In March 2022, the U.S. Securities and Exchange Commission (SEC) issued a new regulatory proposal that would mandate climate disclosure within financial reports. The proposal was originally expected to be passed over the summer. However, the SEC ultimately extended the public comment period on the proposal until June 17, 2022. The two questions now at hand are: Will the SEC climate disclosure guidelines pass given recent pushback on climate regulation from the Supreme Court, and, if they do pass, when will that be? In this article, we explore those questions in depth.
Can We Expect the SEC Climate Disclosure Guidelines to Pass?
On June 30, 2022, the Supreme Court issued a landmark opinion in West Virginia v. EPA that greatly limited the authority of the Environmental Protection Agency (EPA) to regulate carbon emissions from power plants. Many legal commentators have voiced the opinion that the Supreme Court will next turn its attention to the SEC, specifically its climate disclosure ruling. In fact, after the June Supreme Court decision, many have argued that the SEC’s proposed climate rules could be doomed.
In addition, opponents of the climate disclosure rule have pointed out that Congress similarly rejected laws that would have required company disclosures — like those proposed in the SEC’s guidelines. For example, the Climate Disclosure Acts of 2018, 2019 and 2021 — none of which passed — each proposed legislation that would have directed the SEC to issue rules requiring public companies to disclose their direct and indirect greenhouse gas emissions.
If one focused solely on historical precedent, it seems unlikely that the ruling will pass. However, with climate risk mounting, the SEC’s proposed ruling would provide investor protection when its needed most. Despite the potential roadblocks, some commentators believe that the most likely outcome is that the SEC will enact the proposed rules, leading to a legal challenge and the possibility of another decision by the Supreme Court on the scope of agency power.
When Might the Guidelines Pass?
If the SEC climate disclosure guidelines do pass, it should be by the end of 2022, according to legal experts. The extended public comment period has pushed back the decision date. That said, we will be very surprised if an update is not announced by the new year.
How Can Your Company Prepare?
Crossing the threshold from voluntary ESG/sustainability/ and climate risk disclosure to mandatory disclosure would invoke monumental shifts in capital markets and the business-as-usual operational strategies across all industries and company sizes as the ripple effects trickle down into smaller public and private entities.
To help your company prepare, we’ve created a Guide to the 2022 SEC Climate Disclosure Rules. This extensive guide outlines and clarifies what the robust regulatory document mandates, what to expect in terms of impacts of the regulatory changes, insights into why this shift in financial and sustainability reporting is occurring, and how to prepare as a corporate entity for the future of sustainability reporting.
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