Amid legal challenges, SEC pauses its climate rule

WASHINGTON (AP) — The U.S. Securities and Exchange Commission is pausing the implementation of its new climate disclosure rule while it defends the regulation in court.

Wall Street's top regulator voted in March on the final rule, which requires some public companies in the U.S. to report their greenhouse gas emissions and climate risks. The measure faced legal challenges almost immediately.

The SEC said Thursday it had stayed the rule in part to avoid regulatory uncertainty for companies that might have been subject to the rule while litigation against it proceeds. The rule is pending review in the U.S. Court of Appeals for the Eighth Circuit.

The rule adopted in early March was watered down from what the nation’s top financial regulator had proposed two years ago, after it faced lobbying and criticism from business and trade groups and Republican-led states that argued the SEC had overstepped its mandate. But that didn't stave off lawsuits. After the final rule was approved, environmental groups including the Sierra Club also sued, saying the SEC's weakened rule did not go far enough.

The SEC said it would continue “vigorously defending” the validity of its climate rule and believes that it had acted within its authority to require disclosures important to investors. A stay would “allow the court of appeals to focus on deciding the merits,” the SEC said in a statement.

In addition to reporting greenhouse gas emissions, the rule requires U.S.-listed companies to publicly report their climate-related risks and information about their plans to transition to a low-carbon economy.

The agency dropped a requirement that would have had companies report some indirect emissions known as Scope 3. Those don’t come from a company or its operations, but happen along its supply chain — for example, in the production of the fabrics that make a retailer’s clothing.

The SEC’s reporting requirements would not have taken effect until 2026. Many companies are preparing to comply with similar rules in other jurisdictions, such as California and the European Union, which recently moved ahead with their own disclosure requirements. California's rule is also facing legal challenges.

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