The Securities and Exchange Commission is facing legal challenges from both industry and environmental groups over new rules requiring some businesses to disclose information about climate risks, with one side calling the rules a broad overreach and the other arguing that the rules do not go far enough.
The SEC rules approved on March 6, with a 3-2 vote, require large companies to disclose their direct greenhouse gas emissions, the risks they face from extreme weather and other climate-driven events, and to provide investors with context on how the companies are managing those risks.
Roughly 24,000 individuals and organizations weighed in on the rules over the two years since the SEC made its original proposal. An analysis of comments—conducted by the climate action group Ceres—found that most comments were supportive, but some prominent business groups such as the U.S. Chamber of Commerce criticized the rules as onerous. The SEC pared back some requirements ahead of the approval, including provisions for reporting on the emissions from a company's supply chain, known as Scope 3 emissions.
But the SEC's attempt at a climate compromise appears to have angered parties on both sides of the issue, and Wall Street's top cop is now caught in a legal crossfire.
On the day of the SEC's vote, lawyers representing two fossil fuel producing companies, Liberty Energy and Nomad Proppant Services, filed suit accusing the SEC of burdening companies with extra paperwork and exposing them to possible enforcement actions and litigation.
The U.S. Chamber of Commerce has also sued the SEC, accusing the agency of "attempting to micromanage how companies make key determinations," according to a statement released Thursday.
Similar lawsuits filed by the attorneys general of petroleum and coal producing states such as Wyoming and West Virginia also argue that the SEC exceeded its legal authority, and at least 19 states have now joined those suits.
Those legal challenges were widely anticipated, but on Wednesday, environmental groups joined the fray as well. Environmental nonprofits Sierra Club, the Sierra Club Foundation, and Earthjustice announced that they filed a suit charging the SEC with watering down the climate rules so much that they no longer sufficiently protect investors.
"Sierra Club has millions of members and supporters who have investments in the market," Sierra Club Senior Attorney Andres Restrepo told Newsweek. "It's really critical that we have access to information about climate risks that may be faced by the kinds of entities that we would hope to invest in."
Restrepo said the SEC has legal requirements to protect investors and to craft rules in a manner that is rationally tied to the factual record. The Sierra suit alleges that the SEC went afoul when it arbitrarily stripped out requirements in its originally proposed rules.
"We think those are really more the result of political pressure exerted by industry and less so arguments that really tie to the ample evidence that's in the administrative record," Restrepo said.
The rules were to take effect in 2026, but the legal challenges could delay that, at a minimum. The suits come as the U.S. Supreme Court's conservative majority has indicated a desire to restrict the regulatory authority of environmental enforcement agencies. A closely watched case before the court, Loper Bright Enterprises v. Raimondo, could affect how much leeway agencies have in developing and implementing regulations.
Regardless of the outcome of the SEC rules, many companies will likely need to disclose climate-related information in specific areas where they do business in the coming years. California lawmakers approved a measure last year requiring large companies doing business in the state to disclose climate risks and emissions—including the Scope 3 emissions—and the European Union is adopting similar measures.
Update 03/14/2024, 10:55 a.m. ET: This story has been updated to include the specific name of a case before the Supreme Court.
Update 03/15/2024, 1:25 p.m. ET: This story has been updated to include information about a lawsuit filed by the U.S. Chamber of Commerce.
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