SEC Turns to Court Over Disputed Climate Disclosure Authority

In Short

• SEC asks court to decide if it had the authority to issue climate disclosure rules.
• Critics, including a Democratic commissioner, say the SEC is sidestepping legal obligations to repeal or change the rules.

A court ruling could limit SEC’s future regulatory powers and affect how investors assess climate-related financial risks.

The US Securities and Exchange Commission (SEC) is dealing with an unusual legal situation involving its climate disclosure rules.

These rules, created by a previous commission, would have required publicly traded companies to disclose their greenhouse gas emissions. However, the rules were paused after legal challenges claimed that the SEC overstepped its authority. When President Trump took office, the SEC officially froze the rules.

Read More: Philippines SEC Proposes New ESG Disclosure Standards for Firms

Instead of going through the normal rule-making process — which involves public engagement and can take years — the current SEC has asked the Eighth Circuit Court to decide whether it had the legal authority to issue the rules in the first place.

This approach is unusual because agencies typically must review and reissue rules through the required process when a new administration wants to change them, rather than letting a court limit their own powers.

Legal experts say the SEC appears to be avoiding its legal obligations by not directly deciding on the rules and skipping the public input process.

Hana Vizcarra, an environmental attorney, said this is like the SEC “putting its head in the sand” about the financial risks of climate change. She noted that if the current commission wants to change or repeal the rules, it must go through the same multi-year stakeholder process used to create them.

Caroline Crenshaw, the only Democratic SEC commissioner, strongly objected to the SEC’s court filing. She argued that the SEC is clearly not planning to enforce the climate rules but is avoiding saying so openly.

Crenshaw accused the majority of trying to take the easy way out instead of doing the statutorily required work to repeal or modify the rules. She also urged the court not to waste its resources on what she called the commission’s games.

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At the heart of the issue is whether the SEC had the authority to make such climate rules under federal law. If the court decides the SEC lacked authority, the ruling could permanently limit the SEC’s power to issue not just climate-related rules, but potentially other regulations in the future. Such a decision would also be binding on future commissions.

Experts warn that without proper climate disclosure requirements, investors will have less information about climate-related financial risks, making it harder for them to manage these risks. This could be harmful to the economy, especially as climate change continues to create real financial threats.

Ends/

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Source: Green Central Banking