SEC Proposes to Rescind its Climate Disclosure Rules; Long Live Climate Disclosure?

Last Friday, the US Securities and Exchange Commission (SEC) formally proposed the repeal of its 2024 climate disclosure rules. In this post, we discuss the rescission proposal and what it means for climate disclosure by US public companies.

The SEC’s climate disclosure rules were adopted by the then-Democratic-led Commission in March 2024, in a 3-2 vote split along party lines. In the days following their adoption, challenges to the rules were brought in several federal appellate courts. The petitions were consolidated for judicial review in the Eighth Circuit (see our post here). In light of the challenges to the rules, that April, the SEC voluntarily stayed the rules pending the completion of the Eighth Circuit’s review (see our post here).

Following the change-over in SEC leadership after the Presidential inauguration, in March 2025, the now-Republican-led SEC withdrew from defending the rules in court. The Eighth Circuit subsequently put the proceedings on hold while the SEC decided how it planned to address the rules. Friday’s proposal to rescind the rules had therefore been expected for some time. In addition, last month, the SEC submitted a notice of the proposed rescission rulemaking to the Office of Management and Budget's Office of Information and Regulatory Affairs.

A Repudiation of the Rules on Several Grounds

The rescission proposal cites several grounds for rescinding the rules, all of which reflect concerns expressed by Republican SEC Commissioners and other detractors over the last several years. 

As a threshold matter, the proposing release indicates that the SEC does not have the authority to issue the rules under the powers granted to it by Congress. However, the SEC indicates that, even if it does have authority to issue the rules, there are other reasons why they should be rescinded:

• The rules are unnecessary and inconsistent with a registrant-specific, materiality-based approach to disclosure that best serves the interests of registrants and investors. “The Final Rules’ sharp departure from these important tenets provides investors, at great cost, with an avalanche of information that is unlikely to be material to the decision-making of a reasonable investor.”

• They stray well beyond the policy concerns of the Federal securities laws. “[T]he Final Rules require registrants to provide costly and lengthy disclosures about climate-related matters, a divisive social and political issue that is well outside the policy concerns of the Federal securities laws. In so doing, the Final Rules inappropriately intrude on corporate decision-making.”

• They impose substantial costs on public companies and their shareholders that are not justified by the informational benefits they may provide to some investors. “In imposing new disclosure obligations, the Commission should assess whether the benefits of the information required to be disclosed—considered from the perspective of the reasonable investor—justify the costs of providing the disclosure. The Final Rules fall well short of this standard.”

• The rules are at odds with the SEC’s policy objectives of facilitating capital formation and promoting public company status. “If the Final Rules were to go into effect, they would be in direct contravention of the Commission’s current policy objectives of promoting public company status and facilitating capital formation.”

Next Steps in the Rescission Process

Rescission must follow a formal process. To that end, the SEC has published a proposal to rescind the rules, which is subject to a 60-day comment period running from when the proposing release is published in the Federal Register.

In the proposing release, the SEC explicitly asks for feedback on the following questions:

• Should the SEC rescind the rules in their entirety as proposed? Why or why not?

• Are there aspects of the rules that remain within the SEC’s statutory authority and should be retained? If so, how would these items of disclosure be able to operate sensibly without the rescinded portions of the rules?

• Are there alternatives to outright rescission that the SEC should consider? For example, should it amend the rules so that they apply to a smaller subset of registrants or in more limited circumstances? Alternatively, should it propose to replace the rules with less prescriptive and less costly disclosures about climate-related matters? If so, how would those disclosures improve upon the information already elicited by existing disclosure obligations? What information about climate-related matters does a reasonable investor need to make informed investment decisions?

• Does the proposed rescission negatively affect any reasonable reliance interests that market participants may have had in the operation of the rules, notwithstanding that the rules were stayed prior to effectiveness? Have any costs been incurred in preparing to comply with the rules, even though the rules have been stayed? If so, why and what is the type and magnitude of those costs? 

• Do existing disclosure requirements serve to elicit adequate disclosure about climate-related matters, when material to a specific registrant? Why or why not?  Should the SEC revise its 2010 climate disclosure guidance to provide updated guidance about how existing disclosure obligations may elicit information about climate-related matters?

• Have recent developments in climate reporting practices affected the rationale for the rules? If so, how?

• If the rules were to go into effect, to what extent would they impact firm decisions about whether to become or remain a public company? 

The SEC also asks questions regarding various aspects of its economic analysis, which are not described in this post.

We do not expect the same volume of comments as during the adoption of the rules, but the comment file will nevertheless likely still be substantial, with many commenters for and against weighing in on the foregoing and other questions. 

Given its issues with the rules, it is hard to envision a circumstance in which the SEC will be persuaded not to fully rescind them. But before the final denouement, expect a long and bumpy journey with some uncertainty. It will be several months or more before rescission occurs. It is highly likely that action will then be challenged in court.  

However, for the reasons discussed below, for larger US public companies, the stay of the SEC’s climate disclosure rules has not made much of a difference in their general approach to climate disclosure. The rescission of the rules will not change this. 

The Impact of Rescission

As discussed below, all subject registrants will benefit from the rescission of the rules, although the biggest change will be for smaller US public companies that are not subject to the other reporting mandates and pressures that larger companies have to contend with. However, as also discussed below, even smaller registrants will still need to consider the need for climate disclosure.  

Other existing SEC rules and guidance still apply

Among its reasons for rescinding the rules, the Commission concluded that existing SEC disclosure requirements and anti-fraud provisions already elicit information about the effects of climate-related matters in a way that (1) is tailored to reflect registrants’ particular circumstances, (2) is focused on material information for investors and (3) does not impose upon registrants the additional costs and burdens of the rules. 

The SEC unequivocally indicates in the proposing release that registrants currently are required to provide disclosure about climate-related matters to the extent they are responsive to existing disclosure requirements, such as those highlighted in the SEC’s 2010 Guidance. That Guidance indicates Regulation S-K items related to description of business (Item 101), legal proceedings (Item 103), risk factors (Item 105) and management’s discussion and analysis (Item 303) may require climate disclosures. The proposing release also notes that the 2010 Guidance requires registrants to consider any financial statement implications in accordance with applicable accounting standards. 

The state and international landscape

Other jurisdictions continue to move forward with climate-related disclosures, although not without their own twists and turns. Among others, these jurisdictions include California (SB 253 and SB 261), the European Union (the Corporate Sustainability Reporting Directive) and various countries adopting ISSB-aligned disclosure standards. For brevity, we are not rehashing in this post the California litigation, CSRD Omnibus I “simplification” and other messiness discussed in many of our posts over the last couple of years (see here).

The upshot of these various mandates is that larger US public companies will continue to be required to gather and report most of the information contemplated by the SEC’s rules. Nevertheless, taking these prescriptive disclosures out of SEC filings will in many cases be a significant cost saving, in addition to other important benefits.

Voluntary reporting

Voluntary climate reporting also remains alive and well. Most larger US public companies will continue to voluntarily report climate information in sustainability reports and on their websites to manage to various stakeholder considerations.

For example, as noted by the SEC in its rescission proposal release, individual registrants may want to attract climate-focused investors and therefore choose to provide additional information: “Disclosures mandated by the Commission are only some of the information registrants provide to the marketplace. Investors and analysts often demand additional information about a wide range of topics depending on their particular investment strategies or non-investment interests. Registrants in turn may voluntarily provide such information depending on the nature of their business and the investor base they wish to attract. We expect this market-driven flow of information will continue following a rescission of the Final Rules …” 

About Our Practice

Ropes & Gray has a leading ESG, CSR and business and human rights compliance practice. We offer clients a comprehensive approach in these subject areas through a global team with members in the United States, Europe and Asia. Senior members of the practice have advised on these matters for more than 30 years, enabling us to provide a long-term perspective and depth and breadth of experience that few firms can match. 

Subscribe to Ropes & Gray ESG, CSR and business and human rights compliance thought leadership here.