The Securities and Exchange Commission (SEC) is considering rescinding its 2024 climate disclosure rule—and not a moment too soon. The SEC was created to protect investors by requiring companies to disclose information necessary for sound financial decision-making, yet the 2024 rule departs from that mission. Businesses were forced to disclose highly speculative climate data while facing significant compliance costs and litigation risk. Now it’s time to rein in the Biden climate agenda.
The SEC has long required companies to disclose information that is directly relevant to investors. Long-standing precedent from the Supreme Court and the federal securities laws focus on matters material to investment decisions, such as financial statements, mergers and acquisitions, and other information directly related to a company’s financial condition and performance.
But the 2024 rule goes in a different direction entirely. It requires companies to disclose speculative information on their impacts on the climate that is often irrelevant to investors and, in many cases, misleading or overwhelming. The rule moves past the traditional definition of materiality to advance the climate-change agenda.
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The rule also violates the Supreme Court’s decision in Loper Bright v. Raimondo (2024). That ruling requires agencies to identify the single best meaning of their authorizing statutes, not merely a reasonable one. The SEC may require disclosures in the public interest, but that authority is not open-ended. Additional disclosures still must fit within the statute’s best meaning. The 2024 rule does not.
The SEC Climate Disclosure Rule Exceeds the Agency’s Authority
Further, the SEC violated the major questions doctrine (MQD) in issuing the 2024 rule. The MQD asks whether an agency has claimed authority over a matter of major economic and political significance and, if so, whether Congress clearly granted that authority. The SEC’s rule fails on both points.
Mandating climate disclosures for all public companies is unquestionably major because it affects how billions of dollars in capital are allocated across the economy. It does not merely ask companies to report ordinary financial facts. It presses them to quantify uncertain climate risks, emissions, and transition plans, turning securities disclosure into a vehicle for climate policy. Congress has not clearly authorized the SEC to make that choice.
Climate Disclosure Requirements Raise Business Costs and Legal Risks
As a practical matter, businesses with complex supply chains will struggle to calculate the mandated disclosure costs across those chains, many of which are in other countries and subject to different regulations. There is also a real opportunity cost to implementing these measures. More money spent on compliance means less money for employees, research and development, and other investment priorities.
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More importantly, the rule creates regulatory uncertainty by substantially increasing litigation and enforcement risk. Companies that fail to disclose SEC-mandated information accurately can face legal action. That risk is especially high because long-term climate forecasting is uncertain, and the SEC has had a mixed record in anticipating climate-related legal challenges.
To avoid lawsuits and penalties over inadequate disclosure, companies have reason to report every conceivable climate-related risk under the rule. The result is more speculation, higher compliance costs, and less useful disclosure. That does not clarify a company’s actual financial condition. It obscures it.
The SEC Should Return to Traditional Materiality Standards
These costs and legal risks are why rescission is necessary. But the SEC should not stop with the 2024 rule. Its 2010 Obama-era guidance also moves away from the traditional materiality standard and towards climate-policy objectives. That guidance is riddled with references to climate frameworks that have since dwindled or dissolved. The SEC’s foundational 1982 environmental disclosure rule does what the agency is supposed to do: protect investors, and no more.
The SEC deserves credit for proposing to repeal its 2024 climate disclosure rule. The rule does not comport with the single best meaning of the SEC’s authorizing statutes and warrants scrutiny under the MQD. It would also impose serious economic costs, including billions in compliance burdens and opportunity costs while heightening litigation risk.
But the SEC should go further: repeal the 2010 guidance, too, and return to the 1982 standard. That would put investors first and return the SEC to its statutory mission.
This piece originally appeared in The National Interest.
