Jon McGowan reports at Forbes Acting SEC Chair Says Climate-Related Disclosure Rule Is Illegal.  Excerpts in italics with my bolds and added images.

Background

Following the Paris Agreement in 2015, a series of global initiatives were pursued to reduce the impacts of climate change and reduce overall greenhouse gas emissions to “net zero” by 2050. The goal included a significant reduction in GHG emissions, but also utilized “offsets” that, through technology and protection of natural resources, would result in overall emissions being at a net of zero. This resulted in a carbon credit market that allowed high GHG emitting countries and businesses to purchase credits from underdeveloped countries that produce little emissions.

On the financial side, a multi-prong approach was used to influence and regulate businesses. Large investment firms, like BlackRock, used their influence to drive ESG and sustainability. By 2021, it was standard practice for businesses to release annual ESG and sustainability reports. However, there was no standardization of the practice. Claims were unregulated and content was unclear. As a result, reports were focused on what the business thought mattered to investors and were little more than marketing pieces.

This became problematic in the highly regulated financial industry. Funds that claim to be ESG, green, climate friendly, or sustainable must back up those claims with data. As a result of demand and Paris Agreement based initiatives, international regulators began drafting standards for reporting, marketing, and investments relating to climate change and other green initiatives.

In 2021, the International Sustainability Standards Board drafted the International Financial Reporting Standards Foundation’s Sustainability Disclosure Standards. IFRS is an independent, nonprofit organization that develops financial reporting standards, including international accounting standards. IFRS is not used in the U.S., who uses generally accepted accounting principles, also known as GAAP, but is used in 132 jurisdictions. The IFRS Standards were adopted in June 2023 as the global standard for sustainability and climate change reporting, including greenhouse gas emissions.

The US Securities Exchange Commission Story Regarding ESG

In the U.S., the SEC proposed the development of climate-related reporting standards in March 2022. The final rule, adopted on March 6, 2024, required large publicly traded companies to disclose climate action, GHG emissions, and the financial impacts of severe weather events. The Climate-Related Disclosure Rule was initially set to go into effect in 2026. However, it was immediately met with legal challenges and the SEC delayed implementation indefinitely while the cases worked through the judicial process. Now it appears the delay will become permanent.

Under the leadership of Gary Gensler, the U.S. Securities and Exchange Commission saw a wave of regulatory and enforcement actions relating to environmental, social, and governance; sustainability; and climate change. It was clear that his exit, effective the day President Trump took office, would significantly alter the SEC’s approach to those topics.

On February 11, acting SEC Chair Uyeda, a Biden appointee, effectively ended the Climate-Related Disclosure Rule. In the statement, Uyeda said,

“The Rule is deeply flawed and could inflict significant harm on the capital markets and our economy.”

“Both Commissioner Peirce and I voted against the Rule’s adoption. Commissioner Peirce said that then-existing disclosure rules were sufficient and that the ‘[R]ule’s anticipated benefits do not outweigh the costs.’ She argued that ‘only a mandate from Congress should put us in the business of facilitating the disclosure of information not clearly related to financial returns.’ I stated that the Commission was ‘without statutory authority or expertise’ to address climate change issues and that ’this [R]ule is climate regulation promulgated under the Commission’s seal.’”

“The Commission’s briefs previously submitted in the cases consolidated in the Eighth Circuit do not reflect my views… I also question whether the agency followed the proper procedures under the Administrative Procedure Act to adopt the Rule.”

As a result, Acting Chair Uyeda has asked the court for a delay in the proceedings while the SEC takes action to rollback the Climate-Related Disclosure Rule. As a result, climate reporting at the national level is effectively dead. The focus now turns to the states and international actions.