The Securities and Exchange Commission’s (SEC’s) proposal to rescind its 2024 climate-disclosure rule marked a significant reversal of efforts to surface and standardize information about climate-related financial risk. But underlying that high-profile rollback is a broader trend toward securities deregulation that carries real implications for the management of climate risk in our economy.
Within the securities markets, climate change manifests as a source of financial risk. Extreme weather events damage corporate property and interrupt supply chains; the energy transition is rapidly shifting product demand and asset valuation; legal exposure related to fossil fuel generation is increasing. Securities prices are expected to reflect such risks, and federal securities laws are designed to ensure investors have access to this information. Yet the current SEC has embarked on a sweeping deregulatory program that is reshaping the function of U.S. capital markets in ways that undermine investors’ ability to identify, price, and manage climate-related financial risk.
Consider the SEC’s longstanding shareholder-proposal rule, Rule 14a-8. For decades, this rule has allowed a qualifying shareholder to place a proposal on a company’s proxy statement, subject to exclusions administered through the SEC staff’s no-action process. Last month, the SEC proposed rescinding the rule, with a justification that echoes its defense of its proposed climate-rule rescission: that the rule exceeds the SEC’s statutory authority and intrudes on state corporate law. The proposal is the culmination of a dismantling process begun last year, when the Division of Corporation Finance suspended its substantive no-action review, and then announced that it would stop responding to no-action requests entirely.
As a practical matter, this withdrawal by the SEC is likely to shift disputes over shareholder proposals into state courts, replacing a low-cost oversight mechanism with case-by-case litigation that only the largest investors can afford to pursue. As to climate risk, removing the ability for shareholders to place proposals on a company’s proxy statement eliminates one of the few tools available for shareholders to surface material climate risks and discipline corporate climate claims. That may be why a coalition of investors and the New York State Comptroller urged the SEC to “fix – not gut” the shareholder proposal rule, and why the Comptroller called the eventual proposal a decision to “shield [corporate management] from accountability”.
Meanwhile, the SEC is considering another proposal that would reduce the number and accountability of companies who must file disclosures. In May, the SEC proposed the most significant overhaul of its filer-status system in two decades: it would raise the large-accelerated-filer threshold to $2 billion in public float, and reclassify approximately 80% of public companies as non-accelerated filers. That status would exempt those companies from the requirement to obtain an independent auditor’s attestation of their internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act. According to the SEC’s own estimate, nearly 1,600 companies would shed these attestation obligations under this proposal. The reclassification would also eliminate “say-on-pay” shareholder votes for those companies.
Auditor attestation and internal controls function to create confidence in the market, reassuring investors that a company’s financial statements have been independently tested, not just asserted by management. For climate-risk purposes, this includes a company’s impairments, reserves, and loss estimates tied to physical climate damages, or to stranded, carbon-intensive assets. Removing those assurances for a significant section of the market increases the risk that climate-related liabilities on corporate balance sheets go unexamined.
Another deregulatory move shifts the cadence of corporate disclosure, with ambiguous implications for climate risk assessment. In May, the SEC proposed to allow public companies to report semiannually rather than quarterly, substituting a new Form 10-S for three Forms 10-Q. Touted as part of the Chairman’s “Make IPOs Great Again” agenda, the change would reduce the frequency with which investors receive interim financial information. Much of the value of such disclosure lies in its timeliness, which arguably has keen relevance for climate risk: the financial losses of an unexpected drought or a fast-moving transition innovation may be stale by the time they are included in an annual report. Still, there may be concomitant advantages to a longer horizon for corporate managers, as reporting obligations may better align with corporate sustainability strategies around transition plans and capital investments.
Undergirding all of this is the SEC’s comprehensive review of Regulation S-K, launched in January 2026. Reg S-K is the framework that governs the narrative disclosures at the heart of every annual report. Chairman Atkins has framed the review around materiality, invoking the Supreme Court’s warning in TSC Industries v. Northway against burying investors in an “avalanche” of immaterial information, and has signaled that various line items will be scaled back.
This effort sits at the core of the SEC’s current deregulatory efforts, and it reflects a particular contradiction regarding climate risk disclosure. In arguing for rescission of its climate rule, the SEC insisted that existing Regulation S-K requirements, including risk-factor disclosure under Item 105 and management’s discussion and analysis under Item 303, already capture whatever climate information is material to a particular company. Yet the SEC is now moving to loosen those requirements.
The SEC’s regulatory retreat extends beyond rules with obvious relevance to climate risk. The SEC is separately preparing to scale back executive-compensation disclosure under Item 402, and, in recent weeks, signaled plans to loosen the cross-trading prohibitions under Investment Company Act Rule 17a-7, relaxing the fiduciary guardrails that define when affiliated funds managed by the same adviser can trade with one another. These moves are not specifically about climate. But even changes like these can shape whether climate risk is visible to the market. A separate April proposal to scale back Form PF, the confidential systemic-risk report that private-fund advisers file with the SEC and the Financial Stability Oversight Council, would raise the filing threshold from $150 million to $1 billion in assets. While seemingly far attenuated from climate risk, this change would narrow regulators’ visibility into carbon-intensive holdings in real estate, infrastructure, and energy that are increasingly concentrated in private markets. Meanwhile, investors are turning to those asset classes in efforts to reduce their exposure to AI-correlated securities in the public markets, heightening the need for regulatory oversight of sectors with concentrated climate risk.
Against this backdrop, the SEC’s climate-disclosure rescission proposal appears less as an isolated reversal than as one element of a coordinated retreat from corporate disclosure requirements. Many of the SEC’s recent proposals assert a “registrant-specific, materiality-based” lens, and involve a narrow reading of the Commission’s authority directly at odds with the SEC’s historical approach.
The SEC’s retrenchment also relies on the premise that market forces and existing rules will ensure investors receive the information they need. But the assumption that voluntary, market-driven standards will fill the gap has limited support, particularly for climate-risk information. Indeed, the inadequacy of the SEC’s 2010 interpretive guidance on disclosure related to climate change, which largely produced boilerplate risk-factor language, rather than comparable, decision-useful disclosure, was itself a central justification for the 2024 climate rule. And as Michael Grunwald recently documented, proposed revisions to the Greenhouse Gas Protocol (the dominant private standard for corporate emissions accounting) would allow companies to book emissions “reductions” for harvesting and burning trees, an absurd result pushed by the forest-products companies involved in the revisions. It is a vivid reminder that private standard-setting is susceptible to capture by the very firms it measures. The SEC’s apparent confidence in voluntary standards and existing anti-fraud liability leaves investors vulnerable to frameworks subject to significant influence by corporate lobbying.
There are reasonable arguments to favor less regulation, including valid federalism concerns and the compliance burden for public companies. Chairman Atkins has framed his agenda as one of restoring capital formation and relieving public companies of costly, box-checking mandates that, in his view, have driven companies away from the public markets. But the overall trend at the SEC points the market toward less mandated disclosure and more discretion for management, despite the SEC’s core purpose of investor protection. Rules about disclosure frequency, shareholder proposals, conflict-of-interest safeguards, and the S-K disclosure framework are not specifically about climate risk, but they set the conditions through which those risks are identified and priced. Undermining foundational securities rules will produce capital markets that are less informed and less reliable overall, at a moment when the financial materiality of climate risk has become impossible to ignore.
Cynthia Hanawalt is the Director of Climate and Business Law at the Sabin Center for Climate Change Law.
