Rescission of Climate-Related Disclosure Rules

Federal RegisterJun 3, 2026

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 230, 232, 239, and 249

[Release Nos. 33-11421; 34-105572; File No. S7-2026-19]

RIN 3235-AN76

Rescission of Climate-Related Disclosure Rules

AGENCY:

Securities and Exchange Commission.

ACTION:

Proposed withdrawal of final rules.

SUMMARY:

The Securities and Exchange Commission (“Commission”) proposes to rescind amendments to its rules under the Securities Act of 1933 (“Securities Act”) and Securities Exchange Act of 1934 (“Exchange Act”) that require registrants to provide certain climate-related information in their registration statements and annual reports.

DATES:

Comments should be received on or before August 3, 2026.

ADDRESSES:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form (

https://www.sec.gov/comments/s7-2026-19/rescission-climate-related-disclosure-rules

• Send an email to

rule-comments@sec.gov.

Please include File Number S7-2026-19 on the subject line.

Paper Comments

• Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-2026-19. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission's website (

https://www.sec.gov/rules-regulations/public-comments/s7-2026-19

). Do not include personally identifiable information in submissions; you should submit only information that you wish to make available publicly. The Commission may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection.

Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission's website. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at

www.sec.gov

to receive notifications by email.

A summary of the proposal of not more than 100 words is posted on the Commission's website (

https://www.sec.gov/rules-regulations/2026/05/s7-2026-19

FOR FURTHER INFORMATION CONTACT:

David Russo, Senior Counsel, in the Office of the General Counsel, at 202-551-5100, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

The Commission is proposing to withdraw certain previously adopted but not yet effective amendments to the following rules and forms:

EP03JN26.000

I. Overview

15 U.S.C. 77a

et seq.

15 U.S.C. 78a

et seq.

II. Adoption of The Final Rules And Subsequent Litigation

III. Discussion of Proposed Rescission

A. Overview of Basis for Rescission: Lack of Authority and Reevaluation of Policy Grounds

B. The Final Rules Exceed the Commission's Statutory Authority

1. Scope of the Commission's Disclosure Authority

2. The Final Rules Exceed the Limitations on Mandatory Disclosures

3. The Final Rules Should Be Rescinded in Their Entirety

C. Policy Reasons for Rescinding the Final Rules

1. The Final Rules Are Unnecessary and Inconsistent With a Registrant-Specific, Materiality-Based Approach to Disclosure That Best Serves the Interests of Registrants and Investors

2. The Final Rules Stray Well Beyond the Policy Concerns of the Federal Securities Laws

3. The Final Rules Impose Significant Costs on Public Companies and Their Shareholders That Are Not Justified by the Informational Benefits They Provide to Some Investors

4. The High Costs of the Final Rules Are at Odds With the Commission's Policy Objectives of Facilitating Capital Formation and Promoting Public Company Status

IV. Economic Analysis

A. Introduction

B. Economic Baseline

1. Affected Parties

2. Current Regulatory Framework

3. Current Market Practices

C. Benefits and Costs

1. Benefits

2. Costs

3. Aggregate Monetized Benefits and Costs

D. Anticipated Effects on Efficiency, Competition, and Capital Formation

E. Reasonable Alternatives

F. Request for Comment

V. Paperwork Reduction Act

VI. Initial Regulatory Flexibility Act Analysis

A. Reasons for, and Objectives of, the Proposed Action

B. Legal Basis

C. Small Entities Subject to the Proposed Amendments

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements

E. Duplicative, Overlapping, or Conflicting Federal Rules

F. Significant Alternatives

G. Request for Comment

VII. Congressional Review Act

VIII. Other Matters

Statutory Authority

I. Overview

We propose to rescind the climate-related disclosure rules adopted by the Commission in 2024 (“Final Rules”).

Congress gave the Commission certain specific powers within the Federal securities laws. Among those powers, the Commission's governing statutes authorize the agency to except from or add to the mandatory items of disclosure specified in the Securities Act and the Exchange Act.

This authority, however, is limited by the text and context of these statutes. Furthermore, even when acting pursuant to an explicit grant of authority, it is incumbent on the Commission to implement a disclosure regime that elicits material information

for investors while being mindful of the costs imposed on registrants to collect and disclose that information. When the Commission loses sight of these considerations, it risks not only imposing undue costs on registrants

and impeding capital formation, but also harming the very investors it seeks to protect.

See The Enhancement and Standardization of Climate-Related Disclosures for Investors,

Release No. 33-11275 (Mar. 6, 2024) [89 FR 21668 (Mar. 28, 2024)] (“Adopting Release”). Terms not defined in this release are used as defined in the Adopting Release. Because the Final Rules were never codified in the Code of Federal Regulations (“CFR”) as a consequence of being stayed,

see infra

note 39, the proposed rescission of the Final Rules would not require any amendments to the CFR. References herein to the CFR citations of the Final Rules reflect what those citations would have been upon effectiveness, as set forth in the Adopting Release.

See, e.g.,

15 U.S.C. 77g; 15 U.S.C. 78

For purposes of this release, we use the terms “registrants,” “public companies,” “companies,” and “issuers” interchangeably.

The Final Rules were a dramatic overreach of the Commission's statutory authority and, independently, unsound as a matter of policy. Based on an incorrect view of the scope of its authority, the Commission determined that it was appropriate to prescribe dozens of pages of highly specific disclosure rules solely about climate-related matters

and apply the bulk of those rules to virtually all public companies, regardless of size, industry, or specific circumstances.

As discussed below, the Final Rules require disclosure about, among other things, greenhouse gas (“GHG”) emissions, the management of climate-related risks, and the financial statement effects of severe weather events.

See infra

section II. We refer to these and related disclosure topics throughout this release as “climate-related matters.”

The Final Rules also discounted the role of market forces in the flow of information between registrants and investors. 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, but it is not the Commission's role to require disclosure of particular information because it is useful for any one investment strategy or desired by some political interests for the purpose of influencing business practices. Rather, in exercising its authority to

mandate

disclosure within the statutory limits imposed by Congress, the Commission should seek to adopt rules that elicit information pursuant to the standard of materiality established by the Supreme Court: information that a reasonable investor would consider important in buying or selling securities.

See Basic Inc.

Levinson,

485 U.S. 224 (1988).

Accordingly, as discussed in more detail in the sections that follow, we propose to rescind the Final Rules in their entirety because they exceed the statutory limits on the Commission's disclosure authority. Furthermore, even if the Commission had authority to adopt the Final Rules, several independent policy reasons support their rescission, including that:

• The Final Rules are unnecessary and inconsistent with a registrant-specific, materiality-based approach to disclosure;

• The Final Rules stray well beyond the policy concerns of the Federal securities laws;

• The Final Rules impose substantial costs that are not justified by the informational benefits they may provide to some investors; and

• The Final Rules are at odds with the Commission's policy objectives of facilitating capital formation and promoting public company status.

II. Adoption of the Final Rules and Subsequent Litigation

On March 21, 2022, the Commission proposed rules that would require registrants to include extensive new climate-related disclosures in their registration statements and periodic reports, including detailed information about the impact and management of climate-related risks, GHG emissions, scenario analysis, internal carbon prices, and certain climate-related financial statement effects.

The Proposing Release was highly contentious,

and in response, the Commission received a large number of comments from a variety of market participants, environmental lobbying groups, and members of the public expressing starkly divergent views about the proposed rules.

See The Enhancement and Standardization of Climate-Related Disclosures for Investors,

Release No. 33-11042 (Mar. 21, 2022) [87 FR 21334 (Apr. 11, 2022)] (“Proposing Release”);

see also The Enhancement and Standardization of Climate-Related Disclosures for Investors,

Release No. 33-11061 (May 9, 2022) [87 FR 29059 (May 12, 2022)] (extension of comment period for Proposing Release);

Resubmission of Comments and Reopening of Comment Periods for Several Rulemaking Releases Due to a Technological Error in Receiving Certain Comments,

Release No. 33-11117 (Oct. 7, 2022) [87 FR 63016 (Oct. 18, 2022)] (reopening of comment period for Proposing Release).

See, e.g.,

Richard Vanderford,

SEC's Gensler Bracing for Lawsuits over Climate Rule,

Wall Street Journal (Feb. 13, 2024), available at

https://www.wsj.com/articles/secs-gensler-bracing-for-lawsuits-over-climate-rule-60165fec.

Adopting Release at 21677-79.

Some commenters supported the proposed rules, stating that climate-related risks can have material impacts on a company's financial position or performance.

Commenters in support of the proposed rules indicated, among other things, that adoption of mandatory, climate-related disclosure rules would improve the timeliness, quality, and reliability of climate-related information, which would facilitate investors' cross-company comparisons of climate-related risks and lead to more accurate securities valuations.

Id.

at 21677.

Id.

Many other commenters opposed the proposed rules and requested either that the Commission not adopt the proposal or make significant revisions in the Final Rules.

Some commenters asserted that the Commission lacked statutory authority to adopt the proposed rules.

Others stated that existing voluntary reporting practices were sufficient to serve the needs of investors and markets such that the proposed rules were unnecessary.

Opposing commenters further stated that the proposed rules were overly prescriptive, that they were not bound in every instance by a materiality qualifier, that their adoption would result in the disclosure of a large volume of immaterial information that would be confusing to investors, and that mandating such disclosure requirements would impose a significant burden on registrants while resulting in few additional benefits for investors.

Id.

at 21678.

Id.

at 21683, n.172.

Id.

at 21678.

Id.

On March 6, 2024, the Commission approved the Final Rules by a 3-2 vote. While the Final Rules included changes from the proposal in response to commenter concerns, the adopted regulations continued to include numerous, highly prescriptive disclosure requirements. To house the extensive new disclosure requirements, the Final Rules created a new subpart 1500 of Regulation S-K

and a new Article 14 of Regulation S-X.

Among other things, the Final Rules require a registrant to consider and possibly disclose the following detailed items:

17 CFR 229.1500 through 17 CFR 229.1507.

17 CFR 210.14-01 through 17 CFR 210.14-02.

• If a registrant is a large accelerated filer (“LAF”), or an accelerated filer (“AF”) that is not otherwise exempted, and its Scope 1 emissions and/or its Scope 2 emissions metrics

are material, certain disclosure about those emissions, including:

Under the GHG Protocol, Scope 1 emissions are direct GHG emissions that occur from sources owned or controlled by the company. Scope 2 emissions are those emissions primarily resulting from the generation of electricity purchased and consumed by the company.

See

Proposing Release, section I.D.2.

• The volume of the emissions disclosed separately and each expressed

in the aggregate, in terms of CO

and, if any constituent gas of the disclosed emissions is individually material, such constituent gas disaggregated from other gases;

17 CFR 229.1500. “Carbon dioxide equivalent” or “CO

e” means the common unit of measurement to indicate the global warming potential (“GWP”) of each greenhouse gas, expressed in terms of the GWP of one unit of carbon dioxide.

See id.

• Scope 1 emissions and/or Scope 2 emissions in gross terms by excluding the impact of any purchased or generated offsets;

• The methodology, significant inputs, and significant assumptions used to calculate the GHG emissions;

• The organizational boundaries used when calculating the registrant's disclosed GHG emissions, including the method used to determine those boundaries;

• The operational boundaries used, including the approach to categorization of emissions and emissions sources; and

• The protocol or standard used to report the GHG emissions, including the calculation approach, the type and source of any emission factors used, and any calculation tools used to calculate the GHG emissions;

17 CFR 229.1505.

• If a registrant's use of internal carbon pricing is material, the price per metric ton of CO

e and the total price, including how the total price is estimated to change over certain time periods;

17 CFR 229.1502(g).

• Any climate-related risks that have materially impacted or are reasonably likely to have a material impact on the registrant, including on its strategy, results of operations, or financial condition;

17 CFR 229.1502(a).

• Any oversight by the board of directors of climate-related risks, regardless of the materiality of those risks, and any role by management in assessing and managing the registrant's material climate-related risks;

17 CFR 229.1501(a).

• Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant's overall risk management system or processes;

and

17 CFR 229.1503.

• If a registrant has set a climate-related target or goal that has materially affected or is reasonably likely to materially affect the registrant's business, results of operations, or financial condition, certain disclosures about such target or goal, including material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal.

17 CFR 229.1504.

• With respect to financial statement disclosures:

• The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds;

17 CFR 210.14-02(c) and 210.14-02(d).

• The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates (“RECs”) if used as a material component of a registrant's plans to achieve its disclosed climate-related targets or goals;

and

17 CFR 210.14-02(e).

• If the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, or any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted.

17 CFR 210.14-02(h).

In addition, registrants that are required to disclose Scopes 1 and/or 2 emissions must file an attestation report of those emissions subject to phased-in compliance dates.

Further, the Final Rules require a registrant that is not required to disclose its GHG emissions or to include a GHG emissions attestation report pursuant to the Final Rules to disclose certain information if the registrant voluntarily discloses its GHG emissions in a Commission filing and voluntarily subjects those disclosures to third-party assurance.

17 CFR 229.1506. Pursuant to the Final Rules, an AF must file an attestation report at the limited assurance level beginning the third fiscal year after the compliance date for disclosure of GHG emissions while an LAF must file an attestation report at the limited assurance level beginning the third fiscal year after the compliance date for disclosure of GHG emissions, and then file an attestation report at the reasonable assurance level beginning the seventh fiscal year after the compliance date for disclosure of GHG emissions.

Id.

The Final Rules exempt certain registrants from disclosure in limited circumstances.

Outside these limited circumstances, the Final Rules require almost every registrant to comply with the vast majority of the new disclosure requirements after a transition period.

As the Adopting Release noted, nearly every registrant will be required to start complying with the Final Rules by the fiscal year beginning in 2027.

For example, the Commission exempted smaller reporting companies (each an “SRC”) and emerging growth companies (each an “EGC”) from the requirement to disclose GHG emissions data, and the Commission completely exempted from the Final Rules private companies that are parties to business combination transactions involving a securities offering registered on Form S-4 or F-4.

See

Adopting Release at 21733, 21744.

See

Adopting Release at 21828-29.

Id.

Within 60 days of the Commission's adoption of the Final Rules on March 6, 2024, various parties petitioned for judicial review in multiple Federal courts of appeals.

On March 19, 2024, the Commission filed a Notice of Multicircuit Petitions for Review with the Judicial Panel on Multidistrict Litigation (“JPML”), and on March 21, 2024, the JPML issued an order consolidating the petitions for review in the U.S. Court of Appeals for the Eighth Circuit (“Eighth Circuit”).

On April 4, 2024, the Commission, citing its authority pursuant to the Exchange Act

and the Administrative Procedure Act,

entered a stay of the Final Rules and ordered that “the Final Rules [would be] stayed pending the completion of judicial review of the consolidated Eighth Circuit petitions.”

See Iowa

SEC,

No. 24-1522 (8th Cir.), and consolidated cases.

Consolidation Order,

In re Securities and Exchange Commission, The Enhancement and Standardization of Climate-Related Disclosures for Investors,

MCP No. 180 (J.P.M.L. Mar. 21, 2024).

15 U.S.C. 78y(c)(2).

5 U.S.C. 705.

The Enhancement and Standardization of Climate-Related Disclosures for Investors; Delay of Effective Date,

Release No. 33-11280 (Apr. 4, 2024) [89 FR 25804 (Apr. 12, 2024)];

see also

Sec. & Exch. Comm'n,

In the Matter of the Enhancement and Standardization of Climate-Related Disclosures for Investors (Order Issuing Stay),

Release No. 33-11280 (Apr. 4, 2024) (order staying Final Rules).

On March 27, 2025, the Commission voted to end its defense of the rules. The Commission staff sent a letter to the court stating that the Commission withdraws its defense of the rules and that Commission counsel are no longer authorized to advance the arguments in the brief the Commission had filed. Thereafter, on September 12, 2025, the Eighth Circuit issued an Order holding the consolidated petitions for review in abeyance “until such time as the . . . Commission reconsiders the challenged Final Rules by notice-and-comment

rulemaking or renews its defense of the Final Rules.”

The Eighth Circuit explained that it is the Commission's “responsibility to determine whether its Final Rules will be rescinded, repealed, modified, or defended in litigation.”

As a result of the current procedural posture, the Final Rules remain stayed. The court has not made any decision on the merits of any arguments presented by any petition for review of the Final Rules.

Order,

Iowa

SEC,

No. 24-1522 (8th Cir. Sept. 12, 2025). The Eighth Circuit's decision to hold the consolidated petitions for review in abeyance was made after (1) the Commission's filing with the Eighth Circuit dated Mar. 27, 2025, notifying the court and the parties in the litigation that the Commission had “determined that it wishe[d] to withdraw its defense of the [Final] Rules” and (2) a status report that the Commission filed with the Eighth Circuit on July 23, 2025, wherein the Commission notified the Eighth Circuit that it did not intend to review or reconsider the Final Rules at that time and requested that the court proceed to decide the petitions for review.

Id.

III. Discussion of Proposed Rescission

A. Overview of Basis for Rescission: Lack of Authority and Reevaluation of Policy Grounds

As noted above, we are proposing to rescind the Final Rules in their entirety because they exceed the scope of the Commission's statutory authority. In addition, even if a court were to find that the Commission had authority to adopt the Final Rules, we have independent, compelling policy reasons to rescind the rules in their entirety. The Final Rules are unnecessary and inconsistent with a registrant-specific, materiality-based approach to disclosure that best serves the interests of registrants and investors; stray well beyond the policy concerns of the Federal securities laws; impose substantial costs on public companies and their shareholders that are not justified by the informational benefits they may provide to some investors; and are at odds with the Commission's policy objectives of facilitating capital formation and promoting public company status.

B. The Final Rules Exceed the Commission's Statutory Authority

A fundamental principle of constitutional and administrative law is that an administrative agency must act within its statutory authority.

An agency acts unlawfully when it exercises power beyond its authority.

Agencies must respond to their own unlawful acts; as the Supreme Court recently put it, illegal agency action “presumably requires remedial action of some sort.”

The proper remedy for the Commission's lack of statutory authority to adopt the Final Rules is rescission.

See, e.g., Bd. of Governors of Fed. Rsrv. Sys.

Dimension Fin. Corp.,

474 U.S. 361, 373 n.6 (1986) (holding that an administrative agency, in this case the Federal Reserve Board, only has the power “to police within the boundaries of the [relevant authorizing statute]” and not “to expand its jurisdiction beyond the boundaries established by Congress”).

See West Virginia

EPA,

597 U.S. 697, 723 (2022) (“Agencies have only those powers given to them by Congress”);

Util. Air Regul. Grp.

EPA,

573 U.S. 302, 327-328 (2014) (stating that to avoid “a severe blow to the Constitution's separation of powers,” an agency must act within the bounds established by Congress and may not rewrite statutory terms “to suit its own sense of how [a] statute should operate”);

City of Arlington

FCC,

569 U.S. 290, 297 (2013) (“No matter how it is framed, the question a court faces when confronted with an agency's interpretation of a statute it administers is always, simply,

whether the agency has stayed within the bounds of its statutory authority.”

) (italics in original);

K Mart Corp.

Cartier, Inc.,

486 U.S. 281, 291 (1988) (“In determining whether a challenged regulation is valid, a reviewing court must first determine if the regulation is consistent with the language of the statute.”);

Stark

Wickard,

321 U.S. 288, 309 (1944) (“When Congress passes an Act empowering administrative agencies to carry on governmental activities, the power of those agencies is circumscribed by the authority granted.”);

Cal. Indep. Sys. Operator Corp.

FERC,

372 F.3d 395, 398 (D.C. Cir. 2004) (stating that a Federal agency is a creature of statute, has no constitutional or common law existence or authority, and has “

only

those authorities conferred upon it by Congress”) (italics in original) (citation omitted).

Dep't of Homeland Sec.

Regents of Univ. of Calif.,

591 U.S. 1, 22 (2020);

see also

15 U.S.C. 78w(a)(2) (requiring the Commission to consider the effects on competition of any rules that the Commission adopts under the Exchange Act and prohibiting the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act).

Courts have also recognized that federalism limits the Commission's rulemaking authority in areas of corporate governance regulated by State law.

Congress has traditionally left

corporate governance to the States to regulate, and it has spoken clearly on the rare occasions when it has shifted that balance.

See Bus. Roundtable

SEC,

905 F.2d 406, 412 (D.C. Cir. 1990) (“As the Supreme Court has said,

‘[c]orporations are creatures of state law, and investors commit their funds to corporate directors on the understanding that, except where federal law

expressly

requires certain responsibilities of directors with respect to stockholders, state law will govern the internal affairs of the corporation.’ ” (citing

Santa Fe Indus.

Green,

430 U.S. 462, 479 (1977)) (emphasis in original));

see also

15 U.S.C. 77s (allowing the Commission to prescribe “the items or details to be shown in the balance sheet and earning statement” as part of its authority to prescribe “such rules and regulations as may be necessary to carry out the provisions of this title, including rules and regulations governing registration statements and prospectuses”).

15 U.S.C. 77g(a)(1).

15 U.S.C. 78

(b)(1) (the application “shall contain” “[s]uch information, in such detail . . . as the Commission may by rules and regulations require, as necessary or appropriate in the public interest or for the protection of investors, in respect of” those enumerated categories).

15 U.S.C. 78

(c).

The Securities Act and Exchange Act work together in certain circumstances. Experience with disclosures of reporting companies under section 12 of the Exchange Act may inform the Commission about the need for or inapplicability of disclosures under section 7(a)(1) of the Securities Act. Detailed disclosures or disclosures of comparable character or current information added under section 12 for reporting companies may also guide the Commission's determination about disclosures necessary for the protection of investors in a registration statement required by the Securities Act. This interrelationship between statutory provisions provides the foundation for the Commission's existing integrated disclosure system.

The Commission's rulemaking with respect to disclosures must be “channel[ed]” by and comparable to the kinds of disclosures recited in the statutes,

which refer to a registrant's business or financial characteristics. This follows from the text of the Commission's enabling statutes. As previously discussed, section 12 of the Exchange Act authorizes the Commission to specify the “detail[s]” surrounding Congress's chosen topics

and to substitute those topics with others for certain issuers—provided (among other things) that those substitute disclosures are “in lieu of” Congress's specified fields and “of comparable character.”

FCC

Consumers' Rsch.,

606 U.S. 656, 690 (2025);

see also

15 U.S.C. 78m(a) (requiring every issuer of a security registered pursuant to section 12 to file certain reports with the Commission in accordance with such rules and regulations “as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security”).

114

See infra

section III.C.1.b.

In addition to creating a disclosure regime far beyond the kind authorized by the Commission's enabling statutes, the Final Rules also intrude on State authority over core matters of corporate governance. “No principle of corporation law and practice is more firmly established than a State's authority to regulate domestic corporations.”

115

Although the Final Rules purport to require issuers only to

disclose

information, the effect of their requirements is to impermissibly regulate issuers' internal affairs. The many “ifs” in the Final Rules are telling in this regard. While framed in terms of risks to and impacts on the registrant, the disclosure mandates in the Final Rules effectively provide an aspirational framework for how public companies should manage climate-related matters.

115

CTS Corp.

Dynamics Corp. of Am.,

481 U.S. 69, 89 (1987);

see also

17 CFR 229.101(c)(2)(i), (h)(4)(xi) (requiring disclosure of certain material effects of compliance with environmental regulations).

117

Similarly, the Final Rules contrast with the approach taken by the Commission in the 2010 Guidance, when it explained that, in certain circumstances and for some companies, regulatory, legislative, and other developments related to climate change “could have a significant effect on operating and financial decisions.” 2010 Guidance at 6291. As such, the Commission's existing disclosure requirements—like those that require disclosure of a registrant's description of its business, legal proceedings, risk factors, and management's discussion and analysis—might apply to climate-related issues. In contrast to the Final Rules, these prior initiatives are consistent with the Commission's long-held recognition that types of information “which are of importance only in certain circumstances have generally not been made the subject of specific disclosure requirements.” Environmental and Social Disclosure Release,

infra

note 131.

118

See

17 CFR 229.407(h) (“[D]isclose the extent of the board's role in the risk oversight of the registrant, such as how the board administers its oversight function, and the effect that this has on the board's leadership structure.”).

119

See, e.g.,

17 CFR 229.1505 (GHG emissions metrics). The Adopting Release acknowledges that in order to comply with 17 CFR 229.1505, most, if not all, LAFs and AFs that are not EGCs or SRCs will need to assess or estimate their Scope 1 and 2 emissions to reach a materiality determination. As a result, these registrants will, to some extent, need to adopt controls and procedures to assess the materiality of their Scope 1 and 2 emissions and determine whether disclosure is required if they do not already have them in place. Adopting Release at 21859.

To house these extensive new reporting requirements, the Commission created a new subpart 1500 of Regulation S-K as well as a new Article 14 of Regulation S-X. Each of these regulations contain detailed line item requirements related to such varied matters as transition plans,

120

scenario analysis,

121

internal carbon prices,

122

GHG emissions,

123

and the aggregate amount of carbon offsets and RECs expensed.

124

Most of these items apply equally across all types of registrants. The anticipated response of registrants to the creation of such a detailed regime dedicated to a single category of risks is clear: all registrants will pay attention to climate-related matters and dedicate significant board, executive, and employee resources to manage them. This broad mandate interferes with the management of companies and trenches

upon the traditional role of States in regulating corporations.

125

120

17 CFR 229.1502(e).

121

17 CFR 229.1502(f).

122

17 CFR 229.1502(g).

123

17 CFR 229.1505.

124

17 CFR 210.14-02(e).

125

Cf. Bus. Roundtable

SEC,

905 F.2d 406, 411-412 (D.C. Cir. 1990) (rejecting effort by Commission “to establish a federal corporate law by using access to national capital markets as its enforcement mechanism”).

On the rare occasions when Congress has intervened in corporate governance, it has given explicit direction for the Commission to do so.

126

Congress has not done so with respect to management of climate-related matters. Such a conduct-altering regime, unrelated to managerial self-dealing,

127

simply was not contemplated by Congress when it specified the fundamental disclosures that a registrant should provide when conducting a public offering in the United States or trading in U.S. markets. This effort to regulate corporate management interferes with the role of the States in regulating corporate governance and contravenes the “clear statement” rule that the Supreme Court applies when regulatory actions raise federalism concerns.

128

126

See, e.g.,

Exchange Act section 10A(m) (directing the Commission to adopt rules requiring national securities exchanges to prohibit the listing of any security of an issuer that does not meet certain specified requirements related to audit committee procedures and independence) [15 U.S.C. 78j-1(m)]; Exchange Act section 10C(f) (directing the Commission to adopt rules to direct national securities exchanges and national securities associations to prohibit the listing of any security of an issuer that is not in compliance with specified requirements related to compensation committees) [15 U.S.C. 78j-3(f)]; Exchange Act section 14B (directing the Commission to adopt rules requiring disclosure of the reasons why the issuer has chosen the same person to serve as chairman of the board of directors and chief executive officer or different individuals to serve as chairman of the board of directors and chief executive officer) [15 U.S.C. 78n-2]. Around the same time that Congress enacted the Securities Act and Exchange Act, it also enacted the Public Utilities Holding Company Act of 1935 [15 U.S.C. 79

et seq.

(repealed 2005)] (“PUHCA”). Although now repealed, PUHCA provided the Commission with extensive power to refashion the structure and business practices of an entire industry.

See, e.g., Am. Power & Light Co.

SEC,

329 U.S. 90 (1946) (upholding the Commission's authority under PUHCA to require that each registered holding company, and each subsidiary company thereof, take such steps as the Commission shall find necessary to ensure that the corporate structure or continued existence of any company in the holding-company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of such holding-company system). PUHCA thus stood in sharp contrast to the two prior federal securities laws, which focused on disclosure. The history of PUHCA demonstrates that Congress knows how to empower the agency to intervene in internal corporate affairs when it wishes to do so.

127

See

15 U.S.C. 78

(b)(1)(D); 17 CFR 240.14a-101.

128

Ala. Ass'n of Realtors

Dep't of Health & Hum. Servs.,

594 U.S. 758, 764 (2021) (“Our precedents require Congress to enact exceedingly clear language if it wishes to significantly alter the balance between federal and state power . . . .”) (quoting

U.S. Forest Serv.

Cowpasture River Pres. Ass'n,

590 U.S. 604, 621-622 (2020)).

The past practices the Commission cited in the Adopting Release also do not justify the Final Rules. According to the Supreme Court, “[i]t is telling” when an agency that “has never before adopted a broad . . . regulation” over many decades now seeks to do so, suggesting “that the mandate extends beyond the agency's legitimate reach.”

129

Until the Final Rules, the Commission had never before adopted a sweeping set of disclosure requirements on climate-related issues; indeed, in prior years, it specifically declined to do so.

129

Nat'l Fed'n of Indep. Bus.

Dep't of Lab., Occupational Safety & Health Admin.,

595 U.S. 109, 119 (2022).

In adopting the Final Rules, the Commission pointed as precedent to environmental disclosure requirements first adopted in the 1970s, asserting that “the Commission for the last fifty years has also required disclosure about various environmental matters.”

130

But a complete and balanced reading of the record from the 1970s about environmental disclosures tells a different story. The dominant themes from the Commission at the time were doubts about its powers and how investors would use Commission-mandated environmental disclosures.

131

130

Adopting Release at 21685.

131

See, e.g., Environmental and Social Disclosure,

Release No. 33-5627 (Oct. 14, 1975) [40 FR 51656 (Nov. 6, 1975)] (“Environmental and Social Disclosure Release”). In the Environmental and Social Disclosure Release, the Commission discussed commenters' interest in registrants' disclosures of the environmental impact of their activities.

Id.

at 51663. The Commission noted that those “who supported social disclosure were virtually unanimous in stating that . . . environmental, . . . or other social information is in fact economically significant.”

Id.

at 51664. The Commission noted that the “majority” of investors who commented indicated that such information might play a role in how they voted on shareholder proposals, while a “lesser number” indicated that they would take this data into account in determining what securities to purchase, hold, or sell, and that many of the religious institutions that commented stated they would use such information in deciding whether to engage with management to “change some policy.”

Id.

The Commission concluded that “[a]t this time, therefore, it appears that those investors who are interested in social disclosures would use this information more in making voting rather than investment decisions.”

Id.

at 51665.

The narrow disclosures adopted in the 1970s were in response to a specific congressional directive contained in the National Environmental Policy Act of 1969 (“NEPA”),

132

which required the Commission and other Federal agencies to develop procedures to consider environmental values in decision-making. In 1975, in considering its obligations under NEPA, the Commission noted that “it is generally not authorized to consider the promotion of social goals unrelated to the objectives of the Federal securities laws.”

133

It further observed that “the discretion vested in the Commission under the Securities Act and the Securities Exchange Act to require disclosure which is necessary or appropriate `in the public interest' does not generally permit the Commission to require disclosure for the sole purpose of promoting social goals unrelated to those underlying these Acts.”

134

Rather, disclosure mandates under the Federal securities laws had to relate to the financial condition of, and matters of economic significance to, the disclosing company.

135

132

42 U.S.C. 4321

et seq.

133

Environmental and Social Disclosure Release at 51656.

134

Id.

at 51660.

135

See id.

at 51658.

The Commission therefore proposed and ultimately adopted a small number of narrow rules generally consistent with the disclosure framework in the Federal securities laws. For example, under the 1975 amendments, a reporting company must disclose material effects on capital expenditures, earnings, and competitive position from compliance with government environmental regulation.

136

The 1975 rules did not include disclosure about environmental strategies or plans or board oversight of environmental risks; nor did they include expansive requirements that companies track and assess the environmental impact of their operations.

136

Id.

at 51667.

As recently as 2016, the Commission reconsidered its authority to require disclosures on environmental and social issues as part of a concept release on the business and financial disclosure requirements in Regulation S-K.

137

Summarizing its 1975 conclusion on lack of statutory authority, the Commission observed that, in 1975, following extensive proceedings on these topics, the Commission concluded that it “generally is not authorized to consider the promotion of goals unrelated to the objectives of the federal securities laws when promulgating disclosure requirements, although such considerations would be appropriate to further a specific congressional mandate.”

138

The Commission also observed that, since 1975, Congress had not given new statutory authority for disclosures in these areas.

139

While the

Commission in 2016 stated that the “role of sustainability and public policy information in investors' voting and investment decisions may be evolving” and solicited comment on the need for new sustainability and social disclosures, it also noted concerns about such disclosures and ultimately determined in 2020 to revise, but not significantly expand upon, the provisions adopted in 1975.

140

137

See Business and Financial Disclosure Required by Regulation S-K,

Release No. 33-10064 (Apr. 13, 2016) [81 FR 23916 (Apr. 22, 2016)] (“Regulation S-K Concept Release”).

138

Id.

at 23971 (footnote omitted).

139

Id.

(“The current statutory framework for adopting disclosure requirements remains generally

consistent with the framework that the Commission considered in 1975.”).

140

Specifically, the Commission: (i) refocused the regulatory compliance disclosure requirement by including as a topic all material government regulations, not just environmental laws; and (ii) implemented a modified disclosure threshold that increased the existing quantitative threshold for disclosure of environmental proceedings to which the government is a party from $100,000 to $300,000, but that also affords a registrant the flexibility to select a different threshold that it determines is reasonably designed to result in disclosure of material environmental proceedings, provided that the threshold does not exceed the lesser of $1 million or one percent of the current assets of the registrant and its subsidiaries on a consolidated basis.

See Modernization of Regulation S-K, Items 101, 103, and 105,

Release No. 33-10825 (Aug. 26, 2020) [85 FR 63726 (Oct. 8, 2020)].

In sum, until the Final Rules, the Commission has consistently declined to use its statutory authority to mandate expansive environmental disclosures; instead, the Commission has required certain targeted disclosures about regulatory compliance and legal liability that directly bear on the financial condition of the disclosing company. The rulemaking in the 1970s does not support the Commission's statutory authority to issue the Final Rules, which stray beyond those limits. It is precedent against that authority.

Finally, and for similar reasons, the major questions doctrine further demonstrates that the Commission lacked authority to promulgate the Final Rules. The Supreme Court has held that agencies must have clear authorization from Congress when embarking on a new and expansive regulation of a substantial policy area of “vast economic and political significance.”

141

Political controversies are for Congress to resolve, not administrative agencies with limited delegated authority.

142

In addition, when “agencies assert[ ] highly consequential power beyond what Congress could reasonably be understood to have granted,” or “claim[ ] to discover in a long-extant statute an unheralded power representing a transformative expansion [of] . . . regulatory authority,” “there is every reason to hesitate before concluding that Congress meant to confer” the power claimed.

143

Moreover, “[w]hen an agency has no comparative expertise in making certain policy judgments, . . . Congress presumably would not task it with doing so.”

144

Finally, an intrusion “into an area that is the particular domain of State law,”

145

also provides a strong indicator that, “absent a clear statement” from Congress, a Federal agency has exceeded its statutory authority.

146

141

Util. Air Regul. Grp.

EPA,

573 U.S. 302, 324 (2014) (quoting

FDA

Brown & Williamson Tobacco Corp.,

529 U.S. 120, 160 (2000)) (quotation marks omitted).

142

West Virginia

EPA,

597 U.S. 697, 723 (2022) (“We presume that Congress intends to make major policy decisions itself, not leave those decisions to agencies.” (citation and quotation marks omitted)).

143

Id.

at 724-25 (citations and quotation marks omitted).

144

Id.

at 729 (citation, quotation marks, and brackets omitted);

see also

Cong. Budget Off.,

The Risks of Climate Change to the United States in the 21st Century

(Dec. 2024), available at

https://www.cbo.gov/publication/61146

(setting forth how climate change could affect, among other things, GDP, real estate and financial markets, and the Federal budget).

148

West Virginia

EPA,

597 U.S. at 729.

The assertion of regulatory power under the Final Rules represents a “transformative expansion in [the Commission's] regulatory authority.”

149

For example, the Final Rules require LAFs and AFs to disclose their Scope 1 emissions and/or Scope 2 emissions, if material, separately, each expressed in the aggregate, in terms of CO

150

In addition, the Final Rules require registrants to provide disclosures regarding their use of transition plans,

151

scenario analysis,

152

and internal carbon prices, if material,

153

as well as descriptions of their board of directors' oversight of climate-related risks, regardless of materiality.

154

The scope of that expansion is reflected in the costs that the Commission estimated the Final Rules will impose on registrants. The Commission estimated that annual compliance costs per registrant averaged over the first ten years of compliance could range from less than $197,000 to over $739,000.

155

Updating these figures for inflation and aggregating them across all affected registrants, we estimate that rescinding the Final Rules could generate annualized savings of about $4.9 billion

per year over the next 10 years for all affected registrants.

156

149

Util. Air Regul. Grp.

EPA,

573 U.S. 302, 324 (2014);

see id.

(“The power to require permits for the construction and modification of tens of thousands, and the operation of millions, of small sources nationwide falls comfortably within the class of authorizations that we have been reluctant to read into ambiguous statutory text.”).

150

See

17 CFR 229.1505(a).

151

See

17 CFR.229.1502(e).

152

See

17 CFR.229.1502(f).

153

See

17 CFR.229.1502(g).

154

See

17 CFR 229.1501(a).

155

Adopting Release at 21875.

156

See infra

section IV.C.3.

As discussed in section III.B.1 and section III.B.2, Congress has not given the Commission power to write regulations requiring such detailed and extensive disclosure of climate-related information, let alone to essentially regulate issuers' internal affairs through onerous disclosure requirements. To the contrary, questions about the country's response to climate change generally and about climate-related disclosures by public companies specifically continue to be important and contentious. Congress is clearly aware of the potential and claimed risks posed by climate change, yet it has not legislated directly nor instructed the Commission to adopt regulations in response.

157

Instead, Congress has declined to enact climate-related disclosure legislation.

158

157

See, e.g.,

Letter from United States Senators Pat Toomey, Richard Shelby, Mike Crapo, Tim Scott, M. Michael Rounds, Thom Tillis, John Kennedy, Bill Hagerty, Cynthia Lummis, Jerry Moran, Kevin Cramer & Steve Daines (Jun. 15, 2022),

https://www.sec.gov/comments/s7-10-22/s71022-20133994-303877.pdf

(“Addressing matters like global warming requires political decisions involving tradeoffs. In a democratic society, those tradeoffs must be made by elected representatives, who are accountable to the American people, not unelected financial regulators.”).

158

See, e.g.,

S. 1217, 117th Cong. (“Climate Risk Disclosure Act of 2021”); H.R. 2570, 117th Cong. (“Climate Risk Disclosure Act of 2021”); H.R. 1187, 117th Cong. (2021) (“Corporate Governance Improvement and Investor Protection Act”); S. 3481, 115th Cong. (2018) (“Climate Risk Disclosure Act”).

In evaluating an agency's assertion of statutory authority, the Supreme Court has instructed that courts “must be guided to a degree by common sense as to the manner in which Congress is likely to delegate a policy decision of such economic and political magnitude to an administrative agency.”

159

Common sense would say that the Securities and Exchange Commission is not the right agency to deal with the question of how public companies can or should respond to climate change and related matters. The Commission clearly has no expertise, scientific or otherwise, related to climate-related risks or the criteria or analytical frameworks to be used in evaluating such risks.

160

Congress has created an agency—the Environmental Protection Agency—and tasked that agency with collecting reports from major emissions sources and making them available to the public.

161

In adopting the Final Rules, the Commission acted well “outside its wheelhouse.”

162

Common sense suggests that Congress would not allocate authority over climate change and related matters to the Commission.

159

FDA

Brown & Williamson Tobacco Corp.,

529 U.S. 120, 133 (2000).

160

See West Virginia

EPA,

597 U.S. 697, 729 (2022) (“When an agency has no comparative expertise in making certain policy judgments, we have said, Congress presumably would not task it with doing so.” (citations and quotation marks omitted).

161

42 U.S.C. 7414;

see also

Adopting Release at 21779 n.1744 (referencing 17 CFR 210.14-01(a)).

166

Adopting Release at 21670, 21799-21800.

167

See

17 CFR 201.14-02(e)(1).

168

Adopting Release at 21675, 21913.

169

Id.

at 21800-01.

C. Policy Reasons for Rescinding the Final Rules

In addition to (and independent of) the legal authority defects discussed above, there are strong policy arguments for rescinding the Final Rules in their entirety. As the Supreme Court has stated, “[a]gencies are free to change their existing policies as long as they provide a reasoned explanation for the change.”

170

On reconsideration, we have determined that the Adopting Release gave inappropriate weight to several of the main justifications for adopting the Final Rules, and we now reach a different policy judgment regarding the need for, and appropriateness of, the Final Rules. Consequently, we propose to rescind the Final Rules in their entirety.

170

Encino Motorcars, LLC

Navarro,

579 U.S. 211, 221 (2016). The Court in

Encino Motorcars

further noted that “[w]hen an agency changes its existing position, it `need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate.' . . . But the agency must at least `display awareness that it is changing position' and `show that there are good reasons for the new policy.' . . . In explaining its changed position, an agency must also be cognizant that longstanding policies may have `engendered serious reliance interests that must be taken into account.' ”

Id.

at 221-22 (citing

FCC

Fox Television Stations, Inc.,

556 U.S. 502, 515 (2009)).

Several independent policy judgments support a rescission of the Final Rules. First, the Final Rules deviate from the Commission's “long-standing commitment to a principles-based, registrant-specific approach to disclosure” that is “rooted in materiality and facilitate[s] an understanding of a

registrant's business, financial condition and prospects[.]”

171

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. Second, the 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. Third, the Final Rules impose substantial costs on public companies and their shareholders that are not justified by the informational benefits they may provide to some investors. Finally, imposing those same high costs on registrants is at odds with the Commission's policy objectives of facilitating capital formation and promoting public company status.

171

Modernization of Regulation S-K, Items 101, 103, and 105,

Release No. 33-10825 (Aug. 26, 2020) [85 FR 63726 (Oct. 8, 2020)] at 63727.

As discussed more fully below, a responsible approach to public company disclosure demands that the Final Rules be rescinded in their entirety.

172

We note that, because the effectiveness of the Final Rules has been stayed and the Final Rules have never become effective, we do not expect that the proposed rescission would implicate any reasonable reliance interests that market participants may have had in the operation of the rules.

1. The Final 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 are unnecessary because existing disclosure requirements already elicit information about the material effects of climate-related matters. Furthermore, the Final Rules prioritize one potential factor over others that may materially affect a registrant's operations and financial condition. Finally, recent events, such as the European Union's efforts to narrow the coverage and scope of recently adopted sustainability and due diligence directives and extend their implementation deadlines, have highlighted the flaws in mandating such highly prescriptive disclosure for an evolving area, such as climate-related matters, as in the Final Rules.

a. Existing Disclosure Obligations and Anti-Fraud Provisions Already Elicit Information About the Material Effects of Climate-Related Matters

The Final Rules should be rescinded because the Commission's existing disclosure requirements and anti-fraud provisions already elicit information about the effects of climate-related matters in a way that is tailored to reflect registrants' particular circumstances, is focused on material information for investors, and does not impose upon registrants the additional costs and burdens of the Final Rules.

173

See

discussion

infra

section IV.B.2.a.1;

see also

discussion

infra

section IV.B.3.a and Adopting Release at 21831.

As the Commission highlighted in the 2010 Guidance, various disclosure requirements apply to climate-related matters when they are material to a particular company. In particular, the 2010 Guidance highlighted Regulation S-K items related to description of business, legal proceedings, risk factors, and management's discussion and analysis. The 2010 Guidance also noted that registrants must consider any financial statement implications in accordance with applicable accounting standards. As the Commission acknowledged in the Adopting Release, even prior to the adoption of the Final Rules, registrants had an obligation to consider material impacts on the financial statements regardless of whether a material impact was driven by climate-related matters.

174

Adopting Release at 21797-98 n.2068 and accompanying text (explaining that although U.S. GAAP and International Financial Reporting Standards (“IFRS”) Accounting Standards do not refer explicitly to climate-related matters, registrants have an obligation to consider material impacts when applying, for example, Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 330

Inventory

(IAS 2

Inventories

) and FASB ASC Topic 360

Property, Plant, and Equipment

(IAS 36

Impairment of Assets

)).

In addition to existing line item and financial statement disclosure requirements, the liability provisions of the Federal securities laws, including the anti-fraud provisions, serve to protect investors from materially misleading or incomplete disclosures about climate-related matters. For example, Sections 11

175

and 12

176

of the Securities Act impose liability for material misstatements or omissions made in connection with registered offerings conducted under the Securities Act,

177

and Exchange Act Section 10(b)

178

and Rule 10b-5 broadly prohibit fraudulent and deceptive practices and untrue statements or omissions of material facts in connection with the purchase or sale of any security.

179

175

15 U.S.C. 77k.

176

15 U.S.C. 77l.

177