SEC abandons legal arguments in favor of climate disclosure rule

The Securities and Exchange Commission (SEC) announced this month that it will no longer defend the indefensible, abandoning in court its arguments favoring mandatory climate disclosures. The case, Iowa v. SEC, is currently pending before the Eighth Circuit Court of Appeals.

The statement from acting SEC Chair Mark Uyeda should be widely applauded as the first step to repeal the climate disclosure mandate.

With the recent departures of former chair Gary Gensler and commissioner Jaimie Lizarraga, Republicans currently enjoy a 2-1 majority on the commission. Acting-Chair Uyeda has taken this opportunity to inform the court that he and Commissioner Hester Pierce oppose the climate rule. Uyeda called upon the Eighth Circuit to halt its schedule for oral arguments on the case as the SEC considers rescinding the final rule.

“I continue to question the statutory authority of the Commission to adopt the Rule, the need for the Rule, and the evaluation of costs and benefits,” Uyeda argues. “I also question whether the agency followed the proper procedures under the Administrative Procedure Act to adopt the Rule.”

“[The] rule’s anticipated benefits do not outweigh the costs,” according to Commissioner Peirce. “Only a mandate from Congress should put us in the business of facilitating the disclosure of information not clearly related to financial returns.”

This move also signals to the Eighth Circuit that the commission deems the rule problematic and unworthy of defending. If the Eighth Circuit heeds petitioners’ revised arguments, it could ultimately strike the rule down in Iowa.

If the Eighth Circuit allows the SEC to drop its case, then the agency would be free to propose a new rule that rescinds the original climate mandate. There would likely be a new public comment period to provide stakeholders with an opportunity to offer arguments for or against the SEC erasing its climate rule.

Deconstructing the rule this way would offer a balanced remedy that incorporates public input.

Another way to end the rule is for SEC officials to consult with Congress about proposed legislative remedies, if and when the case is dropped. The most notable of these is the “Prioritizing Economic Growth Over Woke Policies Act,” which passed the House last September.

The drawback to the legislative approach is that the Act can only move out of debate by getting yes votes from 60 or more Senators. This makes the congressional route to repealing the climate rule far more difficult, given the narrow Republican majority.

Congress also missed its opportunity to repeal the SEC climate rule via a Congressional Review Act resolution of disproval. The window for the CRA resolution targeting the SEC’s rule closed last summer and the “initiation period” for using the CRA against the rule has also expired. Given that Joe Biden was in office when the original CRA resolution was proposed, it was highly unlikely to have survived a veto.

The SEC’s recent decision to abandon its climate disclosure mandate comes just a month after a trio of agencies scrapped their joint climate disclosure intended for federal contractors. This averted a $3.9 billion cost burden on contractors for work with no direct basis in environmental policy.

We are currently witnessing a gradual deconstruction of ESG regulations in the early days of the Trump administration. Hopefully more agencies will follow by rescinding similar rules and guidance.

With Paul Atkins currently being considered as the permanent chair to the SEC, the agency has a golden opportunity to rectify the past four years of controversy with a crypto-friendly, deregulatory agenda. Whatever the agency’s focus proves to be, the first order of business must be to repeal the burdensome and ineffective climate disclosure mandate.

Related readings:

Richard Morrison, “The SEC’s Costly Power Grab,”

Richard Morrison, “Public Input on Climate Change Disclosures: Questions for Consideration,”

Marlo Lewis Jr. and Patrick Michaels, “CEI Comments on Proposed SEC Rule: Enhancement and Standardization of Climate-Related Disclosures for Investors,”

Stone Washington, “Climate Disclosure Spam”