SEC Climate Disclosure Rule: Timing Uncertain as Legal Challenges Move to Eighth Circuit

The U.S. Securities and Exchange Commission (SEC) faces an uncertain timeline to implement its new climate disclosure rule, as nine legal challenges have now been transferred to the U.S. Court of Appeals for the Eighth Circuit.

On March 6, 2024, the SEC adopted final rules related to climate-disclosure information – the Enhancement and Standardization of Climate-Related Disclosures for Investors. The final rule is available here. Our prior alert on this initiative is available here.

Climate reporting falls into three general emission “buckets”: Scope 1 emissions are direct emissions from operations owned or controlled by the company. Scope 2 emissions are indirect emissions from the generation of purchased electricity consumed by the company. Scope 3 is another form of indirect emissions that are related to consequences of the activities of the company but not from sources the company owns or controls. Notably, the SEC removed the requirement to report on Scope 3 emissions. Moreover, this final rule exempts smaller reporting companies (SRCs) and emerging growth companies (EGCs) from Scope 1 and 2 reporting.

Highlights for SEC registrants will be the need to:

• Report climate-related risks that have had or that are reasonably likely to materially impact the business strategy, results of operations, or financial condition.
• Disclose the actual and potential material impacts of climate-related risks on the registrant’s strategy, business model, and outlook to assist in understanding how the registrant’s business strategy or business model has changed or will change in response to those impacts.
• Disclose any efforts to mitigate or adapt to climate-related risks including the use of transition plans, scenarios analysis, or internal carbon prices.
• Reveal any oversight by the board of directors of climate-related risks.
• Provide their Scope 1 and Scope 2 Greenhouse Gas (GHG) emissions in the case of large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempt.
• File limited assurance and reasonable assurance statements, in the case of LAFs and AFs that disclose Scope 1 and Scope 2 GHG emissions.

Although it was slated to go into effect 60 days after publication in the Federal Register, legal challenges are already being mounted that will delay implementation. The Fifth Circuit in Liberty Energy v. SEC, 5th Cir., No. 24-60109, order issued March 15, 2024, issued an administrative stay temporarily halting the new rule. A number of state-led challenges to the rule were also filed by coalitions of State Attorneys General including petitions in the Eighth Circuit led by the Iowa Attorney General and Eleventh Circuit led by West Virginia and Georgia. Environmental groups and industry also filed petitions for review in the Second, Fifth, Sixth, and District of Columbia Circuits. Due to the significant number of cases, the SEC filed notice of multi-circuit petitions with the United States Judicial Panel on Multidistrict Litigation, and an order was issued on March 21, 2024, to consolidate the nine petitions that were pending.

The Eighth Circuit was designated to hear the petitions. In response, the Fifth Circuit dissolved its administrative stay upon transfer to the Eighth Circuit. These lawsuits make the fate of this and other climate reporting rules unclear. The consolidated case, In Re: Securities and Exchange Commission, The Enhancement and Standardization of Climate-Related Disclosures for Investors, Issued on March 6, 2024, J.P.M.L., MCP No. 180, will be monitored for updates.

The SEC joins California and the European Union (EU) in this groundbreaking area of corporate regulation. A comparison of these programs is provided in Table 1.

Table 1. Comparison of SEC, California, and EU Climate Disclosure Requirements