The U.S. Securities and Exchange Commission on Friday formally proposed rescinding the climate-related disclosure rules adopted in March 2024, a move that would eliminate the most sweeping environmental reporting requirements in the agency's history. The proposal, which opens a 60-day public comment period upon publication in the Federal Register, affects all public companies filing registration statements and annual reports under the Securities Act of 1933 and the Securities Exchange Act of 1934.
The 2024 rules, formally titled the Enhancement and Standardization of Climate-Related Disclosures for Investors, were approved by a 3-2 vote under then-Chairman Gary Gensler. They immediately drew legal challenges from both progressive groups and critics. In September 2024, the Eighth Circuit Court of Appeals ordered the cases held in abeyance, directing the SEC to either reconsider the rules through formal notice-and-comment rulemaking or resume its defense in court. The current proposal represents the agency's response to that order.
The SEC's rationale for rescission rests on two pillars. First, the agency argues the rules exceed its statutory authority under the Securities Act and the Exchange Act. Second, the current leadership contends the rules are inconsistent with a registrant-specific, materiality-based approach to disclosure. In a fact sheet, the SEC stated the rules are "unnecessary" and impose costs on public companies and shareholders that are not justified by informational benefits, while hindering capital formation and discouraging companies from going public.
Commissioners Mark Uyeda, Hester Peirce, and Acting Chairman Mark T. Atkins—all of whom voted against the original rules—have publicly questioned the agency's authority to mandate such disclosures. Atkins, in a statement, said the SEC must "re-examine the costs, burdens, and benefits of disclosure mandates to make becoming and remaining a public company more attractive again." He added that disclosure obligations should be "guided by materiality as the North Star" and imposed only when expected benefits justify costs.
The 2024 rules would have required companies to disclose climate-related risks with material financial impacts, mitigation actions, and—for large accelerated and accelerated filers—phased-in greenhouse gas emissions data covering Scope 1 (direct) and Scope 2 (purchased energy) sources. A proposal for Scope 3 emissions (supply chain and product use) was dropped before final adoption. The rules also mandated financial statement footnote disclosures of costs and losses from severe weather events, subject to de minimis thresholds, with independent assurance requirements escalating from limited to reasonable assurance over time for the largest filers.
The rescission proposal marks a significant shift from the Biden administration's focus on environmental, social, and governance (ESG) factors. Financial advisors and wealth managers should note that the rollback could reduce compliance burdens for publicly traded companies in client portfolios, but may also affect investment strategies tied to ESG criteria. The SEC's move aligns with broader regulatory trends under the current administration, which has prioritized deregulation and capital formation.
Industry reactions have been mixed. Proponents of the rules argue that standardized climate disclosures protect investors from climate-related financial risks. Critics, including many business groups, have long contended the rules impose excessive costs and exceed the SEC's mandate. The 60-day comment period will allow stakeholders to weigh in before the SEC finalizes the rescission, which could face legal challenges from environmental and investor advocacy groups.
For advisors, the development underscores the importance of monitoring regulatory changes that impact portfolio companies. The SEC's action also highlights ongoing debates about the role of federal securities law in addressing climate change. As the comment period unfolds, advisors should prepare for potential volatility in sectors most affected by climate disclosure requirements, such as energy, manufacturing, and finance.
