SEC backs off on defense of climate disclosure rule

The SEC is backing off its defense of the climate-risk disclosure rule that faced opposition so intense the fight over its approval in March defined the tenure of former SEC chair Gary Gensler as one of the most combative in recent memory.

Acting chair Mark Uyeda asked the Eight Circuit Court to avoid scheduling further arguments or taking other action on a brief already filed with the court until the SEC had time to “deliberate and determine the appropriate next steps.”

The change from the SEC’s previous, aggressive defense of the rule, follows a change in the presidential administration to one vocally opposed to the priorities of the SEC under Gensler, and the resignation of two of the three Commissioners voting in favor when the regulation was finalized March 6.

This latest stage in the fight over the climate-risk disclosure rule has no impact on the fate of a rule to regulate ESG-themed mutual funds and ETFs that was proposed just weeks after the climate regulation in 2022 but has still not come up for a vote by they commission.

That proposal, which has been delayed on the SEC’s regulatory agenda as coming up for potential final action in October, 2025, could still find support, though that is unlikely considering the strongly anti-ESG policies of the Trump administration, according to attorneys advising fund boards on regulatory issues.

It is far more likely, they said, that the fund-focused ESG rule will simply fade away following other efforts to scale back Gensler-era priorities on ESG regulation and enforcement – which highlighted the issue of greenwashing but had little overall impact otherwise – including the agency’s decision in October, 2024 to close down its ESG Task Force.

Climate rule dead in the water?

Uyeda’s motivation, according to a Feb. 11 statement announcing the request, included his own continuing opposition to the rule and a Trump administration freeze on pending regulations – though it is unclear whether the terms of the executive order would cover a rule that was formally approved and published April 12 in the Congressional Record.

Continuing, intense opposition that included political pressure from both parties in Congress, and a bevy of lawsuits forced the SEC to stay implementation of the rule almost immediately after approval, however, leaving resolution of the conflict in the hands of the Eight Circuit Court of Appeals and the defense filed by the SEC months before Trump was elected or Gensler resigned.

“The Commission’s briefs previously submitted in the cases consolidated in the Eighth Circuit do not reflect my views,” Uyeda wrote, reiterating his

Uyeda repeated his criticism from the March 6 vote that the commission’s effort to mandate climate-risk disclosure was “without statutory authority or expertise,” which put him in agreement with opponents who argued that the whole exercise represents an inappropriate overreach of the regulator’s authority

Uyeda also cited opposition to the rule of Hester Peirce – one of the rule’s fiercest critics of the climate-disclosure rule who currently represents half of the two-Republican majority on a Commission that is down to just three members following the resignation of two Democrats and still-pending nomination of former commissioner Paul Atkins as commission chair.

Peirce argued in her statement opposing finalization of the rule that its flaws did not outweigh its potential benefits, and agreed with Uyeda’s accusation that the SEC was overreaching its authority by suggesting a mandate of Congress would be needed to put [the SEC] in the business of facilitating the disclosure of information not clearly related to financial returns.”

Uyeda’s decision does not remove the climate-risk disclosure rule from the SEC’s books. That would require a new proposal that would go through the full process of proposal, public comment and debate the original went through before it could come up for a vote that would repeal the original regulation.

It is much simpler following a change of administration to simply refuse to defend a controversial rule in court – especially in the face of substantial opposition from litigants including the attorney generals of 19 Republican-controlled states, the U.S. Chamber of Commerce and other groups.

With no vigorous defense from the SEC, it becomes much more likely that the Eight Circuit will simply rule in favor of litigants demanding that the rule be thrown out on legal grounds – as the Fifth Circuit Court did to the private-funds rule in July – which would eliminate a controversial rule score political points against pro-regulation forces at the same time.