The SEC abandons climate disclosure litigation — What next?

The Securities and Exchange Commission (SEC) recently informed the US Court of Appeals for the Eighth Circuit that it will no longer defend its March 6, 2024 rule requiring that companies disclose climate-related risks and greenhouse gas emissions in their registration statements and annual reports. The SEC so stated in a letter filed March 27, 2025 in State of Iowa, et al v SEC, No 24-1522 (8th Cir).

Even before the rule was published in the Federal Register, 10 Republican-led states and other entities filed petitions for review under the Administrative Procedure Act (APA) seeking to vacate the rule. Although originally set to become effective May 28, 2024, the rule was stayed before it took effect, first by an order of the Fifth Circuit entered over the SEC’s opposition, and then by voluntary action of the SEC, which stayed effectiveness of the rule as of April 12, 2024.

Petitioners argued the rule’s requirements go above and beyond the SEC’s delegated rulemaking powers in the Securities Exchange Act of 1934 because climate-related disclosures are not “material” to informed investor decision-making. They also maintained that the rule is arbitrary and capricious because the SEC failed to explain why preexisting regulations are inadequate to obtain material climate-related financial disclosures sufficient to protect investors.

Eighteen states and the District of Columbia filed a motion in April 2024 to intervene as respondents to defend the SEC’s rule. The motion was granted. In their briefing, they argued the US agency does have the power to compel information of the kind required by the rule, as climate-related information is “financially relevant” to protect investors in today’s world. They also maintained that the rule was built on decades of SEC policy and practice of standardizing the disclosure of climate-related risks.

On February 11, 2025 the SEC foreshadowed its March 27 filing when Acting Chairman Mark Uyeda sent the court a statement indicating that the regulator was “without statutory authority or expertise” to address climate change issues, and asked the court to postpone oral argument in the case.

The path forward for the State of Iowa case is uncertain. The court has not determined whether to proceed with the case, hold oral argument, decide the case on the papers submitted or remand the case to the SEC. Commentators have argued that intervenors can defend rules even when the promulgating agency refuses to do so.[1] Intervenors supporting respondents in APA cases generally have the same rights as respondents. In the State of Iowa case, the court did not restrict the rights of the 18 states and the District of Columbia to defend the SEC rule, and they are presumably still willing to mount that defense.

Although the path forward for the SEC’s climate disclosure rule is clearer, the compliance regime for public companies regarding climate disclosure remains fractured and, potentially, contradictory. The SEC’s rule is stayed indefinitely pending the outcome of the litigation and will not go into effect in the near future. The majority of the current SEC commissioners oppose the rule.

On the other hand, the rule was formally promulgated and has not been repealed. And repeal is hardly automatic just because a current majority opposes the rule. Instead, any attempt by the SEC to change the policy must comply with the APA, and the related change-in-position doctrine itself may be challenged.[2] Once adopted via an APA-authorized rulemaking procedure, existing rules generally can be changed only through the same procedure. To withstand judicial review, the change itself must be justified with substantial facts and legal analysis in an administrative record sufficient to withstand scrutiny. Likewise, under the change-in-position doctrine, an agency must offer good reasons for the new policy.[3] Furthermore, by eliminating the deference granted to agency decision-making in Chevron USA Inc v NRDC, [4], the Supreme Court’s majority decision in Loper Bright Enterprises v Raimondo [5] increased the burden agencies face in justifying changes to promulgated rules.

Meanwhile, public companies continue to face the patchwork of rules regarding climate risk disclosure and greenhouse gas emissions reporting at the US state level, especially California,[6] and in Europe.[7] At the same time, they must craft compliance plans and disclosures that minimize the risk of enforcement from states that could view such disclosures as boycotting certain energy companies or otherwise contrary to state law.[8]