19 States, Sierra Club Have Common Dispute: SEC’s Climate Disclosure Rule

The Securities and Exchange Commission is facing three lawsuits challenging its climate risk disclosure rule, finalized on March 6, from two sides of the aisle on economic matters.  

The climate risk disclosure rule requires public companies to disclose their material climate risks related to physical and transitional risks, costs related to severe weather events and any strategy they may have to reduce climate risks. Larger companies must also disclose greenhouse gas emissions from their operations and power consumption, known as Scope 1 and Scope 2 emissions, respectively. 

The lawsuits come from both sides of the political aisle. Two complaints come from 19 state attorneys general, each from Republican-led states. The first lawsuit was filed on the day the rule was approved with the 11th U.S. Circuit Court of Appeals—which hears cases from Alabama, Florida and Georgia—by 10 states: Alabama, Alaska, Georgia, Indiana, New Hampshire, Oklahoma, South Carolina, Virginia, West Virginia and Wyoming. 

The second complaint was filed on Tuesday in the 8th U.S. Circuit Court of Appeals—which hears cases from Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota—by nine more Republican-leaning states: Arkansas, Iowa, Idaho, Missouri, Montana, Nebraska, North Dakota, South Dakota and Utah. 

Both complaints argue that the “final rule exceeds the agency’s statutory authority and otherwise is arbitrary, capricious, an abuse of discretion, and not in accordance with law,” but have not elaborated further. 

The Sierra Club, a grassroots environmental advocacy group, also sued the SEC in the U.S. Circuit Court of Appeals for the District of Columbia on Wednesday.  

Though that complaint does not spell out its objection, a press release from the Sierra Club argues that the “final rule will yield much less information about companies’ exposure to climate-based risks than the proposed rule would have.”  

The organization also wrote that, “[b]y allowing companies to selectively report their emissions, the SEC has fallen short of its statutory mandate to protect investors, maintain fair, orderly, and efficient markets, and promote capital formation.” 

The rule was passed by a 3 to 2 vote. SEC Chairman Gary Gensler, a proponent, has said the rule will help investors compare companies more easily by having more uniform climate disclosures.