Facing a slew of lawsuits over its recently finalized climate disclosure rule, the Securities and Exchange Commission on April 4 announced that it will voluntarily “stay” its implementation of the rule until the legality has been addressed.
In noting that the Commission has discretion to stay its rules pending judicial review if it finds that “justice so requires,” SEC Secretary Vanessa Countryman wrote in the April 4th Order that “The Commission has determined to exercise its discretion to stay the Final Rules pending the completion of judicial review of the consolidated Eighth Circuit petitions.”
Countryman further emphasized that the stay is limited to the final rules that have been challenged in the consolidated Eighth Circuit petitions, and does not stay any other Commission rules or guidance, including guidance related to climate change disclosure issued in February 2010.
Not long after the SEC voted to finalize the rules, at least nine suits were filed (between March 6 and March 14), arguing that the SEC either exceeded its authority in issuing the new rule or it didn’t go far enough.
On March 8, petitioners Liberty Energy Inc. and Nomad Proppant Services LLC—energy companies that were the first litigants to challenge the SEC’s new guidance—filed a motion in the Fifth Circuit seeking an administrative stay and a stay pending judicial review of the final rules. Shortly afterwards on March 15, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit granted the stay request.
In addition to the Fifth Circuit, challenges were filed in the Second, Sixth, Eighth, Eleventh and D.C. Circuits. These suits have since been consolidated, with the Eighth Circuit “winning” the so-called lottery to hear the challenges. Meanwhile, the Sierra Club and Natural Resources Defense Council have also filed suits contending that the rule did not go far enough.
Consequently, the Fifth Circuit on March 22 dissolved its administrative stay after consolidation of the suits before the Eighth Circuit. Then on March 26, Liberty and Nomad filed a letter in the Eighth Circuit noting the pendency of their motion for an administrative stay and a stay pending judicial review. Also on March 26, the U.S. Chamber of Commerce, the Texas Association of Business, and the Longview Chamber of Commerce filed a motion in the Eighth Circuit seeking a stay pending judicial review.
Changing Stances
In response to the stay request before the Fifth Circuit, the SEC had contended that issuing a stay would be premature and that the claims by Liberty were speculative. Among other things, the SEC argued that because of the extended compliance dates, registrants would not be required to make any disclosures before March 2026[1] at the earliest. That stance eventually changed after consolidation.
The three-page Order gives a brief explanation behind the reasoning for issuing the stay, explaining that, under the circumstances, a stay is warranted.
“Among other things, given the procedural complexities accompanying the consolidation and litigation of the large number of petitions for review of the Final Rules, a Commission stay will facilitate the orderly judicial resolution of those challenges and allow the court of appeals to focus on deciding the merits,” the Order explained. “Further, a stay avoids potential regulatory uncertainty if registrants were to become subject to the Final Rules’ requirements during the pendency of the challenges to their validity.”
That said, the SEC further notes that it is not departing from its view that the final rules are consistent with applicable law and within the Commission’s authority. “Thus, the Commission will continue vigorously defending the Final Rules’ validity in court and looks forward to expeditious resolution of the litigation,” Countryman noted.
In the meantime, it’s “not pencils down” on climate disclosure more generally, according to a client alert by Ropes & Gray. “SEC registrants will continue to provide voluntary climate-related disclosures on websites and in sustainability reports, stand-alone TCFD [Task Force on Climate-Related Financial Disclosures] reports and CDP [Carbon Disclosure Project] reports. In addition, under other regimes, registrants will be required to make climate disclosures that in many respects go further than SEC requirements,” write the firm’s Michael Littenberg, Marc Rotter and Peter Witschi.
Among other things, the SEC’s final rules require a registrant to disclose climate-related risks that have or could have an impact on the registrant’s business strategy, operations or financial condition. Registrants will also be required to disclose activities to mitigate such risks; information about management’s role in addressing material climate-related risks; and information on any climate-related targets or goals material to the registrant's business.
[1] Given the extent of the litigation, however, this date could possibly slip.
