Things really are moving fast in the litigation of SEC’s new climate disclosure rule. The rule hasn’t been published in the Federal Register and isn’t even technically effective, but as Zach wrote last week, a battery of lawsuits was filed within hours/days of the SEC’s vote to adopt the rule. We knew that was coming. Last Friday, the Fifth Circuit Court of Appeals issued a one sentence unpublished order in response to the suit from the energy companies, saying only:
IT IS ORDERED that Petitioners Liberty Energy, Inc. and Nomad Proppant Services, L.L.C.’s motion for an administrative stay is GRANTED.
The Petition sought a stay of the rule in its entirety, not just certain parts – so the whole rule was stayed. In Cydney Posner’s alert from Cooley, she said:
“In their motion, Petitioners brought out the old favorites: the ‘major-questions’ doctrine, arbitrary and capricious, and First Amendment. To Petitioners, the rule represents ‘revolutionary change’—for which the SEC lacks authority.”
Michael Littenberg’s post on LinkedIn provided a bit more information, including this:
“It’s unknown whether the Fifth Circuit will continue to rule on litigation over the SEC’s regulations. Lawsuits contesting the rules are pending in at least six courts. A lottery is expected to determine which court will handle a case that consolidates the various challenges.”
The stay and litigation in general may not have as dramatic an effect as some believe. It is very much worth remembering that:
- Investors and ESG ratings organizations made clear they continue to see climate risk as a meaningful (dare I say material?) risk in their company evaluations – even if they are backing away from the term “ESG”;
- International requirements for climate disclosures (such as the EU CSRD) impact certain US companies;
- Three California laws on climate disclosures (see here and here) apply to companies that “do business in the state” (i.e., actively engaging in any transaction for the purpose of financial or pecuniary gain or profit, as further defined in the California Revenue and Taxation Code) or that “market or sell voluntary carbon offsets within the state”;
- Proposed climate disclosures under the US Federal Acquisition Regulations (FAR) are still moving through the approval process; and
- B2B customers still require climate information from suppliers/vendors.
The burden for companies to determine GHG emissions, evaluate what that means to the business today and in a transition context all still apply. The uncertainty hasn’t gone away – it has just changed. We don’t know how the litigation will ultimately impact the substance or timing of the SEC rule – but it is imperative to stay abreast of it all.
One thing that is clear from companies who are already doing GHG emissions determinations and disclosures – staff and executives were surprised at how long it took to get to the point where they were confident in the data, numbers, decisions and business impact evaluations. It wouldn’t be prudent to consider the SEC rule litigation as an “all stop” for emissions/climate risk data collection and assessments. Even Commissioner Mark Uyeda – who voted against adopting the rule – said:
“Although companies won’t make climate disclosures until early 2026, designing, testing, and implementing controls and procedures to capture that information must occur well before then.”
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