SEC’s climate disclosure rule is redundant and vulnerable to legal challenge

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The Securities and Exchange Commission (SEC) released its final climate disclosure rule today, mandating public companies disclose information related to greenhouse gas emissions. The final rule omitted some provisions from the proposed rule, including Scope 3 emissions, or emissions from a company’s vendors or supply chain.

CEI senior fellow Richard Morrison said:

“The Securities and Exchange Commission’s final rule on climate disclosure spared Americans some of the worst features of its initial proposal, but the rulemaking itself will still be an expensive failure. Companies already have plentiful incentives and opportunity to provide potential investors with information about their energy use and climate strategy under the Commission’s existing, principles-based disclosure standard. The current majority on the Commission, however, has decided to put its thumb on the scale and declare climate-related information more important than any other topic. If the data the SEC is poised to require actually addressed real financial concerns by investors, it would already be covered by existing regulation and guidance, making the new rule unnecessary. Singling out data related to climate change by definition acknowledges that the Commission is engaging in environmental activism rather than financial regulation. Despite wisely jettisoning provisions like the controversial ‘Scope 3’ emissions disclosure requirement, the final rule approved this week is still highly vulnerable to court challenge. Relevant federal court precedent – such as West Virginia v. EPA (2022), which illuminates the emerging Major Questions Doctrine – gives the new climate disclosure rule a very uncertain future.”

Director of CEI’s Center for Energy and Environment Daren Bakst said:

“The SEC is supposed to be focused on protecting investors, not trying to advance a climate agenda. It’s disturbing that an independent agency is mirroring the Biden administration’s whole-of-government approach to climate change instead of sticking to its already well-defined mission of financial regulation. Congress needs to use all of its tools to get rid of this rule, including rejecting the rule through the Congressional Review Act and using the appropriations process to withhold funds for its implementation.

The rule likely won’t survive judicial scrutiny, especially in light of the major questions doctrine. The agency has no clear statutory authority for this rule that addresses an issue of extraordinary political and economic significance and in which the agency has no expertise. If Congress wanted the SEC to serve as a climate agency, then it would have made this perfectly clear.”

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