New Acting SEC Chair Questions Climate Disclosure Rule

With Acting U.S. Securities and Exchange Commission (SEC) Chair Mark Uyeda announcing his intent to request a delay in legal proceedings on the agency’s controversial climate disclosure rule, this move marks a very important moment in corporate climate regulations within the United States. Describing what he considered "deeply flawed," Uyeda warned that the rule could indeed "inflict significant harm on the capital markets and our economy."

Uyeda held office as Acting Chair after Gary Gensler resigned from the position in January, shortly after Donald Trump assumed office as President. Gensler was a strong advocate of climate-related financial disclosures and supported the rule during the entire time that he functioned in office. Trump's nominee for SEC Chair, Paul Atkins, who is awaiting Senate confirmation, has also been a vocal critic of the climate reporting mandate.

The climate disclosure rule signaled the first in U.S. history to require public companies to disclose risks associated with climate change to their businesses, strategies for coping with these hazards, the financial impact of extreme weather events, and, in certain situations, greenhouse gas emissions. Gensler had articulated that the proposition would provide investors with the essential information about long-term risks that can lead them to make informed decisions.

However, immediately after its introduction, the regulation received opposition. Uyeda, as well as fellow SEC Commissioner Hester Peirce, voted against the regulation, citing the present adequacy of rules in offering disclosure and that the mandate is beyond the legal authority of the Commission. The critics also added that the mandate offers businesses excessive burden and stifles economic growth.

Within ten days of the announcement of the rule, nine lawsuits were initiated to challenge and restrain its operation. Among those lawsuits was a high-profile case led by 25 Republican state attorneys general, spearheaded by the Attorney General of Iowa, Brenna Bird, as well as a motion by the U.S. Chamber of Commerce that requested a stay of enforcement of the rule. The legal actions were consolidated in the Eighth Circuit court, and in April, the SEC announced that it would pause the rule's implementation pending a review of the petitions. Despite this pause, however, the agency indicated an intent to "vigorously defend" the disclosure requirements.

In August, SEC entered its case for defense in court claiming that the climate-related disclosures straightly relate to investment value and as such comes well under the scope of authority of the Commission. Affected party investors wanted to give emphasis that the law was timely and also necessary due to the circumstances affecting their interests, embracing the growing number of investors who demand more transparency on climate risks.

Uyeda's recent statement indicates a complete about-turn on that position as he expressed his dissatisfaction with the defense of the SEC saying that, "does not reflect my views." He even said that he is questioning the statutory authority of the Commission to adopt this rule, the necessity of this rule itself, and the agency's cost-benefit evaluation processes. He raised procedural issues in adopting this rule as probably not following regulatory standards.

In light of these factors and the recent change in leadership at the Commission, Uyeda said that he had directed SEC staff to inform the court of the changed circumstances, requesting additional time for the agency to 'deliberate and determine the appropriate next steps.' This move may signal a retreat from the SEC's previous defense of the rule as well as raise questions about the future of climate-related financial disclosures in the U.S.

Uyeda's position resonates well with the deregulatory philosophy of the government under Trump, which has historically challenged climate-related regulations as they bear on costs to the economy. His utterances send signals to indicate that the SEC may review the rule or even withdraw it, a likely positive reaction from opponents and an unfortunate blow among environmental advocates and investors who regard climate risk disclosures as permanent features for long-term financial health.

In what will be a decisive hour for the SEC, the litigation and political struggles over climate-disclosure regulations can only be expected to grow more intense. Not only will the choice shape the future of corporate America, but it will also be a critical aspect of considering governmental efforts to bring about climate change action through financial transparency.