Securities and Exchange Commission (SEC) awaits court verdict on climate disclosure regulation, according to legal professionals.
The United States Securities and Exchange Commission (SEC) has taken an unusual step by asking a federal court to rule on its authority to issue climate disclosure rules. According to Cynthia Hanawalt, head of the Sabin Center for Climate Change Law's financial regulation practice, this move is unusual as it involves a federal agency inviting a court to limit its own authority.
Under federal law, the SEC is responsible for following a specific rulemaking process when it comes to regulators. However, the SEC's recent move seems to challenge this norm, as it appears to want the court to rule on its jurisdiction and authority regarding the climate disclosure rules.
The climate disclosure rules, passed by the previous commission, would have required publicly traded companies to release information about their emissions. However, under the administration of former President Donald Trump, the SEC moved to freeze these rules, following a challenge in court on the grounds that the regulator acted outside of its authority.
The case regarding the SEC's climate disclosure rules is currently being decided by a panel of federal judges from the D.C. Circuit Court of Appeals. While the specific judges' names are not publicly prominent, their decision could significantly impact the SEC's authority to regulate climate disclosures and shape future regulatory approaches to environmental, social, and governance (ESG) issues.
The SEC has not indicated whether it would uphold the climate disclosure rules if upheld in court. In fact, the SEC does not intend to defend the court's ruling regarding the climate disclosure rules. Instead, the SEC wrote in its response that a court decision would help it decide if a reconsideration of the rules is necessary.
This lack of defence for the climate disclosure rules has not gone unnoticed. Caroline Crenshaw, the only Democratic SEC commissioner, has objected to the SEC's response to the court's ruling on the climate disclosure rules. Crenshaw believes the SEC is avoiding its legal obligations regarding the climate disclosure rules.
If the court rules that the SEC had no authority to issue the climate change rules, the decision would be binding on any commission moving forward, according to legal expert Vizcarra. This could potentially limit the SEC's ability to issue other rules in the future.
Regardless of the court's ruling, the US and global economies face financial risk from climate change. How those risks are accounted for in a regulatory structure depends on the interpretation of the law. If good exposure requirements are not in place, it will be harder for investors to manage and see climate-related risks, and it will be detrimental to the economy overall, according to Vizcarra.
The impact of the court's ruling would also depend on how specific it is. A more specific ruling could potentially limit the SEC's ability to issue other rules, according to Hanawalt.
In conclusion, the SEC's move to ask a federal court to rule on its authority to issue climate disclosure rules has sparked debate among commissioners. The court's decision could significantly impact the SEC's authority to regulate climate disclosures and shape future regulatory approaches to ESG issues. The decision could also potentially limit the SEC's ability to issue other rules in the future, depending on the specificity of the ruling.
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