SEC Withdraws Key ESG And Shareholder Proposal Rules

In a significant retreat from its earlier climate-focused agenda, the U.S. Securities and Exchange Commission (SEC) has officially withdrawn two cornerstone proposals that formed the backbone of the Biden administration’s efforts to regulate environmental, social, and governance (ESG) investments. The decision marks a clear shift in the SEC’s regulatory stance and has significant implications for asset managers, investors, and corporate governance across the U.S.

The two proposed rules—one that would have required detailed ESG disclosures from investment advisers and funds, and another that aimed to revise the shareholder proposal and resubmission process—were quietly shelved as part of an updated regulatory agenda released by the SEC. These rules were among 14 proposals abandoned last week, signaling the Commission’s pivot away from the progressive regulatory vision of former Chair Gary Gensler.

The withdrawal effectively halts a major Biden-era push for greater transparency in ESG investing. It also means that ESG-labeled investment funds will not be subject to new anti-greenwashing disclosure standards. Moreover, corporate shareholder proposal thresholds established during the Trump administration in 2020 will remain intact, preserving the higher barriers for shareholder activism.

Originally proposed in May 2022, the ESG disclosure rule was officially titled “Enhanced Disclosures by Certain Investment Advisers and Investment Companies About Environmental, Social, and Governance Investment Practices.” It was designed to bring standardization and clarity to ESG reporting within the financial services industry. The rule would have required asset managers and funds that promote ESG strategies to disclose the specifics of those strategies in fund prospectuses, annual reports, and adviser brochures.

Among its provisions, the rule sought to mandate that ESG funds report on greenhouse gas emissions, including metrics like carbon footprint and carbon intensity. The disclosures were to be presented in a tabular format to facilitate investor comparison and improve transparency. The SEC’s rationale at the time was clear: Inconsistent and opaque ESG data made it difficult for investors to assess products aligned with their sustainability preferences and opened the door to greenwashing—a marketing practice that misrepresents the environmental credentials of investment products.

However, despite support from Democratic lawmakers and investor advocacy groups, the rule failed to progress through the regulatory pipeline. The initial timeline targeted April 2024 for a final rule, later slipping to October. As political tides shifted and opposition mounted—particularly from Republican lawmakers who decried the rule as regulatory overreach—the momentum stalled. The final blow came as the SEC formally announced it would not be moving forward with the rule and would have to initiate an entirely new proposal if it wished to revisit ESG disclosure requirements in the future.

The second rule withdrawn was the July 2022 proposal to amend shareholder proposal and resubmission procedures. This rule aimed to dismantle a Trump-era regulation that had increased the eligibility and resubmission thresholds for shareholders to bring proposals before company boards. Under Gensler’s leadership, the SEC sought to make it more difficult for companies to exclude shareholder proposals by narrowing allowable grounds for rejection, such as claims of duplication, prior implementation, or recent resubmission.

The proposal was part of a broader effort to empower shareholders—especially those focused on sustainability and governance issues—to have a stronger voice in corporate decision-making. However, its progress was hampered by legal and political headwinds. In a related development, a federal judge recently dismissed a lawsuit from responsible investment groups challenging the 2020 rule, effectively solidifying its continued enforcement. That judicial setback likely played a role in the SEC’s decision to abandon its proposed reforms.

These withdrawals are not isolated events but rather part of a larger rollback of ESG-related regulation across federal agencies. In March, the SEC also declined to continue defending its climate risk disclosure rule in court, after facing intense political and legal resistance. Meanwhile, the Department of Labor announced it would rewrite its rule allowing retirement plan fiduciaries to consider ESG factors, another setback for the Biden administration’s sustainability agenda.

This broader retreat from climate-focused financial oversight underscores a significant policy shift. Under pressure from lawmakers, courts, and industry groups, the SEC appears to be recalibrating its approach toward a more conservative, market-friendly regulatory environment. For asset managers and corporations, the withdrawal of these ESG proposals means reduced compliance burdens and regulatory uncertainty. But for investors—especially those prioritizing environmental and social goals—it may signal a more challenging path ahead in evaluating and comparing ESG-labeled financial products.

As the political landscape continues to evolve, the future of ESG regulation in the U.S. remains uncertain. For now, the SEC’s decision reflects a cooling of climate enthusiasm in federal rulemaking and a move away from what had once been considered a transformative era for sustainable finance.