Another Climate Change Hit

The Securities and Exchange Commission (S.E.C.) has proposed a change to the rules that would have required companies to disclose certain climate-related information in their registration statements and annual reports.

The Climate Rule

The climate change information disclosure rules were introduced in March 2024 under the Securities Act of 1933 and the Securities Exchange Act of 1934. Under there, companies were expected to disclose certain climate-related information, such as greenhouse gas emissions, management of climate-related risks, and the financial statement effects of severe weather events.

After the rules were finalized, their implementation was quickly paused due to legal challenges from companies opposing them. The largest country’s business lobby group, the U.S. Chamber of Commerce, challenged the rule in court, with attorneys general from 25 Republican-controlled states also filing lawsuits. Then-acting chairman of the SEC, Mark Uyeda, eventually directed the Commission to stop defending the rule in court in February 2025.

While the rules did not move forward, if enacted, they would have required all publicly traded companies to disclose whether they faced significant climate-related risks. The largest publicly traded companies would also need to report their emissions if they considered them “material,” or important to a reasonable investor.

The SEC Proposal

On May 29 this year, the S.E.C proposed rescinding the climate change rules, calling them “overly burdensome and costly”. The aim is to return the Commission to its core mandate and restore a materiality-focused approach to securities regulation, the S.E.C said in a statement.  

S.E.C Chairman Paul Atkins explained, “S.E.C disclosure obligations should comply with the Commission’s statutory authority, be guided by materiality as the North Star, avoid the practical effect of dictating corporate behavior, and be imposed only when the expected benefits justify the likely costs and burdens.”

The S.E.C has proposed rescinding the rules as they “exceed the scope of the agency’s statutory authority”. In the May statement, the Commission cited other reasons for its proposal, including:

• They are unnecessary and inconsistent with a registrant-specific, materiality-based approach to disclosure that best serves the interests of registrants and investors.
• They stray well beyond the policy concerns of the federal securities laws.
• They impose substantial costs on public companies and their shareholders that are not justified by the informational benefits they may provide to some investors.
• They are at odds with the Commission’s policy objectives of facilitating capital formation and promoting public company status.

Several critics of the rule agreed that the S.E.C. was overstepping its role in requiring companies to disclose certain climate information. 

The senior vice president of the Center for Capital Markets Competitiveness at the Chamber of Commerce, Mike Flood, believes, “The S.E.C.’s climate disclosure rule would have far-reaching negative effects on the U.S. economy and further disincentivize companies from going public in the United States.” 

The S.E.C. opened a 60-day public comment period following the proposal’s publication in the Federal Register.

What the Proposal Means

While the proposal may appear justified and many will likely praise the S.E.C’s aim to reduce bureaucracy, it could have significant implications if enacted. 

Several companies from fossil-fuel-reliant industries, such as aviation, energy, and agriculture, have praised the proposal. However, climate activists and many firms that have pursued environmental, social, and governance (ESG) practices in recent years have criticized the change in rules. 

Andrew Behar, the CEO of the environmental advocacy group As You Sow, stated, “By rescinding this rule, the S.E.C. is turning its back on the investors it exists to protect… This action treats the material financial risk of climate change that harms every American as nothing more than fulfillment of a campaign promise to the fossil fuel industry.”

While many critics of the rule believed that the S.E.C. was overstepping its role and pursuing former President Biden’s green agenda, similar state-level rules are already in place. For example, in California, the 2023 Climate Corporate Data Accountability Act, introduced by Democratic Governor Gavin Newsom, requires both public and private U.S.-based companies doing business in the state to disclose their greenhouse gas emissions. 

Meanwhile, 41 countries, which contribute around 60% of the world’s GDP, have either approved or proposed climate disclosure rules, according to the International Sustainability Standards Board. This means that several major public companies are already subject to disclosure requirements. 

While the S.E.C. climate change information disclosure rules were never officially enacted, they were planned to be a key step in the United States’ green transition. Once in place, the rules were expected to help hold companies accountable and support the implementation of broader ESG practices. Meanwhile, while several officials accused the S.E.C. of overstepping its role, several similar rules are already in place in some parts of the United States and in other countries, giving cause for implementation. 

Keep In Touch with Shale Magazine

As the new era of energy unfolds, you can bet we’ll be the boots on the ground to keep you informed. Subscribe to Shale Magazine for sharp insight into the arenas that matter most to your life. And don’t forget to listen to our riveting podcast, The Energy Mixx Radio Show, where our very own Kym Bolado interviews the most extraordinary thought leaders, business innovators, and industry experts of our time.