Judicial Panel consolidates petitions challenging SEC climate disclosure rules
As discussed in these PubCo posts from Monday, Saturday and Tuesday, on March 15, in a one-sentence order, the Fifth Circuit granted a motion by Liberty Energy Inc. and Nomad Proppant Services LLC for an administrative stay of the SEC final climate disclosure rules. That case was just one of nine challenging the SEC’s rules in six different circuits, with seven petitioners contending that the SEC went too far and had no authority to issue the rules and two affirming the SEC’s authority and contending that, in rolling back the proposal, the SEC has “fallen short of its statutory mandate to protect investors.”
New Cooley Alert: “Comparing the SEC Climate Rules to California, EU and ISSB Disclosure Frameworks”
If you’ve been following the developments in climate disclosure regulation, you know that many U.S. companies may well be subject to disclosure regulations beyond those of the SEC; regulations adopted in the European Union, countries outside the EU and in some states, such as California, could be applicable. And some aspects of those regulations are more sweeping—or just different—than those recently adopted by the SEC. For example, the EU employs the concept of “double materiality,” meaning the impacts of companies’ “business on the environment and society irrespective of the positive or negative effect of such impacts on companies’ financials”; by contrast, the SEC looks at materiality from the perspective of the reasonable investor making investment or voting decisions. In light of these and other differences, companies may face challenges in attempting to implement all of the applicable rules. This essential new Cooley Alert, Comparing the SEC Climate Rules to California, EU and ISSB Disclosure Frameworks, from our ESG group provides some welcome guidance in sorting through the requirements of the different frameworks.
Where will the fate of the SEC’s final climate rules be determined?
As discussed in these PubCo posts from Monday and Saturday, on March 15, in a one-sentence order, the Fifth Circuit granted a motion by Liberty Energy Inc. and Nomad Proppant Services LLC for an administrative stay of the SEC final climate disclosure rules. That case was just one of nine filed (so far) challenging the SEC’s rules in six different circuits, with seven petitioners contending that the SEC went too far and had no authority to issue the rules and two affirming the SEC’s authority and contending that, in rolling back the proposal, the SEC has “fallen short of its statutory mandate to protect investors.” As previously noted, the longevity of the Fifth Circuit stay, as well as the ultimate outcome of litigation about the rules, could well be determined by another court that is designated by the Judicial Panel on Multidistrict Litigation to hear the multiple pending challenges to the rules on a consolidated basis. How does that work? This article in Bloomberg does some explaining.
Fifth Circuit grants motion for administrative stay of SEC final climate disclosure rules
Is it pencils down already? As has previously been reported, a number of groups have filed petitions in different circuits requesting review of the SEC’s final climate disclosure rules. On March 6, the date of adoption of the final rules, one group, Liberty Energy Inc. and Nomad Proppant Services LLC, petitioned the Fifth Circuit for review of the final rule. On March 8, Petitioners filed a motion asking the Court to issue an administrative stay and a stay pending review of the rule. Yesterday, in a one-sentence order, the Court granted Petitioners’ motion for an administrative stay.
Final SEC climate disclosure rules [UPDATED]—Part II GHG emissions and attestation
Last week the SEC adopted final rules “to enhance and standardize climate-related disclosures by public companies and in public offerings.” The disclosure, which will be included in registration statements and annual reports, will draw, in part, on disclosures provided for under the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. Importantly, in response to public feedback, the SEC has jettisoned the mandate for Scope 3 GHG emissions reporting; the final rules require disclosure of Scope 1 and/or Scope 2 GHG emissions on a phased-in basis only by accelerated and large accelerated filers and only when those emissions are material. Companies will also be allowed more time to file their emissions disclosures. This post is Part II of a revision and update of my earlier post on the climate disclosure rules, which described the background of these rules, various changes from the proposal in the final rules that were identified in the adopting release, and the Commissioners’ statements at the open meeting at which the rules were adopted. Part I covered various aspects of the proposal other than the sections on GHG emissions disclosure and attestation and financial statement information. This post addresses GHG emissions disclosure and attestation. Financial statement information will hopefully be covered in separate subsequent post.
Final SEC climate disclosure rules [UPDATED Part I]
Last week, by a vote of three to two, the SEC adopted final rules “to enhance and standardize climate-related disclosures by public companies and in public offerings.” The disclosure, which will be included in registration statements and annual reports, will draw, in part, on disclosures provided for under the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. The new rules will require public companies to disclose information about the material climate-related risks, companies’ governance, risk management and any material climate-related targets or goals, as well as disclosure of the financial statement effects, such as costs and losses, of severe weather events and other natural conditions. Importantly, as widely rumored, in response to public feedback, the SEC has jettisoned the mandate for Scope 3 GHG emissions reporting; the final rules require disclosure of Scope 1 and/or Scope 2 GHG emissions on a phased-in basis only by accelerated and large accelerated filers when those emissions are material. Companies will also be allowed more time to file their emissions disclosures. The final rules provide for several phase-ins, as well as for some safe harbors. Although, in response to comments, the SEC made a serious effort to add materiality qualifiers—there are at least 1,003 references to “material” or “materiality,” but then, the release is 886 pages—and to eliminate many of the prescriptive granular requirements, don’t fear or celebrate (depending on your point of view) yet: there are still plenty of prescriptive granular requirements. The SEC insists that, in adopting the rules, its intent was not to effect a specific climate result or to shift governance behaviors—the word “agnostic” appears at least five times in the adopting release. Law 360 reports that three lawsuits have been filed against the rulemaking and at least two have been threatened—by the Chamber of Commerce and the Sierra Club.
New Cooley Alert: SEC Adopts Climate Reporting Requirements
As we reported yesterday in this PubCo post, the SEC has just adopted new rules on climate disclosure, issuing an 866-page adopting release. The new rules will require public companies to disclose information about the material climate-related risks, companies’ governance, risk management and any material climate-related targets or goals, as well as disclosure of the financial statement effects, such as costs and losses, of severe weather events and other natural conditions. The new rules also eliminate the proposed mandate for Scope 3 GHG emissions reporting; the final rules require disclosure of Scope 1 and/or Scope 2 GHG emissions on a phased-in basis only by accelerated and large accelerated filers when those emissions are material.
SEC dials back final climate disclosure rules
We’ve been trying to read the tea leaves for two years now, speculating about where the SEC’s final climate disclosure rules might land, especially as criticism about the proposal from the corporate sphere and from Congress intensified, and snippets about the contents of the final rule leaked to the press. This conjecture is now at an end: yesterday, by a vote of three to two, the SEC adopted final rules “to enhance and standardize climate-related disclosures by public companies and in public offerings.” If you tuned in to the SEC’s open meeting yesterday—with over two hours devoted to the climate rules—you didn’t see a lot of happy faces. The dissenters (Commissioners Hester Peirce and Mark Uyeda) thought the rule was unnecessary and went too far and Commissioner Caroline Crenshaw thought the final rule didn’t go far enough, but was barely acceptable as a “floor” for disclosure. Only SEC Chair Gary Gensler and Commissioner Jaime Lizárraga seemed to think that the balance was about right. Apparently, a coalition of attorneys general from ten states isn’t very happy either. Law 360 is reporting that the group immediately petitioned the Eleventh Circuit to review the new climate rules. (See the SideBar below.)
The disclosure, which will be included in registration statements and annual reports, will draw, in part, on disclosures provided for under the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. The new rules will require public companies to disclose information about the material climate-related risks, companies’ governance, risk management and any material climate-related targets or goals, as well as disclosure of the financial statement effects, such as costs and losses, of severe weather events and other natural conditions. Importantly, as widely rumored, in response to public feedback, the SEC has jettisoned the mandate for Scope 3 GHG emissions reporting; the final rules require disclosure of Scope 1 and/or Scope 2 GHG emissions on a phased-in basis only by accelerated and large accelerated filers when those emissions are material. Companies will also be allowed more time to file their emissions disclosures. Attestation will also be phased in. According to Gensler,
“Our federal securities laws lay out a basic bargain. Investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called ‘complete and truthful disclosure,’….Over the last 90 years, the SEC has updated, from time to time, the disclosure requirements underlying that basic bargain and, when necessary, provided guidance with respect to those disclosure requirements….These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings. The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements. Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today. They will also require that climate risk disclosures be included in a company’s SEC filings, such as annual reports and registration statements rather than on company websites, which will help make them more reliable.”
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