What will happen to the SEC’s March 2024 climate disclosure rule under the new federal administration? A paper published by Columbia University’s Sabin Center for Climate Change Law and the Columbia Center on Sustainable Investment (CCSI) seeks to contribute to the upcoming debates on this question.
In their joint report, Shedding Light on Climate Risk in 2025: Upcoming Debates About the SEC’s Climate Disclosure Rule, the Sabin Center and CCSI explore novel questions of implementation and enforcement that the SEC will likely face in coming months, as it establishes climate disclosure policies under anticipated new leadership.
As previously discussed on this blog, the SEC adopted a climate disclosure rule in March, but that rule is currently suspended pending ongoing court review, and its fate is uncertain given the upcoming transition. However, many companies are already taking steps to comply with the rule, given the lead time necessary to prepare and verify the required disclosures, and given more extensive disclosure requirements that will apply to many companies in other jurisdictions, including California and the European Union. Those complementary regimes will persist with or without the SEC’s leadership, making this a crucial period for the agency to grapple with its future role in the climate disclosure space.
Climate Disclosure Will Continue With or Without the SEC
Whatever happens to the SEC rule, companies will continue to provide climate-related information to investors. Many do so already without an effective SEC rule in place and more will, no doubt, do so in the future, as investors seek information on the costs and business changes that will be driven by physical climate-related events such as flooding and wildfires, and by the new regulatory and technological environment companies will face in their operations at home and around the world.
According to the Sabin Center / CCSI report, many companies already publish climate-related information in sustainability reports published on their websites. The sustainability publications of most large U.S. companies include greenhouse gas emissions data called for by the March 2024 SEC rule, and they describe company ambitions to reduce those emissions. But companies provide much less disclosure about the risks they face from climate change. Importantly, the climate information companies publish voluntarily does not have to comply with recognized standards, it is not subject to verification processes companies use for their SEC disclosures, and it is not reviewed by the SEC staff.
Why is that important? Today, a company can announce a climate target – such as a 30% emissions reduction by 2030 – without indicating whether this will require substantial changes to its business, or whether it will incur material costs to meet the target. After the company announces the emissions target – often providing a boost to its share price – the company does not have to report on its progress towards achieving (or failing to achieve) the target. If the company abandons the target, it does not have to inform investors.
This will change under the SEC’s climate disclosure rule. But it will also change – with or without the SEC rule – for companies subject to the extensive new disclosure standards in California or the European Union. The question for the SEC is whether it will define standards for the market, or whether it will stay on the sidelines as US and global expectations for corporate climate disclosure are developed.
What Does the SEC Rule Actually Do?
As the SEC decides what to do under the new administration, it should focus on what the climate disclosure rule does and does not require. Unlike the new European Union regime, the SEC does not require companies to disclose how their operations will impact the climate. Instead, the SEC rule requires companies to disclose how climate risks, plans, targets and goals will materially impact their businesses, results, and financial condition. If a company concludes these impacts will not be material – meaning important to reasonable investors – it does not have to disclose anything.
The Sabin Center / CCSI report goes in depth to analyze what all of this means in practice. The report discusses how companies are likely to determine what climate information is and is not material to their businesses and financial performance, and whether some companies might need to go beyond “bare minimum” compliance with the itemized requirements of the SEC rule to ensure their disclosure is complete and not misleading. It also looks at how climate disclosure will fit into the verification processes companies apply to SEC disclosure, a concern of many investors who want to make sure the information is reliable, but also a concern of companies given the potential cost of verification.
What About Litigation and Enforcement Risk?
For those who fear the specter of extensive litigation relating to disclosures under the climate disclosure rule, the Sabin Center / CCSI report finds that unlikely. Private litigation over climate disclosure is likely to face significant legal obstacles. “Stock-drop” actions may not be viable, mainly because climate disclosure will often impact long-term company value but not short-term share prices. SEC enforcement of the climate disclosure rule is possible and could set market expectations, but the SEC will be constrained by limited resources and perhaps by policy decisions of the new administration. If the climate disclosure rule becomes effective, the SEC staff is likely to play a larger role by commenting directly on company disclosures and providing market guidance, a process that is not well-known to the public, but is nonetheless an essential mechanism the SEC uses to ensure compliance with disclosure rules.
The Implications
Whatever position the new administration decides to take on the SEC’s climate disclosure rule, the impacts of climate change on corporations and the economy will remain, and essentially every company will face risks, whether from physical climate-related events, new domestic or foreign regulations, or changes in market dynamics. How effectively companies communicate these risks to investors as they adapt their businesses and seek to raise capital will be shaped by the disclosure rules to which they are subject, including the SEC’s climate disclosure rule if it becomes effective. The Sabin Center / CCSI paper offers a framework and analysis to ground these questions as a new context for climate issues emerges in the United States.
Andrew Bernstein
Andrew Bernstein is a Senior Fellow with the Columbia Center on Sustainable Investment. He is an international lawyer resident in Paris, whose practice focuses on international capital markets transactions and company disclosure obligations. He is an Honorary Member of the Haut Comité Juridique de la Place Financière de Paris and a former member of the Wolters Kluwer Securities Advisory Board.
Cynthia Hanawalt is the Director of Climate Finance and Regulation at the Sabin Center for Climate Change Law.
Chloe Field is the Initiative on Climate Risk and Resilience Law Fellow at the Sabin Center for Climate Change at Columbia Law School.
