation of the rules while reviewing the legal petitions. By August, the agency defended the rules in court, arguing that climate-related information is directly relevant to investors and falls under its authority to mandate disclosures.

However, following the election of the Trump administration and Gensler’s resignation, the SEC reversed its stance. In a July filing, the agency said it no longer planned to reconsider the rules and instead asked the court to decide the case. SEC Commissioner Caroline Crenshaw criticized the move, accusing the agency of trying to bypass the proper process required to repeal or amend the regulation.

The court’s latest order makes clear that the responsibility lies with the SEC. The judges stated the petitions will remain on hold until the Commission either reopens the rulemaking process, requiring public consultation and justification, or renews its defense in litigation.

“It is the agency’s responsibility to determine whether its Final Rules will be rescinded, repealed, modified, or defended in litigation,” the court wrote.

The decision means the future of U.S. climate disclosure rules now depends entirely on whether the SEC chooses to defend them or abandon them through formal procedures.

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Source: JD SUPRA