Proposed Rule2026-11091
Rescission of Climate-Related Disclosure Rules
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 3, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") proposes to rescind amendments to its rules under the Securities Act of 1933 ("Securities Act") and Securities Exchange Act of 1934 ("Exchange Act") that require registrants to provide certain climate- related information in their registration statements and annual reports.
Full Text
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<title>Federal Register, Volume 91 Issue 106 (Wednesday, June 3, 2026)</title>
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[Federal Register Volume 91, Number 106 (Wednesday, June 3, 2026)]
[Proposed Rules]
[Pages 33296-33345]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-11091]
[[Page 33295]]
Vol. 91
Wednesday,
No. 106
June 3, 2026
Part II
Securities and Exchange Commission
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17 CFR Parts 210, 229, 230, et al.
Rescission of Climate-Related Disclosure Rules; Proposed Rule
Federal Register / Vol. 91 , No. 106 / Wednesday, June 3, 2026 /
Proposed Rules
[[Page 33296]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 229, 230, 232, 239, and 249
[Release Nos. 33-11421; 34-105572; File No. S7-2026-19]
RIN 3235-AN76
Rescission of Climate-Related Disclosure Rules
AGENCY: Securities and Exchange Commission.
ACTION: Proposed withdrawal of final rules.
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SUMMARY: The Securities and Exchange Commission (``Commission'')
proposes to rescind amendments to its rules under the Securities Act of
1933 (``Securities Act'') and Securities Exchange Act of 1934
(``Exchange Act'') that require registrants to provide certain climate-
related information in their registration statements and annual
reports.
DATES: Comments should be received on or before August 3, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/comments/s7-2026-19/rescission-climate-related-disclosure-rules">https://www.sec.gov/comments/s7-2026-19/rescission-climate-related-disclosure-rules</a>).
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c2b0b7aea7efa1adafafa7acb6b182b1a7a1eca5adb4"><span class="__cf_email__" data-cfemail="1e6c6b727b337d7173737b706a6d5e6d7b7d30797168">[email protected]</span></a>. Please include
File Number S7-2026-19 on the subject line.
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-19. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website (<a href="https://www.sec.gov/rules-regulations/public-comments/s7-2026-19">https://www.sec.gov/rules-regulations/public-comments/s7-2026-19</a>). Do not include personally
identifiable information in submissions; you should submit only
information that you wish to make available publicly. The Commission
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (<a href="https://www.sec.gov/rules-regulations/2026/05/s7-2026-19">https://www.sec.gov/rules-regulations/2026/05/s7-2026-19</a>).
FOR FURTHER INFORMATION CONTACT: David Russo, Senior Counsel, in the
Office of the General Counsel, at 202-551-5100, U.S. Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to withdraw
certain previously adopted but not yet effective amendments to the
following rules and forms:
[[Page 33297]]
[GRAPHIC] [TIFF OMITTED] TP03JN26.000
I. Overview
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\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 78a et seq.
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II. Adoption of The Final Rules And Subsequent Litigation
III. Discussion of Proposed Rescission
A. Overview of Basis for Rescission: Lack of Authority and
Reevaluation of Policy Grounds
B. The Final Rules Exceed the Commission's Statutory Authority
1. Scope of the Commission's Disclosure Authority
2. The Final Rules Exceed the Limitations on Mandatory
Disclosures
3. The Final Rules Should Be Rescinded in Their Entirety
C. Policy Reasons for Rescinding the Final Rules
1. The Final Rules Are Unnecessary and Inconsistent With a
Registrant-Specific, Materiality-Based Approach to Disclosure That
Best Serves the Interests of Registrants and Investors
2. The Final Rules Stray Well Beyond the Policy Concerns of the
Federal Securities Laws
3. The Final Rules Impose Significant Costs on Public Companies
and Their Shareholders That Are Not Justified by the Informational
Benefits They Provide to Some Investors
4. The High Costs of the Final Rules Are at Odds With the
Commission's Policy Objectives of Facilitating Capital Formation and
Promoting Public Company Status
IV. Economic Analysis
A. Introduction
B. Economic Baseline
1. Affected Parties
2. Current Regulatory Framework
3. Current Market Practices
C. Benefits and Costs
1. Benefits
2. Costs
3. Aggregate Monetized Benefits and Costs
D. Anticipated Effects on Efficiency, Competition, and Capital
Formation
E. Reasonable Alternatives
F. Request for Comment
V. Paperwork Reduction Act
VI. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Amendments
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Request for Comment
VII. Congressional Review Act
VIII. Other Matters
Statutory Authority
I. Overview
We propose to rescind the climate-related disclosure rules adopted
by the Commission in 2024 (``Final Rules'').\3\ Congress gave the
Commission certain specific powers within the Federal securities laws.
Among those powers, the Commission's governing statutes authorize the
agency to except from or add to the mandatory items of disclosure
specified in the Securities Act and the Exchange Act.\4\ This
authority, however, is limited by the text and context of these
statutes. Furthermore, even when acting pursuant to an explicit grant
of authority, it is incumbent on the Commission to implement a
disclosure regime that elicits material information
[[Page 33298]]
for investors while being mindful of the costs imposed on registrants
to collect and disclose that information. When the Commission loses
sight of these considerations, it risks not only imposing undue costs
on registrants \5\ and impeding capital formation, but also harming the
very investors it seeks to protect.
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\3\ See The Enhancement and Standardization of Climate-Related
Disclosures for Investors, Release No. 33-11275 (Mar. 6, 2024) [89
FR 21668 (Mar. 28, 2024)] (``Adopting Release''). Terms not defined
in this release are used as defined in the Adopting Release. Because
the Final Rules were never codified in the Code of Federal
Regulations (``CFR'') as a consequence of being stayed, see infra
note 39, the proposed rescission of the Final Rules would not
require any amendments to the CFR. References herein to the CFR
citations of the Final Rules reflect what those citations would have
been upon effectiveness, as set forth in the Adopting Release.
\4\ See, e.g., 15 U.S.C. 77g; 15 U.S.C. 78l.
\5\ For purposes of this release, we use the terms
``registrants,'' ``public companies,'' ``companies,'' and
``issuers'' interchangeably.
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The Final Rules were a dramatic overreach of the Commission's
statutory authority and, independently, unsound as a matter of policy.
Based on an incorrect view of the scope of its authority, the
Commission determined that it was appropriate to prescribe dozens of
pages of highly specific disclosure rules solely about climate-related
matters \6\ and apply the bulk of those rules to virtually all public
companies, regardless of size, industry, or specific circumstances.
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\6\ As discussed below, the Final Rules require disclosure
about, among other things, greenhouse gas (``GHG'') emissions, the
management of climate-related risks, and the financial statement
effects of severe weather events. See infra section II. We refer to
these and related disclosure topics throughout this release as
``climate-related matters.''
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The Final Rules also discounted the role of market forces in the
flow of information between registrants and investors. Disclosures
mandated by the Commission are only some of the information registrants
provide to the marketplace. Investors and analysts often demand
additional information about a wide range of topics depending on their
particular investment strategies or non-investment interests.
Registrants in turn may voluntarily provide such information depending
on the nature of their business and the investor base they wish to
attract. We expect this market-driven flow of information will continue
following a rescission of the Final Rules, but it is not the
Commission's role to require disclosure of particular information
because it is useful for any one investment strategy or desired by some
political interests for the purpose of influencing business practices.
Rather, in exercising its authority to mandate disclosure within the
statutory limits imposed by Congress, the Commission should seek to
adopt rules that elicit information pursuant to the standard of
materiality established by the Supreme Court: information that a
reasonable investor would consider important in buying or selling
securities.\7\
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\7\ See Basic Inc. v. Levinson, 485 U.S. 224 (1988).
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Accordingly, as discussed in more detail in the sections that
follow, we propose to rescind the Final Rules in their entirety because
they exceed the statutory limits on the Commission's disclosure
authority. Furthermore, even if the Commission had authority to adopt
the Final Rules, several independent policy reasons support their
rescission, including that:
<bullet> The Final Rules are unnecessary and inconsistent with a
registrant-specific, materiality-based approach to disclosure;
<bullet> The Final Rules stray well beyond the policy concerns of
the Federal securities laws;
<bullet> The Final Rules impose substantial costs that are not
justified by the informational benefits they may provide to some
investors; and
<bullet> The Final Rules are at odds with the Commission's policy
objectives of facilitating capital formation and promoting public
company status.
II. Adoption of the Final Rules and Subsequent Litigation
On March 21, 2022, the Commission proposed rules that would require
registrants to include extensive new climate-related disclosures in
their registration statements and periodic reports, including detailed
information about the impact and management of climate-related risks,
GHG emissions, scenario analysis, internal carbon prices, and certain
climate-related financial statement effects.\8\ The Proposing Release
was highly contentious,\9\ and in response, the Commission received a
large number of comments from a variety of market participants,
environmental lobbying groups, and members of the public expressing
starkly divergent views about the proposed rules.\10\
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\8\ See The Enhancement and Standardization of Climate-Related
Disclosures for Investors, Release No. 33-11042 (Mar. 21, 2022) [87
FR 21334 (Apr. 11, 2022)] (``Proposing Release''); see also The
Enhancement and Standardization of Climate-Related Disclosures for
Investors, Release No. 33-11061 (May 9, 2022) [87 FR 29059 (May 12,
2022)] (extension of comment period for Proposing Release);
Resubmission of Comments and Reopening of Comment Periods for
Several Rulemaking Releases Due to a Technological Error in
Receiving Certain Comments, Release No. 33-11117 (Oct. 7, 2022) [87
FR 63016 (Oct. 18, 2022)] (reopening of comment period for Proposing
Release).
\9\ See, e.g., Richard Vanderford, SEC's Gensler Bracing for
Lawsuits over Climate Rule, Wall Street Journal (Feb. 13, 2024),
available at <a href="https://www.wsj.com/articles/secs-gensler-bracing-for-lawsuits-over-climate-rule-60165fec">https://www.wsj.com/articles/secs-gensler-bracing-for-lawsuits-over-climate-rule-60165fec</a>.
\10\ Adopting Release at 21677-79.
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Some commenters supported the proposed rules, stating that climate-
related risks can have material impacts on a company's financial
position or performance.\11\ Commenters in support of the proposed
rules indicated, among other things, that adoption of mandatory,
climate-related disclosure rules would improve the timeliness, quality,
and reliability of climate-related information, which would facilitate
investors' cross-company comparisons of climate-related risks and lead
to more accurate securities valuations.\12\
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\11\ Id. at 21677.
\12\ Id.
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Many other commenters opposed the proposed rules and requested
either that the Commission not adopt the proposal or make significant
revisions in the Final Rules.\13\ Some commenters asserted that the
Commission lacked statutory authority to adopt the proposed rules.\14\
Others stated that existing voluntary reporting practices were
sufficient to serve the needs of investors and markets such that the
proposed rules were unnecessary.\15\ Opposing commenters further stated
that the proposed rules were overly prescriptive, that they were not
bound in every instance by a materiality qualifier, that their adoption
would result in the disclosure of a large volume of immaterial
information that would be confusing to investors, and that mandating
such disclosure requirements would impose a significant burden on
registrants while resulting in few additional benefits for
investors.\16\
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\13\ Id. at 21678.
\14\ Id. at 21683, n.172.
\15\ Id. at 21678.
\16\ Id.
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On March 6, 2024, the Commission approved the Final Rules by a 3-2
vote. While the Final Rules included changes from the proposal in
response to commenter concerns, the adopted regulations continued to
include numerous, highly prescriptive disclosure requirements. To house
the extensive new disclosure requirements, the Final Rules created a
new subpart 1500 of Regulation S-K \17\ and a new Article 14 of
Regulation S-X.\18\ Among other things, the Final Rules require a
registrant to consider and possibly disclose the following detailed
items:
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\17\ 17 CFR 229.1500 through 17 CFR 229.1507.
\18\ 17 CFR 210.14-01 through 17 CFR 210.14-02.
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<bullet> If a registrant is a large accelerated filer (``LAF''), or
an accelerated filer (``AF'') that is not otherwise exempted, and its
Scope 1 emissions and/or its Scope 2 emissions metrics \19\ are
material, certain disclosure about those emissions, including:
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\19\ Under the GHG Protocol, Scope 1 emissions are direct GHG
emissions that occur from sources owned or controlled by the
company. Scope 2 emissions are those emissions primarily resulting
from the generation of electricity purchased and consumed by the
company. See Proposing Release, section I.D.2.
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<bullet> The volume of the emissions disclosed separately and each
expressed
[[Page 33299]]
in the aggregate, in terms of CO<INF>2</INF>e \20\ and, if any
constituent gas of the disclosed emissions is individually material,
such constituent gas disaggregated from other gases;
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\20\ 17 CFR 229.1500. ``Carbon dioxide equivalent'' or
``CO<INF>2</INF>e'' means the common unit of measurement to indicate
the global warming potential (``GWP'') of each greenhouse gas,
expressed in terms of the GWP of one unit of carbon dioxide. See id.
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<bullet> Scope 1 emissions and/or Scope 2 emissions in gross terms
by excluding the impact of any purchased or generated offsets;
<bullet> The methodology, significant inputs, and significant
assumptions used to calculate the GHG emissions;
<bullet> The organizational boundaries used when calculating the
registrant's disclosed GHG emissions, including the method used to
determine those boundaries;
<bullet> The operational boundaries used, including the approach to
categorization of emissions and emissions sources; and
<bullet> The protocol or standard used to report the GHG emissions,
including the calculation approach, the type and source of any emission
factors used, and any calculation tools used to calculate the GHG
emissions; \21\
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\21\ 17 CFR 229.1505.
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<bullet> If a registrant's use of internal carbon pricing is
material, the price per metric ton of CO<INF>2</INF>e and the total
price, including how the total price is estimated to change over
certain time periods; \22\
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\22\ 17 CFR 229.1502(g).
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<bullet> Any climate-related risks that have materially impacted or
are reasonably likely to have a material impact on the registrant,
including on its strategy, results of operations, or financial
condition; \23\
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\23\ 17 CFR 229.1502(a).
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<bullet> Any oversight by the board of directors of climate-related
risks, regardless of the materiality of those risks, and any role by
management in assessing and managing the registrant's material climate-
related risks; \24\
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\24\ 17 CFR 229.1501(a).
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<bullet> Any processes the registrant has for identifying,
assessing, and managing material climate-related risks and, if the
registrant is managing those risks, whether and how any such processes
are integrated into the registrant's overall risk management system or
processes; \25\ and
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\25\ 17 CFR 229.1503.
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<bullet> If a registrant has set a climate-related target or goal
that has materially affected or is reasonably likely to materially
affect the registrant's business, results of operations, or financial
condition, certain disclosures about such target or goal, including
material expenditures and material impacts on financial estimates and
assumptions as a direct result of the target or goal or actions taken
to make progress toward meeting such target or goal.\26\
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\26\ 17 CFR 229.1504.
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<bullet> With respect to financial statement disclosures:
<bullet> The capitalized costs, expenditures expensed, charges, and
losses incurred as a result of severe weather events and other natural
conditions, such as hurricanes, tornadoes, flooding, drought,
wildfires, extreme temperatures, and sea level rise, subject to
applicable one percent and de minimis disclosure thresholds; \27\
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\27\ 17 CFR 210.14-02(c) and 210.14-02(d).
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<bullet> The capitalized costs, expenditures expensed, and losses
related to carbon offsets and renewable energy credits or certificates
(``RECs'') if used as a material component of a registrant's plans to
achieve its disclosed climate-related targets or goals; \28\ and
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\28\ 17 CFR 210.14-02(e).
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<bullet> If the estimates and assumptions a registrant uses to
produce the financial statements were materially impacted by risks and
uncertainties associated with severe weather events and other natural
conditions, such as hurricanes, tornadoes, flooding, drought,
wildfires, extreme temperatures, and sea level rise, or any disclosed
climate-related targets or transition plans, a qualitative description
of how the development of such estimates and assumptions was
impacted.\29\
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\29\ 17 CFR 210.14-02(h).
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In addition, registrants that are required to disclose Scopes 1
and/or 2 emissions must file an attestation report of those emissions
subject to phased-in compliance dates.\30\ Further, the Final Rules
require a registrant that is not required to disclose its GHG emissions
or to include a GHG emissions attestation report pursuant to the Final
Rules to disclose certain information if the registrant voluntarily
discloses its GHG emissions in a Commission filing and voluntarily
subjects those disclosures to third-party assurance.\31\
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\30\ 17 CFR 229.1506. Pursuant to the Final Rules, an AF must
file an attestation report at the limited assurance level beginning
the third fiscal year after the compliance date for disclosure of
GHG emissions while an LAF must file an attestation report at the
limited assurance level beginning the third fiscal year after the
compliance date for disclosure of GHG emissions, and then file an
attestation report at the reasonable assurance level beginning the
seventh fiscal year after the compliance date for disclosure of GHG
emissions. Id.
\31\ Id.
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The Final Rules exempt certain registrants from disclosure in
limited circumstances.\32\ Outside these limited circumstances, the
Final Rules require almost every registrant to comply with the vast
majority of the new disclosure requirements after a transition
period.\33\ As the Adopting Release noted, nearly every registrant will
be required to start complying with the Final Rules by the fiscal year
beginning in 2027.\34\
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\32\ For example, the Commission exempted smaller reporting
companies (each an ``SRC'') and emerging growth companies (each an
``EGC'') from the requirement to disclose GHG emissions data, and
the Commission completely exempted from the Final Rules private
companies that are parties to business combination transactions
involving a securities offering registered on Form S-4 or F-4. See
Adopting Release at 21733, 21744.
\33\ See Adopting Release at 21828-29.
\34\ Id.
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Within 60 days of the Commission's adoption of the Final Rules on
March 6, 2024, various parties petitioned for judicial review in
multiple Federal courts of appeals.\35\ On March 19, 2024, the
Commission filed a Notice of Multicircuit Petitions for Review with the
Judicial Panel on Multidistrict Litigation (``JPML''), and on March 21,
2024, the JPML issued an order consolidating the petitions for review
in the U.S. Court of Appeals for the Eighth Circuit (``Eighth
Circuit'').\36\ On April 4, 2024, the Commission, citing its authority
pursuant to the Exchange Act \37\ and the Administrative Procedure
Act,\38\ entered a stay of the Final Rules and ordered that ``the Final
Rules [would be] stayed pending the completion of judicial review of
the consolidated Eighth Circuit petitions.'' \39\
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\35\ See Iowa v. SEC, No. 24-1522 (8th Cir.), and consolidated
cases.
\36\ Consolidation Order, In re Securities and Exchange
Commission, The Enhancement and Standardization of Climate-Related
Disclosures for Investors, MCP No. 180 (J.P.M.L. Mar. 21, 2024).
\37\ 15 U.S.C. 78y(c)(2).
\38\ 5 U.S.C. 705.
\39\ The Enhancement and Standardization of Climate-Related
Disclosures for Investors; Delay of Effective Date, Release No. 33-
11280 (Apr. 4, 2024) [89 FR 25804 (Apr. 12, 2024)]; see also Sec. &
Exch. Comm'n, In the Matter of the Enhancement and Standardization
of Climate-Related Disclosures for Investors (Order Issuing Stay),
Release No. 33-11280 (Apr. 4, 2024) (order staying Final Rules).
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On March 27, 2025, the Commission voted to end its defense of the
rules. The Commission staff sent a letter to the court stating that the
Commission withdraws its defense of the rules and that Commission
counsel are no longer authorized to advance the arguments in the brief
the Commission had filed. Thereafter, on September 12, 2025, the Eighth
Circuit issued an Order holding the consolidated petitions for review
in abeyance ``until such time as the . . . Commission reconsiders the
challenged Final Rules by notice-and-comment
[[Page 33300]]
rulemaking or renews its defense of the Final Rules.'' \40\ The Eighth
Circuit explained that it is the Commission's ``responsibility to
determine whether its Final Rules will be rescinded, repealed,
modified, or defended in litigation.'' \41\ As a result of the current
procedural posture, the Final Rules remain stayed. The court has not
made any decision on the merits of any arguments presented by any
petition for review of the Final Rules.
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\40\ Order, Iowa v. SEC, No. 24-1522 (8th Cir. Sept. 12, 2025).
The Eighth Circuit's decision to hold the consolidated petitions for
review in abeyance was made after (1) the Commission's filing with
the Eighth Circuit dated Mar. 27, 2025, notifying the court and the
parties in the litigation that the Commission had ``determined that
it wishe[d] to withdraw its defense of the [Final] Rules'' and (2) a
status report that the Commission filed with the Eighth Circuit on
July 23, 2025, wherein the Commission notified the Eighth Circuit
that it did not intend to review or reconsider the Final Rules at
that time and requested that the court proceed to decide the
petitions for review.
\41\ Id.
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III. Discussion of Proposed Rescission
A. Overview of Basis for Rescission: Lack of Authority and Reevaluation
of Policy Grounds
As noted above, we are proposing to rescind the Final Rules in
their entirety because they exceed the scope of the Commission's
statutory authority. In addition, even if a court were to find that the
Commission had authority to adopt the Final Rules, we have independent,
compelling policy reasons to rescind the rules in their entirety. The
Final Rules are unnecessary and inconsistent with a registrant-
specific, materiality-based approach to disclosure that best serves the
interests of registrants and investors; stray well beyond the policy
concerns of the Federal securities laws; impose substantial costs on
public companies and their shareholders that are not justified by the
informational benefits they may provide to some investors; and are at
odds with the Commission's policy objectives of facilitating capital
formation and promoting public company status.
B. The Final Rules Exceed the Commission's Statutory Authority
A fundamental principle of constitutional and administrative law is
that an administrative agency must act within its statutory
authority.\42\ An agency acts unlawfully when it exercises power beyond
its authority.\43\ Agencies must respond to their own unlawful acts; as
the Supreme Court recently put it, illegal agency action ``presumably
requires remedial action of some sort.'' \44\ The proper remedy for the
Commission's lack of statutory authority to adopt the Final Rules is
rescission.
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\42\ See, e.g., Bd. of Governors of Fed. Rsrv. Sys. v. Dimension
Fin. Corp., 474 U.S. 361, 373 n.6 (1986) (holding that an
administrative agency, in this case the Federal Reserve Board, only
has the power ``to police within the boundaries of the [relevant
authorizing statute]'' and not ``to expand its jurisdiction beyond
the boundaries established by Congress'').
\43\ See West Virginia v. EPA, 597 U.S. 697, 723 (2022)
(``Agencies have only those powers given to them by Congress'');
Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 327-328 (2014) (stating
that to avoid ``a severe blow to the Constitution's separation of
powers,'' an agency must act within the bounds established by
Congress and may not rewrite statutory terms ``to suit its own sense
of how [a] statute should operate''); City of Arlington v. FCC, 569
U.S. 290, 297 (2013) (``No matter how it is framed, the question a
court faces when confronted with an agency's interpretation of a
statute it administers is always, simply, whether the agency has
stayed within the bounds of its statutory authority.'') (italics in
original); K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988)
(``In determining whether a challenged regulation is valid, a
reviewing court must first determine if the regulation is consistent
with the language of the statute.''); Stark v. Wickard, 321 U.S.
288, 309 (1944) (``When Congress passes an Act empowering
administrative agencies to carry on governmental activities, the
power of those agencies is circumscribed by the authority
granted.''); Cal. Indep. Sys. Operator Corp. v. FERC, 372 F.3d 395,
398 (D.C. Cir. 2004) (stating that a Federal agency is a creature of
statute, has no constitutional or common law existence or authority,
and has ``only those authorities conferred upon it by Congress'')
(italics in original) (citation omitted).
\44\ Dep't of Homeland Sec. v. Regents of Univ. of Calif., 591
U.S. 1, 22 (2020); see also id. at 46, 54 (Thomas, J., concurring in
the judgment in part and dissenting in part) (reasoning for three
justices that an agency should rescind an unlawful action rather
than ``continue acting unlawfully [by] carr[ying] the program
forward''). The majority held that the Department of Homeland
Security's rescission of a program was arbitrary and capricious in
violation of the Administrative Procedure Act because the government
did not adequately consider possible alternatives or reliance
interests. Id. at 24-33. This release considers those issues.
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An agency's rulemaking power is determined by examining the text
and context of the relevant statutory provisions. Statutory provisions
are not read in isolation; courts look to their place in the overall
statutory scheme.\45\ Courts also apply the major questions doctrine to
determine the lawfulness of agency action.\46\
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\45\ See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,
132-33 (2000); West Virginia v. EPA, 597 U.S. at 721; Nat'l Fed'n of
Indep. Bus. v. Dep't of Lab., Occupational Safety & Health Admin.,
595 U.S. 109 (2022); Ala. Ass'n of Realtors v. Dep't of Health &
Hum. Servs., 594 U.S. 758 (2021) (on application to vacate stay);
AMG Cap. Mgmt., LLC v. FTC, 593 U.S. 67 (2021); Util. Air Regul.
Grp. v. EPA, 573 U.S. at 318-21; Texas v. United States, 809 F.3d
134 (5th Cir. 2015).
\46\ See Learning Res., Inc. v. Trump, 146 S.Ct. 628, 638-639
(2026); Biden v. Nebraska, 600 U.S. 477, 502-07 (2023); West
Virginia v. EPA, 597 U.S. at 721-24 (need for clear congressional
authorization for assertions of extravagant statutory power over the
national economy); see also FCC v. Consumers' Rsch., 606 U.S. 656,
705-06 (2025) (Kavanaugh, J., concurring) (``[W]hen interpreting a
statute and determining the limits of the statutory text, courts
presume that Congress . . . has not delegated authority to the
President to issue major rules--that is, rules of great political
and economic significance--unless Congress clearly says as much.
Courts presume that Congress intends to make major policy decisions
itself, not leave those decisions to agencies . . . . Congress does
not usually `hide elephants in mouseholes' when granting authority
to the President.'' (citations omitted)).
---------------------------------------------------------------------------
In the Federal securities laws, Congress required specific
disclosures for registrants conducting public offerings in the United
States or registering securities for trading on U.S. exchanges. When
enacting the Securities Act and the Exchange Act, Congress explicitly
called for disclosures of items central to an understanding of a
registrant's business, operation and performance, financial condition,
directors, management and control, capital structure, the rights of
security holders, and the terms of a registered offering.\47\ These
disclosures provide investors with operational and financial
information particular to the circumstances of the registrant.
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\47\ See 15 U.S.C. 77aa; 15 U.S.C. 78l(b)(1). In this release,
we refer to the disclosure items that Congress enumerated in the
foregoing provisions collectively as ``business or financial
characteristics.''
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Congress also granted the Commission authority to adopt rules
eliminating, substituting, or adding certain disclosures. When adopting
such a rule, the Commission must follow the directives and guardrails
in the text and context of the governing statutes, as discussed below.
When the Commission exercises its legal authority to adopt a
disclosure rule under the statutes discussed below, in certain
instances it must also determine whether the action is necessary or
appropriate in the public interest.\48\ When making such a public
interest determination, the Commission must ``consider, in addition to
the protection of investors, whether the action will promote
efficiency, competition, and capital formation.'' \49\ These
considerations are constraints on the exercise of authority, not
sources of authority.
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\48\ See, e.g., 15 U.S.C. 77g(a)(1); 15 U.S.C. 78l(b)(1).
\49\ 15 U.S.C. 77b(b); 15 U.S.C. 78c(f); see also 15 U.S.C.
78w(a)(2) (requiring the Commission to consider the effects on
competition of any rules that the Commission adopts under the
Exchange Act and prohibiting the Commission from adopting any rule
that would impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act).
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Courts have also recognized that federalism limits the Commission's
rulemaking authority in areas of corporate governance regulated by
State law.\50\ Congress has traditionally left
[[Page 33301]]
corporate governance to the States to regulate, and it has spoken
clearly on the rare occasions when it has shifted that balance.\51\
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\50\ See Bus. Roundtable v. SEC, 905 F.2d 406, 412 (D.C. Cir.
1990) (``As the Supreme Court has said, `[c]orporations are
creatures of state law, and investors commit their funds to
corporate directors on the understanding that, except where federal
law expressly requires certain responsibilities of directors with
respect to stockholders, state law will govern the internal affairs
of the corporation.' '' (citing Santa Fe Indus. v. Green, 430 U.S.
462, 479 (1977)) (emphasis in original)); see also id. at 408
(``[W]e find that the Exchange Act cannot be understood to include
regulation of an issue that is so far beyond matters of disclosure .
. . and that is concededly a part of corporate governance
traditionally left to the states.'').
\51\ See infra note 126.
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As discussed below, the Final Rules do not satisfy the statutory
criteria for adopting additional disclosure provisions under the
Securities Act or Exchange Act. The disclosures compelled by the Final
Rules are not within the scope of the categories of disclosures
Congress required and do not comport with the directives Congress set
for excepting from, substituting, or adding to those disclosures. They
also improperly intrude on State corporate law without a statutory
directive. Accordingly, we propose to rescind the Final Rules in their
entirety.
1. Scope of the Commission's Disclosure Authority
We first examine the text and context of Congress's directions on
mandatory disclosures and then consider the Commission's ability to
make changes to them. The main statutory provisions discussed in the
Adopting Release were sections 7(a)(1) \52\ and 19(a) \53\ of the
Securities Act and sections 12,\54\ 13 \55\ and 23(a)(1) \56\ of the
Exchange Act.\57\
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\52\ 15 U.S.C. 77g(a)(1) (``section 7(a)(1)'').
\53\ 15 U.S.C. 77s(a) (``section 19(a)'').
\54\ 15 U.S.C. 78l (``section 12'').
\55\ 15 U.S.C. 78m (``section 13'').
\56\ 15 U.S.C. 78w(a)(1) (``section 23(a)(1)'').
\57\ The Adopting Release also cites sections 10 and 28 of the
Securities Act [15 U.S.C. 77j and 15 U.S.C. 77z-3], and sections
3(b), 15, and 36 of the Exchange Act [15 U.S.C. 78c, 15 U.S.C. 78o,
and 15 U.S.C. 78mm] as sources of statutory authority. See, e.g.,
Adopting Release at 21912. For the same reasons as discussed herein
with respect to the main statutory provisions, the Commission does
not view any of these additional provisions as providing authority
for the Final Rules.
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a. Text of the Disclosure Rulemaking Statutes in the Securities Act and
Exchange Act
Section 7(a)(1) of the Securities Act establishes that Schedule A
\58\ is the base disclosure for a registration statement and also
permits the Commission to except from or add to the disclosure
requirements enumerated in Schedule A. Section 7(a)(1) provides that a
registration statement for a public offering ``shall contain the
information'' and documents ``specified in Schedule A'' of the
Securities Act.\59\ Schedule A contains 32 disclosure items, such as
the business of the company, its capital structure, use of proceeds
from the sale of securities, director and officer compensation,
material contracts, the terms of the offering and detailed balance
sheet and profit or loss statements.
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\58\ 15 U.S.C. 77aa (``Schedule A'').
\59\ Section 7(a)(1) states that a registration statement
``shall contain'' the information in Schedule A, not that the
Commission is ``authorized'' to require it, as the Adopting Release
claimed. Contra Adopting Release at 21683.
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Section 7(a)(1) gives the Commission the authority to except from
or add to Schedule A's required disclosures in certain circumstances.
The Commission may by rule provide that a class of issuers does not
need to include information listed in Schedule A if the Commission
finds that the information is not applicable to that class ``and that
disclosure fully adequate for the protection of investors is otherwise
required to be included within the registration statement.'' Section
7(a)(1) concludes with a provision authorizing the Commission to add
disclosure requirements to Schedule A: ``Any such registration
statement shall contain such other information, and be accompanied by
such other documents, as the Commission may by rules or regulations
require as being necessary or appropriate in the public interest or for
the protection of investors.'' \60\
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\60\ 15 U.S.C. 77g(a)(1). Section 19(a) of the Securities Act
similarly empowers the Commission to ``prescribe . . . the items or
details to be shown'' in a registrant's ``balance sheet and earning
statement.'' 15 U.S.C. 77s(a).
---------------------------------------------------------------------------
Section 12 of the Exchange Act similarly requires certain
categories of disclosures while allowing the Commission to prescribe
the level of detail and to alter the requirements under specified
conditions. Section 12 stipulates the information to be filed and made
public by a company registering a class of securities on a national
securities exchange or that is required to register a class of equity
securities under the Exchange Act. Section 12(b)(1) provides that a
registration statement must contain 12 enumerated categories of
information, such as the financial structure and nature of the
business, the terms of classes of securities, the financial interests
of directors and officers in the company, certain material contracts,
and certain financial statements.\61\ Within those 12 categories, the
Commission may require a registration statement to include ``[s]uch
information, in such detail,'' as to the issuer and any control persons
``as necessary or appropriate in the public interest or for the
protection of investors . . . .'' \62\
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\61\ 15 U.S.C. 78l(b)(1) (``section 12(b)(1)'').
\62\ Id.
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Section 12(c) gives the Commission the authority to determine that
an item listed in section 12(b) is not applicable to a class of
issuers. If it does, ``the Commission shall require in lieu thereof the
submission of such other information of comparable character as it may
deem applicable to such class of issuers.'' \63\ Unlike section 7(a)(1)
of the Securities Act, section 12 of the Exchange Act does not
otherwise permit the Commission to add to the list of disclosure items
in section 12(b).
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\63\ 15 U.S.C. 78l(c) (``section 12(c)'') (``If in the judgment
of the Commission any information required under subsection (b) . .
. is inapplicable to any specified class or classes of issuers, the
Commission shall require in lieu thereof the submission of such
other information of comparable character as it may deem applicable
to such class of issuers.'').
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Section 13(a) of the Exchange Act provides the Commission with
authority to prescribe periodic disclosure rules for issuers with
securities registered under section 12.\64\ The Commission shall
require such an issuer ``to keep reasonably current the information and
documents required to be included in or filed with'' an application or
registration statement \65\ and may require the issuer to file annual
and quarterly reports.\66\ Any rules promulgated under section 13 must
be ``necessary or appropriate for the proper protection of investors
and to insure fair dealing in the security.'' \67\ As with section
12(c), section 13(c) instructs that if the Commission concludes ``any
report required under subsection (a) in inapplicable to any specified
class or classes of issuers, the Commission shall require in lieu
thereof the submission of such reports of comparable character as it
may deem applicable . . . .'' \68\
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\64\ 15 U.S.C. 78m(a) (``section 13(a)''). The Commission may
require an issuer meeting the terms of section 15(d)(1) of the
Exchange Act, 15 U.S.C. 78o(d)(1), to file information and documents
required pursuant to section 13 in respect of a security registered
pursuant to section 12.
\65\ 15 U.S.C. 78m(a)(1).
\66\ See 15 U.S.C. 78m(a)(2).
\67\ 15 U.S.C. 78m(a). 15 U.S.C. 78m(b)(1) provides that rules
``in regard to reports'' may prescribe the form of the reports and
certain accounting items, such as the details for a balance sheet
and valuation methods for, among other things, assets, liabilities,
and depreciation. Section 19(a) of the Securities Act similarly
provides the Commission with authority to prescribe disclosure of
the same list of accounting items and details.
\68\ 15 U.S.C. 78m(c). Section 23(a)(1) of the Exchange Act--the
other main provision of the Exchange Act cited in the Adopting
Release--empowers the Commission to ``make such rules and
regulations as may be necessary or appropriate to implement the
provisions of this chapter for which [it] [is] responsible or for
the execution of functions vested in [it] by this chapter, and may
for such purposes classify persons, securities, transactions,
statements, applications, reports, and other matters within [its] .
. . jurisdiction[ ], and prescribe greater, lesser, or different
requirements for different classes thereof.'' 15 U.S.C. 78w(a)(1).
This provision's general terms do not affect the specific
disclosure-related authority discussed above.
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[[Page 33302]]
These statutory provisions establish the Commission's power to
compel disclosures in public offerings and by companies registering
securities for public trading. Congress restricted the information an
issuer or reporting company must disclose to items central to an
understanding of the company's business or financial characteristics.
These categories of information are fundamental to valuing the risks
and returns of an investment in the registrant's securities.
b. The Commission's Authority To Change Mandatory Disclosures
As noted above, Congress permitted the Commission to make changes
to the mandatory disclosures within certain limits. In this way,
Congress contemplated developments in mandatory disclosure requirements
but gave context and guidance for them in the governing statutes.
The relevant part of section 7(a)(1) of the Securities Act states
that the Commission may require the disclosure of ``such other
information'' not adequately covered by Schedule A if such item is
``necessary or appropriate in the public interest or for the protection
of investors.'' \69\ Section 7(a)(1) also provides that the Commission
may exclude from or adopt a substitute for an item in Schedule A for a
class of issuers if it finds the item is not applicable and ``that
disclosure fully adequate for the protection of investors is otherwise
required to be included within the registration statement.'' \70\
Section 12(b)(1) of the Exchange Act authorizes the Commission to
determine the ``detail'' for the twelve enumerated categories of
disclosures listed by Congress for applications to register securities
on an exchange or in certain other circumstances.\71\ And if one of
those enumerated categories ``is inapplicable to any specified class or
classes of issuers,'' the Commission ``shall require in lieu thereof
the submission of such other information of comparable character as it
may deem applicable to such class of issuers,'' \72\ closely tying the
Commission's power to modify the required disclosures to Congress's
original specifications. Under section 13(a) of the Exchange Act, the
Commission has authority to prescribe rules requiring issuers with
securities registered under section 12 ``to keep reasonably current''
the information and documents required by section 12(b)(1) for the
registration statement and to file annual and quarterly reports.
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\69\ 15 U.S.C. 77g(a)(1); see also 15 U.S.C. 77s (allowing the
Commission to prescribe ``the items or details to be shown in the
balance sheet and earning statement'' as part of its authority to
prescribe ``such rules and regulations as may be necessary to carry
out the provisions of this title, including rules and regulations
governing registration statements and prospectuses'').
\70\ 15 U.S.C. 77g(a)(1).
\71\ 15 U.S.C. 78l(b)(1) (the application ``shall contain''
``[s]uch information, in such detail . . . as the Commission may by
rules and regulations require, as necessary or appropriate in the
public interest or for the protection of investors, in respect of''
those enumerated categories).
\72\ 15 U.S.C. 78l(c).
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The Securities Act and Exchange Act work together in certain
circumstances. Experience with disclosures of reporting companies under
section 12 of the Exchange Act may inform the Commission about the need
for or inapplicability of disclosures under section 7(a)(1) of the
Securities Act. Detailed disclosures or disclosures of comparable
character or current information added under section 12 for reporting
companies may also guide the Commission's determination about
disclosures necessary for the protection of investors in a registration
statement required by the Securities Act. This interrelationship
between statutory provisions provides the foundation for the
Commission's existing integrated disclosure system.
The Commission's rulemaking with respect to disclosures must be
``channel[ed]'' by and comparable to the kinds of disclosures recited
in the statutes,\73\ which refer to a registrant's business or
financial characteristics. This follows from the text of the
Commission's enabling statutes. As previously discussed, section 12 of
the Exchange Act authorizes the Commission to specify the ``detail[s]''
surrounding Congress's chosen topics \74\ and to substitute those
topics with others for certain issuers--provided (among other things)
that those substitute disclosures are ``in lieu of'' Congress's
specified fields and ``of comparable character.'' \75\
---------------------------------------------------------------------------
\73\ FCC v. Consumers' Rsch., 606 U.S. 656, 690 (2025); see also
Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115 (2001) (open-
ended terms in a statutory provision should be ``controlled and
defined by reference to the enumerated categories'' in that
provision, covering only objects ``similar in nature'' to those
enumerated categories).
\74\ 15 U.S.C. 78l(b)(1).
\75\ 15 U.S.C. 78l(c). In keeping with these limitations, courts
have struck down attempts to impose disclosures that expand beyond
those targeting the Exchange Act's core concerns--guarding against,
among other things, ``speculation, manipulation, fraud, [and]
anticompetitive exchange behavior''--as exemplified by Congress's
enumerated categories of information. Alliance for Fair Board
Recruitment v. SEC, 125 F.4th 159, 164, 178 (5th Cir. 2024) (en
banc) (invalidating SEC approval of Nasdaq rules requiring Nasdaq-
listed companies to ``disclose information about the racial, gender,
and sexual characteristics of their directors'').
---------------------------------------------------------------------------
Other requirements in sections 7(a)(1), 12(b)(1), and 13(a) also
guide the Commission in exercising its authority to adopt disclosure
rules. The Commission must determine that a rule is ``necessary or
appropriate in the public interest or for the protection of
investors.'' That public interest determination also requires
consideration of efficiency, competition, and capital formation.\76\ To
be necessary, an addition to required disclosures should cover
information not adequately elicited by an existing mandatory
disclosure. To be appropriate, the additional disclosures must elicit
information comparable to that elicited by the disclosures specified by
Congress.
---------------------------------------------------------------------------
\76\ See supra note 49.
---------------------------------------------------------------------------
Courts have consistently held that the inclusion of the ``words
`public interest' in a regulatory statute is not a broad license to
promote the general public welfare. Rather, the words take meaning from
the purposes of the regulatory legislation.'' \77\ The purposes, in
turn, are discerned from the text and context of a statute, which
limits the scope of what is necessary or appropriate.\78\ For mandatory
disclosures in public offerings or periodic reports, this means that
any additional, substitute, or more detailed disclosure requirements
must be related to the registrant's business or financial
characteristics.\79\ Congress did not license the agency to act as a
``roving commission to inquire into [the] evils'' of corporate behavior
``and upon discovery correct them.'' \80\ Indeed, the
[[Page 33303]]
fact that Congress required the Commission to consider efficiency,
competition, and capital formation when making a public interest
determination further illustrates that ``public interest'' was not
intended to be construed in some vague, open-ended sense but rather in
terms of the public interest in well-functioning securities markets.
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\77\ NAACP v. Fed. Power Comm'n, 425 U.S. 662, 669 (1976); see
also Bus. Roundtable v. SEC, 905 F.2d 406, 413 (D.C. Cir. 1990)
(explaining that statutory language about the ``public interest''
``must be limited to `the purposes Congress had in mind when it
enacted [the] legislation' '' (quoting NAACP, 425 U.S. at 670); see
generally Consumers' Rsch., 606 U.S. at 690 (explaining that the
Supreme Court has ``long held that `the words `public interest' in a
regulatory statute do not encompass `the general public welfare' but
rather `take meaning from the purposes of the regulatory
legislation' '') (quoting NAACP, 425 U.S. at 669).
\78\ See Davis v. Mich. Dep't of Treasury, 489 U.S. 803, 809
(1989) (explaining that ``statutory language cannot be construed in
a vacuum,'' but rather ``the words of a statute must be read in
their context and with a view to their place in the overall
statutory scheme'').
\79\ See supra note 73 and accompanying text.
\80\ Nat'l Fed'n of Indep. Bus. v. Dep't of Lab., Occupational
Safety & Health Admin., 595 U.S. 109, 126 (2022) (Gorsuch, J.
concurring) (quoting A.L.A. Schechter Poultry Corp. v. United
States, 295 U.S. 495, 551 (1935) (Cardozo, J, concurring)).
---------------------------------------------------------------------------
Likewise, the words ``protection of investors'' do not empower the
Commission to mandate any disclosure that an investor may find useful
or desirable.\81\ In the Adopting Release, the Commission made general
assertions that climate-related information was ``important'' to
investors \82\ and that the Final Rules would make the disclosures more
consistent, comparable, and reliable.\83\ Those considerations may play
a role in the Commission's assessment of whether a potential disclosure
obligation is necessary or appropriate or promotes efficiency and
capital formation, but they are not a freestanding statutory
authorization to expand disclosure beyond the types of information
Congress specified. If they were, there would be no meaningful limits
on the Commission's statutory authority.\84\ Under such a reading, the
Commission could mandate disclosure about virtually any topic, however
contentious, esoteric, or parochial, provided that some subset of
investors may find the information relevant to their decisions to buy
or sell the registrant's securities.
---------------------------------------------------------------------------
\81\ See Davis, 489 U.S. at 809.
\82\ The Adopting Release used an expansive notion of
``investor,'' defining that term to include not only retail and
institutional investors but also ``other market participants (such
as financial analysts, investment advisers, and portfolio managers)
that use disclosures in Commission filings as part of their analysis
to help investors.'' Adopting Release at 21671 n.26.
\83\ See, e.g., Adopting Release, section II.A.1.a.
\84\ Indeed, the Supreme Court recently rejected an authority
analysis similar to the one used to support the Final Rules. See
Ala. Ass'n of Realtors v. Dep't of Health & Hum. Servs., 594 U.S.
758, 763-765 (2021). In that case, in an action seeking to vacate
the stay of a district court judgment, the Court examined whether
the CDC exceeded its authority by issuing a moratorium on evictions
during the COVID-19 pandemic. The Court concluded that the CDC
likely exceeded its authority by instituting the eviction moratorium
because the CDC interpreted the Public Health Service Act too
broadly. The Court explained that statutory language should be read
in context and succeeding sentences in a statute can inform grants
of authority that appear in prior sentences.
---------------------------------------------------------------------------
Expansive notions of the public interest and protection of
investors do not provide a basis for straying beyond the types of
business or financial characteristics that Congress specified.
Generalized invocations of ``importance to'' and ``interests of''
investors or ``investor demand'' \85\ are not adequately grounded in
the text, context, and limitations of the law to provide a basis for
rulemaking. The statutes also do not mention consistency or
comparability as a basis for a disclosure rule. Notwithstanding the
Commission's assertions in the Adopting Release, these justifications
do not authorize the Commission to ``update and build on'' the
disclosures specified in the Federal securities laws ``by requiring
additional disclosures of information.'' \86\
---------------------------------------------------------------------------
\85\ See, e.g., Adopting Release, section IV.B.1.
\86\ Contra Adopting Release at 21683.
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Materiality is also a key part of the Commission's application of
legal authority when it adopts disclosure rules. Information is
material if there is a substantial likelihood that a reasonable
investor would consider it important or significant in deciding whether
to buy or sell a security.\87\ The common interest of reasonable
investors is in information regarding the financial performance of a
company, the pricing of securities, and the prospect for economic and
financial return from the disclosing company.\88\ Accordingly,
materiality is a concept inherently rooted in financial considerations.
---------------------------------------------------------------------------
\87\ See 17 CFR 230.405 (``material'' means ``those matters to
which there is a substantial likelihood that a reasonable investor
would attach importance in determining whether to purchase the
security registered''); 17 CFR 240.12b-2 (``material'' means ``those
matters to which there is a substantial likelihood that a reasonable
investor would attach importance in determining whether to buy or
sell the securities registered''); see also Basic Inc. v. Levinson,
485 U.S. 224 (1988).
\88\ See Sean J. Griffith, What's ``Controversial'' About ESG? A
Theory of Compelled Commercial Speech Under the First Amendment, 101
Neb. L. Rev. 876, 881 (2023) (``[F]ocusing on investors qua
investors reveals a common core--specifically, concern for the
financial return of an investment.'' (emphasis in original)); Eric
C. Chaffee, The New Old SEC, 85 Maryland L. Rev. 468, 492-493 (2026)
(``[Each of the Commission's governing statutes is] focused on
providing investors with the truthful material information necessary
to make informed investment decisions, rather than attempting to
protect investors in their day-to-day lives or in other contexts'');
Comm'r Elad Roisman, Can the SEC Make ESG Rules that are
Sustainable? (June 22, 2021), available at <a href="https://www.sec.gov/newsroom/speeches-statements/can-sec-make-esg-rules-are-sustainable">https://www.sec.gov/newsroom/speeches-statements/can-sec-make-esg-rules-are-sustainable</a>
(``[W]hile any given shareholder may have bought securities for
reasons other than or in addition to making money, it seems clear
that a `reasonable investor' is someone whose interest is in a
financial return on an investment.'').
---------------------------------------------------------------------------
While ``materiality'' is not referenced in the statutory provisions
that were relied upon to promulgate the Final Rules and does not itself
provide a separate basis for a disclosure obligation, this concept
bears directly on the Commission's consideration of investor
protection, efficiency, and capital formation. Immaterial disclosures
do not further the ``public interest'' or ``protection of investors''--
indeed, they are likely to frustrate such objectives. The materiality
standard filters out information that a reasonable investor would not
consider important, protects investors from being buried in an
avalanche of trivial information, and prevents the registrant from
having to collect and disclose every minor detail about its
operations.\89\ Therefore, assuring that mandatory disclosures elicit
material information is frequently part of the Commission's required
determination that such disclosures advance the goals of investor
protection, efficiency, and capital formation.
---------------------------------------------------------------------------
\89\ See Basic Inc., 485 U.S. at 231-32, 234, 238; see also
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011)
(explaining and applying the Basic Inc. standard of materiality);
TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 448-49 (1976)
(adopting a standard of materiality under Exchange Act Rule 14a-9).
---------------------------------------------------------------------------
The Commission's accepted past practices illustrate these limits on
its authority in operation. Current Regulation S-K, for example,
contains instances of the Commission exercising its authority to adopt
disclosure rules based on enumerated items of disclosure in Schedule A
of the Securities Act and section 12(b)(1) of the Exchange Act. For
example, Schedule A requires disclosures about securities held by
officers, directors, promoters, and large shareholders and their
intention to subscribe to purchases under the registration statement
(paragraph 7) and the purposes for which the offered securities will
supply funds (paragraph 13), but Schedule A does not explicitly require
disclosures about shareholders intending to sell securities pursuant to
the registration statement. Item 507 of Regulation S-K \90\ requires
disclosures about the names of selling shareholders, their material
relationships with the issuer, and the amount they plan to sell, but
these disclosures are ``channel[ed]'' by the kinds of disclosures
recited in paragraphs 7 and 13 of Schedule A.\91\
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\90\ 17 CFR 229.507.
\91\ FCC v. Consumers' Rsch., 606 U.S. 656, 690 (2025).
---------------------------------------------------------------------------
As another example, to address concerns with managerial self-
dealing, paragraphs 14, 20, 22, and 24 of Schedule A and section
12(b)(1)(D) through (F) require disclosures of remuneration to
officers, directors, underwriters, and ``other persons'' over certain
dollar amounts and the interests of directors, officers, and large
shareholders in the securities of the issuer and material contracts
they have with the issuer. Item 404 of Regulation S-K,\92\ which
requires disclosure about
[[Page 33304]]
transactions with related persons, is not identical to the enumerated
items in Schedule A, but it is channeled by Schedule A's disclosures
concerning managerial self-dealing. Similarly, Item 404 spells out
certain details related to the section 12(b)(1) disclosures.\93\
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\92\ 17 CFR 229.404.
\93\ In formulating a substitute disclosure, the Commission
frequently must consider materiality as part of its evaluation of
efficiency, competition, capital formation, and the protection of
investors, as discussed below.
---------------------------------------------------------------------------
The ability to require substitute or added disclosures also enables
the Commission to adapt current disclosure rules for novel financial
assets or transaction structures that qualify as securities or
securities transactions, subject to the same directives and guardrails
discussed above. For example, instead of remuneration or payments to
officers, directors, and promoters, the Commission could substitute
``information of comparable character.'' \94\
---------------------------------------------------------------------------
\94\ 15 U.S.C. 78l(c).
---------------------------------------------------------------------------
When read in the context of the mandatory disclosures in sections
7(a)(1) and 12(b)(1), it is clear that these statutes do not authorize
the Commission to mandate any and all information that it deems
desirable. Nor does section 13(a) give the Commission a general,
freestanding power to mandate ongoing disclosures.\95\ Rather,
disclosure rules adopted by the Commission must be ``channel[ed]'' by
\96\ and comparable to the disclosures Congress specified in the Acts,
which concern the registrant's business or financial characteristics.
Despite suggestions to the contrary in the Adopting Release, the
Commission is not free to construct a new disclosure regime out of
whole cloth. In adopting the Final Rules, the Commission did not
sufficiently adhere to these limits or determine the best
interpretation of the relevant statutes.\97\ Instead, the Commission
relied on an impermissibly broad reading of its statutory authority.
---------------------------------------------------------------------------
\95\ Contra Adopting Release at 21683 n.177 and accompanying
text (quoting Exchange Act section 13(a) [15 U.S.C. 78m(a)]).
Section 19(a) of the Securities Act and section 23(a)(1) of the
Exchange Act confer general rulemaking authority. General rulemaking
authority remains subject to statutory context and cannot be read to
expand the Commission's authority to adopt disclosure regulations
beyond the limitations set forth in the federal securities laws. By
their terms, sections 19(a) and 23(a)(1) may be used as necessary
``to carry out'' or ``to implement'' other provisions in the
Securities Act or the Exchange Act and, therefore, for purposes of
disclosure in a registration statement or periodic report, do not
extend beyond the more specific terms in the previously discussed
statutory provisions. See New York Stock Exch. LLC v. SEC, 962 F.3d
541, 556 (D.C. Cir. 2020) (``[A] `necessary or appropriate'
provision in an agency's authorizing statute does not necessarily
empower the agency to pursue rulemaking that is not otherwise
authorized.''). Thus, the Commission could not have relied on its
general rulemaking power in Securities Act section 19(a) and
Exchange Act section 23(a)(1) to adopt the Final Rules.
\96\ Consumers' Rsch., 606 U.S. at 690.
\97\ See Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 400
(2024) (explaining that ``[i]n the business of statutory
interpretation, if it is not the best [interpretation], it is not
permissible'').
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2. The Final Rules Exceed the Limitations on Mandatory Disclosures
The Final Rules did not respect the limitations on the Commission's
authority and are fundamentally different from the types of enumerated
disclosures found in the Commission's governing statutes. Those
enumerated disclosures refer to a company's business or financial
characteristics. By contrast, the Final Rules mandate highly specific
and granular information on the sole topic of climate-related matters,
such as operational and governance practices and internal metrics
(including GHG emissions) that many registrants may not track or use
for business purposes.\98\
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\98\ See supra section II.
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These disclosure obligations do not fit within the powers conferred
by the statutes discussed above. While the Commission in certain other
circumstances has required disclosures that are tailored to specific
risks facing the disclosing company in a particular industry,\99\ no
prior example comes close to the breadth of disclosures required by the
Final Rules, which apply across the board. The Final Rules are not
comparable to the disclosures called for by the Commission's governing
statutes, which refer to a company's business or financial
characteristics.
---------------------------------------------------------------------------
\99\ See, e.g., 17 CFR 210.12-29 (mortgage loans on real estate
for certain real estate companies).
---------------------------------------------------------------------------
The subject of each new disclosure mandated by the Final Rules, by
contrast, was climate-related risks and strategies for managing those
risks, as well as the financial statement effects of severe weather
events and other natural conditions. Many of these disclosures were
only secondarily or remotely about the past or immediate effects of
climate-related matters on the operations, revenue, expenses, capital
structure, liquidity, management or controlling shareholders of the
registrant. For example, the Final Rules require disclosure about
climate-related impacts on third parties (such as suppliers,
purchasers, or counterparties to material contracts) \100\ as well as
transition risks--defined expansively to include, among other things,
``the actual or potential negative impacts on a registrant's business .
. . attributable to regulatory, technological, and market changes, . .
. changes in law or policy, reduced market demand for carbon intensive
products, . . . [and] competitive pressures associated with the
adoption of new technologies, and reputational impacts . . . .'' \101\
The Final Rules also require the disclosure of internal analysis and
metrics, such as scenario analysis \102\ and internal carbon
prices.\103\
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\100\ See 17 CFR 229.1502(b)(3).
\101\ 17 CFR 229.1500.
\102\ See 17 CFR 229.1502(f).
\103\ See 17 CFR 229.1502(g).
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As discussed above, the Commission's disclosure authority under its
governing statutes must be construed in light of the text and context
of the surrounding statutory provisions. Nothing in these provisions
expressly empowers the agency to burden public companies and their
shareholders with such detailed (and costly) disclosures about one
particular topic. Indeed, the scope of the Final Rules stands in stark
contrast to the more limited and targeted disclosures the Commission
has previously required on environmental matters, as discussed in
section III.C.1.a.
Nor does the inclusion of materiality qualifiers salvage the Final
Rules from their legal defects. While the Adopting Release claimed that
such qualifiers would limit the scope, and therefore the burdens, of
the Final Rules, as discussed in more detail in section III.C.3, the
use of such qualifiers in such a complex, interconnected, and highly
prescriptive set of disclosure requirements does not adequately cabin
those requirements within the bounds of the Commission's authority. In
particular, while the requirement to disclose Scope 1 and Scope 2 GHG
emissions is qualified by materiality,\104\ it nonetheless requires
covered registrants to devote significant time and resources to measure
their emissions and determine whether they are material, including
establishing organizational boundaries and operational boundaries and
adopting a specific reporting protocol or standard.\105\ Only after it
has invested potentially significant resources to perform this exercise
can a registrant make a determination about whether such metrics are
material and therefore must be disclosed.\106\ Rather than limiting the
costs and burdens of the Commission's emissions reporting requirements,
the rule's materiality qualifier effectively compels covered
registrants to track and evaluate a metric
[[Page 33305]]
they may not otherwise use for business purposes.
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\104\ 17 CFR 229.1505(a)(1).
\105\ See Adopting Release at 21875.
\106\ Id.
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Similarly, invoking the impact of climate-related risks on a
registrant's business, results of operations, or financial condition is
not sufficient, in itself, to justify the Final Rule's myriad highly
specific disclosure requirements. For example, the Final Rules require
registrants to provide disclosures regarding their use of transition
plans,\107\ scenario analysis,\108\ and internal carbon prices, if
material.\109\ The Adopting Release repeatedly asserted that such
disclosures were necessary to value a registrant's securities or
evaluate its financial performance,\110\ but the exceedingly granular
nature of the information required by the Final Rules goes well beyond
what must be disclosed in respect of the many other factors that may
affect the valuation of a registrant's securities. As noted above, to
be necessary, an addition to required disclosures should cover material
information not adequately elicited by an existing mandatory
disclosure. When climate change or other environmental issues,
including transition risk, have materially affected the operations or
financial performance of a specific company, existing disclosure rules
require discussion of the effects. Indeed, the Commission's Guidance
Regarding Disclosure Related to Climate Change \111\ lists a variety of
specific existing disclosure obligations that, depending on the
particular circumstances of a company, could require disclosure of
climate change matters. For example, Item 303 of Regulation S-K
requires, among other things, a company to disclose and discuss any
known trend or uncertainty that has had a material positive or negative
consequence for the company's results of operations.\112\ The fact that
existing disclosure obligations already serve to provide investors with
material information about climate-related matters reinforces the
conclusion that the Final Rules are not ``necessary'' to protect
investors.\113\ Indeed, they may even serve to harm investors by
eliciting information about climate-related matters that goes well
beyond what a reasonable investor needs to make an informed investment
decision.\114\
---------------------------------------------------------------------------
\107\ See 17 CFR.229.1502(e).
\108\ See 17 CFR.229.1502(f).
\109\ See 17 CFR.229.1502(g).
\110\ Adopting Release at 21669, 21671, 21846-48.
\111\ Release No. 33-9106 (Feb. 2, 2010) [75 FR 6290 (Feb. 8,
2010)] (``2010 Guidance'').
\112\ 17 CFR 229.303 (Management's discussion and analysis of
financial condition and results of operations).
\113\ See 15 U.S.C. 77g(a)(1); 15 U.S.C. 78l(b)(1); see also 15
U.S.C. 78m(a) (requiring every issuer of a security registered
pursuant to section 12 to file certain reports with the Commission
in accordance with such rules and regulations ``as the Commission
may prescribe as necessary or appropriate for the proper protection
of investors and to insure fair dealing in the security'').
\114\ See infra section III.C.1.b.
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In addition to creating a disclosure regime far beyond the kind
authorized by the Commission's enabling statutes, the Final Rules also
intrude on State authority over core matters of corporate governance.
``No principle of corporation law and practice is more firmly
established than a State's authority to regulate domestic
corporations.'' \115\ Although the Final Rules purport to require
issuers only to disclose information, the effect of their requirements
is to impermissibly regulate issuers' internal affairs. The many
``ifs'' in the Final Rules are telling in this regard. While framed in
terms of risks to and impacts on the registrant, the disclosure
mandates in the Final Rules effectively provide an aspirational
framework for how public companies should manage climate-related
matters.
---------------------------------------------------------------------------
\115\ CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 89
(1987); see also Burks v. Lasker, 441 U.S. 471, 478 (1979) (``[T]he
first place one must look to determine the powers of corporate
directors is in the relevant State's corporation law.'').
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The Commission's existing rules typically require disclosure of
ongoing compliance or legal matters when they are material--they do not
pressure or require registrants to create and maintain dedicated risk
management systems that prioritize one category of risks above all
others.\116\ By contrast, the Final Rules create a highly detailed and
prescriptive regime focused on a single category of risk.\117\ For
example, the Final Rules require disclosure of the board of directors'
role in managing climate-related risks, which overlaps with existing
disclosure requirements related to the role of the registrant's board
in risk oversight.\118\ In addition, while materiality qualifiers were
added at the adopting stage, given the detailed nature of the
requirements, the Final Rules effectively require many registrants to
conduct new analyses or gather new data for the sole purpose of
determining whether they have a disclosure obligation.\119\
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\116\ See, e.g., Disclosures Pertaining to Matters Involving the
Environment and Civil Rights, Release No. 33-5170 (July 19, 1971)
[36 FR 13989 (July 29, 1971)] (interpreting Commission rules and
forms to require disclosure about ``compliance with statutory
requirements with respect to environmental quality'' when such
compliance efforts ``may necessitate significant capital outlays,''
``may materially affect the earning power of the business,'' or
``cause material changes in [the] registrant's business'');
Disclosure with Respect to Compliance with Environmental
Requirements and Other Matters, Release No. 33-5386 (Apr. 20, 1973)
[38 FR 12100 (May 9, 1973) at 12100-01] (adopting amendments
requiring registrants to disclose material effects of compliance
with environmental laws on the capital expenditures, earnings, and
competitive position of the registrant and administrative or
judicial proceedings arising under environmental laws if ``material
to the business or financial condition of the registrant'' or
relating to certain claims exceeding 10% of assets); see also 17 CFR
229.101(c)(2)(i), (h)(4)(xi) (requiring disclosure of certain
material effects of compliance with environmental regulations).
\117\ Similarly, the Final Rules contrast with the approach
taken by the Commission in the 2010 Guidance, when it explained
that, in certain circumstances and for some companies, regulatory,
legislative, and other developments related to climate change
``could have a significant effect on operating and financial
decisions.'' 2010 Guidance at 6291. As such, the Commission's
existing disclosure requirements--like those that require disclosure
of a registrant's description of its business, legal proceedings,
risk factors, and management's discussion and analysis--might apply
to climate-related issues. In contrast to the Final Rules, these
prior initiatives are consistent with the Commission's long-held
recognition that types of information ``which are of importance only
in certain circumstances have generally not been made the subject of
specific disclosure requirements.'' Environmental and Social
Disclosure Release, infra note 131.
\118\ See 17 CFR 229.407(h) (``[D]isclose the extent of the
board's role in the risk oversight of the registrant, such as how
the board administers its oversight function, and the effect that
this has on the board's leadership structure.'').
\119\ See, e.g., 17 CFR 229.1505 (GHG emissions metrics). The
Adopting Release acknowledges that in order to comply with 17 CFR
229.1505, most, if not all, LAFs and AFs that are not EGCs or SRCs
will need to assess or estimate their Scope 1 and 2 emissions to
reach a materiality determination. As a result, these registrants
will, to some extent, need to adopt controls and procedures to
assess the materiality of their Scope 1 and 2 emissions and
determine whether disclosure is required if they do not already have
them in place. Adopting Release at 21859.
---------------------------------------------------------------------------
To house these extensive new reporting requirements, the Commission
created a new subpart 1500 of Regulation S-K as well as a new Article
14 of Regulation S-X. Each of these regulations contain detailed line
item requirements related to such varied matters as transition
plans,\120\ scenario analysis,\121\ internal carbon prices,\122\ GHG
emissions,\123\ and the aggregate amount of carbon offsets and RECs
expensed.\124\ Most of these items apply equally across all types of
registrants. The anticipated response of registrants to the creation of
such a detailed regime dedicated to a single category of risks is
clear: all registrants will pay attention to climate-related matters
and dedicate significant board, executive, and employee resources to
manage them. This broad mandate interferes with the management of
companies and trenches
[[Page 33306]]
upon the traditional role of States in regulating corporations.\125\
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\120\ 17 CFR 229.1502(e).
\121\ 17 CFR 229.1502(f).
\122\ 17 CFR 229.1502(g).
\123\ 17 CFR 229.1505.
\124\ 17 CFR 210.14-02(e).
\125\ Cf. Bus. Roundtable v. SEC, 905 F.2d 406, 411-412 (D.C.
Cir. 1990) (rejecting effort by Commission ``to establish a federal
corporate law by using access to national capital markets as its
enforcement mechanism'').
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On the rare occasions when Congress has intervened in corporate
governance, it has given explicit direction for the Commission to do
so.\126\ Congress has not done so with respect to management of
climate-related matters. Such a conduct-altering regime, unrelated to
managerial self-dealing,\127\ simply was not contemplated by Congress
when it specified the fundamental disclosures that a registrant should
provide when conducting a public offering in the United States or
trading in U.S. markets. This effort to regulate corporate management
interferes with the role of the States in regulating corporate
governance and contravenes the ``clear statement'' rule that the
Supreme Court applies when regulatory actions raise federalism
concerns.\128\
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\126\ See, e.g., Exchange Act section 10A(m) (directing the
Commission to adopt rules requiring national securities exchanges to
prohibit the listing of any security of an issuer that does not meet
certain specified requirements related to audit committee procedures
and independence) [15 U.S.C. 78j-1(m)]; Exchange Act section 10C(f)
(directing the Commission to adopt rules to direct national
securities exchanges and national securities associations to
prohibit the listing of any security of an issuer that is not in
compliance with specified requirements related to compensation
committees) [15 U.S.C. 78j-3(f)]; Exchange Act section 14B
(directing the Commission to adopt rules requiring disclosure of the
reasons why the issuer has chosen the same person to serve as
chairman of the board of directors and chief executive officer or
different individuals to serve as chairman of the board of directors
and chief executive officer) [15 U.S.C. 78n-2]. Around the same time
that Congress enacted the Securities Act and Exchange Act, it also
enacted the Public Utilities Holding Company Act of 1935 [15 U.S.C.
79 et seq. (repealed 2005)] (``PUHCA''). Although now repealed,
PUHCA provided the Commission with extensive power to refashion the
structure and business practices of an entire industry. See, e.g.,
Am. Power & Light Co. v. SEC, 329 U.S. 90 (1946) (upholding the
Commission's authority under PUHCA to require that each registered
holding company, and each subsidiary company thereof, take such
steps as the Commission shall find necessary to ensure that the
corporate structure or continued existence of any company in the
holding-company system does not unduly or unnecessarily complicate
the structure, or unfairly or inequitably distribute voting power
among security holders, of such holding-company system). PUHCA thus
stood in sharp contrast to the two prior federal securities laws,
which focused on disclosure. The history of PUHCA demonstrates that
Congress knows how to empower the agency to intervene in internal
corporate affairs when it wishes to do so.
\127\ See 15 U.S.C. 78l(b)(1)(D); 17 CFR 240.14a-101.
\128\ Ala. Ass'n of Realtors v. Dep't of Health & Hum. Servs.,
594 U.S. 758, 764 (2021) (``Our precedents require Congress to enact
exceedingly clear language if it wishes to significantly alter the
balance between federal and state power . . . .'') (quoting U.S.
Forest Serv. v. Cowpasture River Pres. Ass'n, 590 U.S. 604, 621-622
(2020)).
---------------------------------------------------------------------------
The past practices the Commission cited in the Adopting Release
also do not justify the Final Rules. According to the Supreme Court,
``[i]t is telling'' when an agency that ``has never before adopted a
broad . . . regulation'' over many decades now seeks to do so,
suggesting ``that the mandate extends beyond the agency's legitimate
reach.'' \129\ Until the Final Rules, the Commission had never before
adopted a sweeping set of disclosure requirements on climate-related
issues; indeed, in prior years, it specifically declined to do so.
---------------------------------------------------------------------------
\129\ Nat'l Fed'n of Indep. Bus. v. Dep't of Lab., Occupational
Safety & Health Admin., 595 U.S. 109, 119 (2022).
---------------------------------------------------------------------------
In adopting the Final Rules, the Commission pointed as precedent to
environmental disclosure requirements first adopted in the 1970s,
asserting that ``the Commission for the last fifty years has also
required disclosure about various environmental matters.'' \130\ But a
complete and balanced reading of the record from the 1970s about
environmental disclosures tells a different story. The dominant themes
from the Commission at the time were doubts about its powers and how
investors would use Commission-mandated environmental disclosures.\131\
---------------------------------------------------------------------------
\130\ Adopting Release at 21685.
\131\ See, e.g., Environmental and Social Disclosure, Release
No. 33-5627 (Oct. 14, 1975) [40 FR 51656 (Nov. 6, 1975)]
(``Environmental and Social Disclosure Release''). In the
Environmental and Social Disclosure Release, the Commission
discussed commenters' interest in registrants' disclosures of the
environmental impact of their activities. Id. at 51663. The
Commission noted that those ``who supported social disclosure were
virtually unanimous in stating that . . . environmental, . . . or
other social information is in fact economically significant.'' Id.
at 51664. The Commission noted that the ``majority'' of investors
who commented indicated that such information might play a role in
how they voted on shareholder proposals, while a ``lesser number''
indicated that they would take this data into account in determining
what securities to purchase, hold, or sell, and that many of the
religious institutions that commented stated they would use such
information in deciding whether to engage with management to
``change some policy.'' Id. The Commission concluded that ``[a]t
this time, therefore, it appears that those investors who are
interested in social disclosures would use this information more in
making voting rather than investment decisions.'' Id. at 51665.
---------------------------------------------------------------------------
The narrow disclosures adopted in the 1970s were in response to a
specific congressional directive contained in the National
Environmental Policy Act of 1969 (``NEPA''),\132\ which required the
Commission and other Federal agencies to develop procedures to consider
environmental values in decision-making. In 1975, in considering its
obligations under NEPA, the Commission noted that ``it is generally not
authorized to consider the promotion of social goals unrelated to the
objectives of the Federal securities laws.'' \133\ It further observed
that ``the discretion vested in the Commission under the Securities Act
and the Securities Exchange Act to require disclosure which is
necessary or appropriate `in the public interest' does not generally
permit the Commission to require disclosure for the sole purpose of
promoting social goals unrelated to those underlying these Acts.''
\134\ Rather, disclosure mandates under the Federal securities laws had
to relate to the financial condition of, and matters of economic
significance to, the disclosing company.\135\
---------------------------------------------------------------------------
\132\ 42 U.S.C. 4321 et seq.
\133\ Environmental and Social Disclosure Release at 51656.
\134\ Id. at 51660.
\135\ See id. at 51658.
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The Commission therefore proposed and ultimately adopted a small
number of narrow rules generally consistent with the disclosure
framework in the Federal securities laws. For example, under the 1975
amendments, a reporting company must disclose material effects on
capital expenditures, earnings, and competitive position from
compliance with government environmental regulation.\136\ The 1975
rules did not include disclosure about environmental strategies or
plans or board oversight of environmental risks; nor did they include
expansive requirements that companies track and assess the
environmental impact of their operations.
---------------------------------------------------------------------------
\136\ Id. at 51667.
---------------------------------------------------------------------------
As recently as 2016, the Commission reconsidered its authority to
require disclosures on environmental and social issues as part of a
concept release on the business and financial disclosure requirements
in Regulation S-K.\137\ Summarizing its 1975 conclusion on lack of
statutory authority, the Commission observed that, in 1975, following
extensive proceedings on these topics, the Commission concluded that it
``generally is not authorized to consider the promotion of goals
unrelated to the objectives of the federal securities laws when
promulgating disclosure requirements, although such considerations
would be appropriate to further a specific congressional mandate.''
\138\ The Commission also observed that, since 1975, Congress had not
given new statutory authority for disclosures in these areas.\139\
While the
[[Page 33307]]
Commission in 2016 stated that the ``role of sustainability and public
policy information in investors' voting and investment decisions may be
evolving'' and solicited comment on the need for new sustainability and
social disclosures, it also noted concerns about such disclosures and
ultimately determined in 2020 to revise, but not significantly expand
upon, the provisions adopted in 1975.\140\
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\137\ See Business and Financial Disclosure Required by
Regulation S-K, Release No. 33-10064 (Apr. 13, 2016) [81 FR 23916
(Apr. 22, 2016)] (``Regulation S-K Concept Release'').
\138\ Id. at 23971 (footnote omitted).
\139\ Id. (``The current statutory framework for adopting
disclosure requirements remains generally consistent with the
framework that the Commission considered in 1975.'').
\140\ Specifically, the Commission: (i) refocused the regulatory
compliance disclosure requirement by including as a topic all
material government regulations, not just environmental laws; and
(ii) implemented a modified disclosure threshold that increased the
existing quantitative threshold for disclosure of environmental
proceedings to which the government is a party from $100,000 to
$300,000, but that also affords a registrant the flexibility to
select a different threshold that it determines is reasonably
designed to result in disclosure of material environmental
proceedings, provided that the threshold does not exceed the lesser
of $1 million or one percent of the current assets of the registrant
and its subsidiaries on a consolidated basis. See Modernization of
Regulation S-K, Items 101, 103, and 105, Release No. 33-10825 (Aug.
26, 2020) [85 FR 63726 (Oct. 8, 2020)].
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In sum, until the Final Rules, the Commission has consistently
declined to use its statutory authority to mandate expansive
environmental disclosures; instead, the Commission has required certain
targeted disclosures about regulatory compliance and legal liability
that directly bear on the financial condition of the disclosing
company. The rulemaking in the 1970s does not support the Commission's
statutory authority to issue the Final Rules, which stray beyond those
limits. It is precedent against that authority.
Finally, and for similar reasons, the major questions doctrine
further demonstrates that the Commission lacked authority to promulgate
the Final Rules. The Supreme Court has held that agencies must have
clear authorization from Congress when embarking on a new and expansive
regulation of a substantial policy area of ``vast economic and
political significance.'' \141\ Political controversies are for
Congress to resolve, not administrative agencies with limited delegated
authority.\142\ In addition, when ``agencies assert[ ] highly
consequential power beyond what Congress could reasonably be understood
to have granted,'' or ``claim[ ] to discover in a long-extant statute
an unheralded power representing a transformative expansion [of] . . .
regulatory authority,'' ``there is every reason to hesitate before
concluding that Congress meant to confer'' the power claimed.\143\
Moreover, ``[w]hen an agency has no comparative expertise in making
certain policy judgments, . . . Congress presumably would not task it
with doing so.'' \144\ Finally, an intrusion ``into an area that is the
particular domain of State law,'' \145\ also provides a strong
indicator that, ``absent a clear statement'' from Congress, a Federal
agency has exceeded its statutory authority.\146\
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\141\ Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 324 (2014)
(quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 160
(2000)) (quotation marks omitted).
\142\ West Virginia v. EPA, 597 U.S. 697, 723 (2022) (``We
presume that Congress intends to make major policy decisions itself,
not leave those decisions to agencies.'' (citation and quotation
marks omitted)).
\143\ Id. at 724-25 (citations and quotation marks omitted).
\144\ Id. at 729 (citation, quotation marks, and brackets
omitted); see also Biden v. Nebraska, 600 U.S. 477, 518 (2023)
(Barrett, J., concurring) (``Another telltale sign that an agency
may have transgressed its statutory authority is when it regulates
outside its wheelhouse.'').
\145\ Ala. Ass'n of Realtors v. Dep't of Health & Hum. Servs.,
594 U.S. 758, 764 (2021); see also Santa Fe Indus., Inc. v. Green,
430 U.S. 462, 479 (1977) (rejecting an interpretation of 17 CFR
240.10b-5 (``Rule 10b-5'') that ``would overlap and quite possibly
interfere with state corporate law''); Bus. Roundtable v. SEC, 905
F.2d 406, 408 (D.C. Cir. 1990) (``[T]he Exchange Act cannot be
understood to include regulation of an issue that is so far beyond
matters of disclosure . . . and that is concededly a part of
corporate governance traditionally left to the states.''); All. for
Fair Bd. Recruitment v. SEC, 125 F.4th 159, 180 (5th Cir. 2024)
(stating that ``no part of the Exchange Act even hints at SEC's
purported power to remake corporate boards using diversity
factors''); Environmental and Social Disclosure Release at 51660
(``Although disclosure requirements may have some indirect effect on
corporate conduct, the Commission may not require disclosure solely
for this purpose.''). We discuss how the Final Rules reflect an
impermissible intrusion into the domain of State corporate law
earlier in this section.
\146\ West Virginia v. EPA, 597 U.S. at 736 (Gorsuch, J.,
concurring).
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These indicia that the Commission transgressed the limits of its
statutory authority under the major questions doctrine are all present
here. Whether and how public companies should respond to the perceived
causes and effects of climate change is unquestionably of ``vast
economic and political significance''; \147\ answering those questions,
even with respect to disclosure, requires ``balancing the many vital
considerations of national policy implicated in how Americans will get
their energy.'' \148\ And as explained above, while the Final Rules
purport to require only disclosure, the effect of their requirements is
to impermissibly regulate issuers' internal affairs. In this regard,
the Final Rules stray into areas far beyond the Commission's
comparative expertise. Moreover, by effectively mandating certain risk
management practices, the Final Rules intrude on an area--corporate
governance--traditionally governed by State law. Thus, the major
questions doctrine applies to the Final Rules, but as explained in the
preceding section, the Commission's authorizing statutes do not provide
the needed clarity to justify such a dramatic expansion of regulatory
authority.
---------------------------------------------------------------------------
\147\ See Michael Jones-Correa, Idea #23, Climate Change as a
Political Problem, Impact, Value & Sustainable Bus. Initiative,
Wharton Sch., Univ. of Penn. (Aug. 16, 2019), available at <a href="https://impact.wharton.upenn.edu/climate-center/climate-change-as-a-political-problem/">https://impact.wharton.upenn.edu/climate-center/climate-change-as-a-political-problem/</a> (stating that ``climate change is as much a
political problem as it is a scientific or technical one''); Elaine
Kamarck, The Challenging Politics of Climate Change, Brookings Inst.
(Sept. 23, 2019), available at <a href="https://www.brookings.edu/articles/the-challenging-politics-of-climate-change/">https://www.brookings.edu/articles/the-challenging-politics-of-climate-change/</a> (stating that ``climate
change remains the toughest, most intractable political issue we, as
a society, have ever faced''); see also Cong. Budget Off., The Risks
of Climate Change to the United States in the 21st Century (Dec.
2024), available at <a href="https://www.cbo.gov/publication/61146">https://www.cbo.gov/publication/61146</a> (setting
forth how climate change could affect, among other things, GDP, real
estate and financial markets, and the Federal budget).
\148\ West Virginia v. EPA, 597 U.S. at 729.
---------------------------------------------------------------------------
The assertion of regulatory power under the Final Rules represents
a ``transformative expansion in [the Commission's] regulatory
authority.'' \149\ For example, the Final Rules require LAFs and AFs to
disclose their Scope 1 emissions and/or Scope 2 emissions, if material,
separately, each expressed in the aggregate, in terms of
CO<INF>2</INF>e.\150\ In addition, the Final Rules require registrants
to provide disclosures regarding their use of transition plans,\151\
scenario analysis,\152\ and internal carbon prices, if material,\153\
as well as descriptions of their board of directors' oversight of
climate-related risks, regardless of materiality.\154\ The scope of
that expansion is reflected in the costs that the Commission estimated
the Final Rules will impose on registrants. The Commission estimated
that annual compliance costs per registrant averaged over the first ten
years of compliance could range from less than $197,000 to over
$739,000.\155\ Updating these figures for inflation and aggregating
them across all affected registrants, we estimate that rescinding the
Final Rules could generate annualized savings of about $4.9 billion
[[Page 33308]]
per year over the next 10 years for all affected registrants.\156\
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\149\ Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 324 (2014);
see id. (``The power to require permits for the construction and
modification of tens of thousands, and the operation of millions, of
small sources nationwide falls comfortably within the class of
authorizations that we have been reluctant to read into ambiguous
statutory text.'').
\150\ See 17 CFR 229.1505(a).
\151\ See 17 CFR.229.1502(e).
\152\ See 17 CFR.229.1502(f).
\153\ See 17 CFR.229.1502(g).
\154\ See 17 CFR 229.1501(a).
\155\ Adopting Release at 21875.
\156\ See infra section IV.C.3.
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As discussed in section III.B.1 and section III.B.2, Congress has
not given the Commission power to write regulations requiring such
detailed and extensive disclosure of climate-related information, let
alone to essentially regulate issuers' internal affairs through onerous
disclosure requirements. To the contrary, questions about the country's
response to climate change generally and about climate-related
disclosures by public companies specifically continue to be important
and contentious. Congress is clearly aware of the potential and claimed
risks posed by climate change, yet it has not legislated directly nor
instructed the Commission to adopt regulations in response.\157\
Instead, Congress has declined to enact climate-related disclosure
legislation.\158\
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\157\ See, e.g., Letter from United States Senators Pat Toomey,
Richard Shelby, Mike Crapo, Tim Scott, M. Michael Rounds, Thom
Tillis, John Kennedy, Bill Hagerty, Cynthia Lummis, Jerry Moran,
Kevin Cramer & Steve Daines (Jun. 15, 2022), <a href="https://www.sec.gov/comments/s7-10-22/s71022-20133994-303877.pdf">https://www.sec.gov/comments/s7-10-22/s71022-20133994-303877.pdf</a> (``Addressing matters
like global warming requires political decisions involving
tradeoffs. In a democratic society, those tradeoffs must be made by
elected representatives, who are accountable to the American people,
not unelected financial regulators.'').
\158\ See, e.g., S. 1217, 117th Cong. (``Climate Risk Disclosure
Act of 2021''); H.R. 2570, 117th Cong. (``Climate Risk Disclosure
Act of 2021''); H.R. 1187, 117th Cong. (2021) (``Corporate
Governance Improvement and Investor Protection Act''); S. 3481,
115th Cong. (2018) (``Climate Risk Disclosure Act'').
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In evaluating an agency's assertion of statutory authority, the
Supreme Court has instructed that courts ``must be guided to a degree
by common sense as to the manner in which Congress is likely to
delegate a policy decision of such economic and political magnitude to
an administrative agency.'' \159\ Common sense would say that the
Securities and Exchange Commission is not the right agency to deal with
the question of how public companies can or should respond to climate
change and related matters. The Commission clearly has no expertise,
scientific or otherwise, related to climate-related risks or the
criteria or analytical frameworks to be used in evaluating such
risks.\160\ Congress has created an agency--the Environmental
Protection Agency--and tasked that agency with collecting reports from
major emissions sources and making them available to the public.\161\
In adopting the Final Rules, the Commission acted well ``outside its
wheelhouse.'' \162\ Common sense suggests that Congress would not
allocate authority over climate change and related matters to the
Commission.
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\159\ FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133
(2000).
\160\ See West Virginia v. EPA, 597 U.S. 697, 729 (2022) (``When
an agency has no comparative expertise in making certain policy
judgments, we have said, Congress presumably would not task it with
doing so.'' (citations and quotation marks omitted).
\161\ 42 U.S.C. 7414; see also Am. Elec. Power Co. v.
Connecticut, 564 U.S. 410, 426 (2011) (Congress delegated to the
Environmental Protection Agency ``the decision whether and how to
regulate carbon-dioxide emissions from power plants'').
\162\ Biden v. Nebraska, 600 U.S. 477, 518 (2023) (Barrett, J.,
concurring).
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In light of the controversy, costs, and intrusions into the
operations of public companies that would be generated by mandatory
climate-related disclosure rules, this is a choice for Congress, not
the Commission, to make. That conclusion is reinforced by the mismatch
between the Commission's area of expertise and the subject matter of
climate change. Further, Congress has not authorized the Commission to
interfere in the corporate governance of registrants with respect to
climate change. Congress has continued to leave such corporate
governance matters to the States. The Commission's asserted basis for
the Final Rules does not satisfy the clear evidence of congressional
authorization required by the major questions doctrine. ``Agencies have
only those powers given to them by Congress, and `enabling legislation'
is generally not an `open book to which the agency [may] add pages and
change the plot line.' '' \163\
---------------------------------------------------------------------------
\163\ West Virginia v. EPA, 597 U.S. at 723 (citation omitted).
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3. The Final Rules Should Be Rescinded in Their Entirety
Even if the Commission had authority to adopt some of the Final
Rules, the Final Rules should nevertheless be rescinded in their
entirety. Although the Commission stated in the Adopting Release that
it intended for the Final Rules to operate independently,\164\ upon
reconsideration, we now conclude that the individual items of
disclosure in the Final Rules are pieces of a larger whole and cannot
operate sensibly without the others. For example, the text of the Final
Rules sometimes explicitly connects one part of the rules to
others.\165\ In addition, parts of the Adopting Release demonstrate the
functional inter-relationship between different disclosure
requirements. For example, the Adopting Release states that the
financial statement disclosures ``facilitate investors' assessment of
particular types of'' climate-related risk and that there is
``significant overlap'' between the narrative and financial statement
disclosures.\166\ As another example, Rule 14-02(e)(1) requires
disclosure of costs, expenditures, and losses for carbon offsets and
RECs.\167\ The Adopting Release states that these disclosures are
directly connected to ``a registrant's plans to achieve its disclosed
climate-related targets or goals'' \168\ and ``will complement the
disclosures required by the amendments to Regulation S-K and will
anchor the disclosures required outside the financial statements to
those required within the financial statements.'' \169\ As a result,
disclosure under these items is unlikely to be sensible to investors in
the absence of the other disclosures mandated by the Final Rules.
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\164\ See Adopting Release at 21829. Courts give varying amounts
of weight to such agency statements. See Nasdaq Stock Mkt. LLC v.
SEC, 38 F.4th 1126,1145 (D.C. Cir. 2022); Nat'l Ass'n. Mfrs. v. SEC,
105 F.4th 802, 815-816 (5th Cir. 2024).
\165\ See 17 CFR 210.14-01(a) (providing that Article 14
disclosures are required in filings that are required to include
disclosure pursuant to subpart 1500 of Regulation S-K); see also
Adopting Release at 21779 n.1744 (referencing 17 CFR 210.14-01(a)).
\166\ Adopting Release at 21670, 21799-21800.
\167\ See 17 CFR 201.14-02(e)(1).
\168\ Adopting Release at 21675, 21913.
\169\ Id. at 21800-01.
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C. Policy Reasons for Rescinding the Final Rules
In addition to (and independent of) the legal authority defects
discussed above, there are strong policy arguments for rescinding the
Final Rules in their entirety. As the Supreme Court has stated,
``[a]gencies are free to change their existing policies as long as they
provide a reasoned explanation for the change.'' \170\ On
reconsideration, we have determined that the Adopting Release gave
inappropriate weight to several of the main justifications for adopting
the Final Rules, and we now reach a different policy judgment regarding
the need for, and appropriateness of, the Final Rules. Consequently, we
propose to rescind the Final Rules in their entirety.
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\170\ Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 221
(2016). The Court in Encino Motorcars further noted that ``[w]hen an
agency changes its existing position, it `need not always provide a
more detailed justification than what would suffice for a new policy
created on a blank slate.' . . . But the agency must at least
`display awareness that it is changing position' and `show that
there are good reasons for the new policy.' . . . In explaining its
changed position, an agency must also be cognizant that longstanding
policies may have `engendered serious reliance interests that must
be taken into account.' '' Id. at 221-22 (citing FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 515 (2009)).
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Several independent policy judgments support a rescission of the
Final Rules. First, the Final Rules deviate from the Commission's
``long-standing commitment to a principles-based, registrant-specific
approach to disclosure'' that is ``rooted in materiality and
facilitate[s] an understanding of a
[[Page 33309]]
registrant's business, financial condition and prospects[.]'' \171\ The
Final Rules' sharp departure from these important tenets provides
investors, at great cost, with an avalanche of information that is
unlikely to be material to the decision-making of a reasonable
investor. Second, the Final Rules require registrants to provide costly
and lengthy disclosures about climate-related matters, a divisive
social and political issue that is well outside the policy concerns of
the Federal securities laws. In so doing, the Final Rules
inappropriately intrude on corporate decision-making. Third, the Final
Rules impose substantial costs on public companies and their
shareholders that are not justified by the informational benefits they
may provide to some investors. Finally, imposing those same high costs
on registrants is at odds with the Commission's policy objectives of
facilitating capital formation and promoting public company status.
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\171\ Modernization of Regulation S-K, Items 101, 103, and 105,
Release No. 33-10825 (Aug. 26, 2020) [85 FR 63726 (Oct. 8, 2020)] at
63727.
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As discussed more fully below, a responsible approach to public
company disclosure demands that the Final Rules be rescinded in their
entirety.\172\
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\172\ We note that, because the effectiveness of the Final Rules
has been stayed and the Final Rules have never become effective, we
do not expect that the proposed rescission would implicate any
reasonable reliance interests that market participants may have had
in the operation of the rules.
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1. The Final Rules Are Unnecessary and Inconsistent With a Registrant-
Specific, Materiality-Based Approach To Disclosure That Best Serves the
Interests of Registrants and Investors
The Final Rules are unnecessary because existing disclosure
requirements already elicit information about the material effects of
climate-related matters. Furthermore, the Final Rules prioritize one
potential factor over others that may materially affect a registrant's
operations and financial condition. Finally, recent events, such as the
European Union's efforts to narrow the coverage and scope of recently
adopted sustainability and due diligence directives and extend their
implementation deadlines, have highlighted the flaws in mandating such
highly prescriptive disclosure for an evolving area, such as climate-
related matters, as in the Final Rules.
a. Existing Disclosure Obligations and Anti-Fraud Provisions Already
Elicit Information About the Material Effects of Climate-Related
Matters
The Final Rules should be rescinded because the Commission's
existing disclosure requirements and anti-fraud provisions already
elicit information about the effects of climate-related matters in a
way that is tailored to reflect registrants' particular circumstances,
is focused on material information for investors, and does not impose
upon registrants the additional costs and burdens of the Final
Rules.\173\
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\173\ See discussion infra section IV.B.2.a.1; see also
discussion infra section IV.B.3.a and Adopting Release at 21831.
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As the Commission highlighted in the 2010 Guidance, various
disclosure requirements apply to climate-related matters when they are
material to a particular company. In particular, the 2010 Guidance
highlighted Regulation S-K items related to description of business,
legal proceedings, risk factors, and management's discussion and
analysis. The 2010 Guidance also noted that registrants must consider
any financial statement implications in accordance with applicable
accounting standards. As the Commission acknowledged in the Adopting
Release, even prior to the adoption of the Final Rules, registrants had
an obligation to consider material impacts on the financial statements
regardless of whether a material impact was driven by climate-related
matters.\174\
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\174\ Adopting Release at 21797-98 n.2068 and accompanying text
(explaining that although U.S. GAAP and International Financial
Reporting Standards (``IFRS'') Accounting Standards do not refer
explicitly to climate-related matters, registrants have an
obligation to consider material impacts when applying, for example,
Financial Accounting Standards Board (``FASB'') Accounting Standards
Codification (``ASC'') Topic 330 Inventory (IAS 2 Inventories) and
FASB ASC Topic 360 Property, Plant, and Equipment (IAS 36 Impairment
of Assets)).
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In addition to existing line item and financial statement
disclosure requirements, the liability provisions of the Federal
securities laws, including the anti-fraud provisions, serve to protect
investors from materially misleading or incomplete disclosures about
climate-related matters. For example, Sections 11 \175\ and 12 \176\ of
the Securities Act impose liability for material misstatements or
omissions made in connection with registered offerings conducted under
the Securities Act,\177\ and Exchange Act Section 10(b) \178\ and Rule
10b-5 broadly prohibit fraudulent and deceptive practices and untrue
statements or omissions of material facts in connection with the
purchase or sale of any security.\179\
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\175\ 15 U.S.C. 77k.
\176\ 15 U.S.C. 77l.
\177\ See also 17 CFR 230.408 (in addition to the information
expressly required to be included in a registration statement, there
shall be added such further material information, if any, as may be
necessary to make the required statements, in the light of the
circumstances under which they are made, not misleading).
\178\ 15 U.S.C. 78j(b).
\179\ See also 17 CFR 240.12b-20 (in addition to the information
expressly required to be included in a statement or report, there
shall be added such further material information, if any, as may be
necessary to make the required statements, in the light of the
circumstances under which they are made not misleading).
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We recognize that the Commission previously stated that it adopted
the Final Rules because of a ``need to improve the consistency,
comparability, and reliability of climate-related disclosures for
investors.'' \180\ We disagree, however, that these purported benefits
justify adoption of the Final Rules. As an initial matter, any
assertions about the benefits of the consistency and comparability of
the disclosures elicited by the Final Rules should be discounted
because those benefits are substantially compromised by the
inconsistent, variable, and often speculative assumptions necessary to
make many of those disclosures.\181\ As a result, the type of
information elicited by the Final Rules would vary across even
similarly-situated registrants, depending on, for instance, whether
they engage in certain practices, how they choose to report certain
information, how they determine which expenditures to include, what
methodologies they use, and how they exercise judgment in assessing
which financial disclosures to make.\182\ Moreover, as noted above,
prior to adoption of the Final Rules, registrants were already required
to disclose information about the material effects of climate-related
matters in a manner better tailored to reflect registrants' particular
circumstances. The benefits of more tailored and effective disclosure
in this context justify any potential loss in comparability because
they allow for more particularized insight into a
[[Page 33310]]
registrant's management, operations and financial condition, which can
contribute to better risk and return assessments by investors. By
contrast, the Final Rules are more apt to create information overload
for investors, including through disclosure of immaterial information,
while imposing significant new costs for registrants.
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\180\ Adopting Release at 21679.
\181\ See, e.g., Adopting Release at 21810 (``The financial
statement disclosures we are adopting may involve estimation
uncertainties that are driven by the application of judgments and
assumptions'') and 21734-35 (``[T]he final rule will require a
registrant to describe the methodology, significant inputs, and
significant assumptions used to calculate the registrant's disclosed
GHG emissions . . . [and] will require a registrant to disclose
whether it calculated its GHG emissions metrics using an approach
pursuant to the GHG Protocol's Corporate Accounting and Reporting
Standard, an EPA regulation, an applicable ISO standard, or another
standard.'').
\182\ See discussion infra section IV.C.2.a.3.
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In light of existing disclosure obligations, the Final Rules serve
insufficient additional purpose in informing investors about the
material effects of climate-related matters. Indeed, in our view, the
Final Rules are likely to result in the disclosure of immaterial
information, at great cost to investors.
b. The Final Rules Prioritize the Effects of Climate-Related Matters
Over Other Factors That May Materially Affect a Registrant's Operations
and Financial Condition
In adopting the Final Rules, the Commission departed from its
existing, generally principles-based approach to disclosure that for
decades has elicited information about matters, including climate-
related matters, that materially affect a registrant's operations or
financial condition. In our view, a disclosure regime that prioritizes
a single potential factor above any other that may affect the
registrant and requires disclosure at the level of granularity called
for by the Final Rules is inferior to the Commission's existing
approach to disclosure that already applies with equal force to
climate-related matters.
The Final Rules impose a myriad of highly prescriptive regulations
that mandate granular disclosures focused exclusively on climate-
related matters. For example, with respect to climate-related risks
only, registrants under the Final Rules would need to consider and
possibly disclose: (i) how a registrant's board oversees and is
informed of climate risk, regardless of materiality; \183\ (ii) how a
registrant's management assesses and manages material climate risk;
\184\ (iii) which management positions manage climate risk and the
associated expertise of the individuals serving in those roles; \185\
(iv) the geographic location of physical climate risk; \186\ and (v)
how climate risks affect items like a registrant's products or
services, suppliers, climate mitigation activities, and expenditures
for research and development.\187\
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\183\ 17 CFR 229.1501(a).
\184\ 17 CFR 229.1501(b).
\185\ 17 CFR 229.1501(b)(1).
\186\ 17 CFR 229.1502(a)(1).
\187\ 17 CFR 229.1502(b).
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Similarly, the financial statement requirements prioritize the
effects of severe weather events and other natural conditions by
imposing relatively low percentage thresholds for when such effects
must be separately reported in the notes to the financial statements.
Specifically, the Final Rules require disclosure in the income
statement of expenditures expensed as incurred and losses if such
amounts (in the aggregate) equal or exceed one percent of the absolute
value of income or loss before income tax expense or benefit (subject
to a $100,000 de minimis threshold) \188\ and require disclosure of
capitalized costs and charges recognized on the balance sheet if the
absolute value of such amounts (in the aggregate) equals or exceeds one
percent of the absolute value of stockholders' equity or deficit
(subject to a $500,000 de minimis threshold).\189\ These examples,
including the specified thresholds, make clear that the Final Rules
cannot be justified as eliciting disclosure of material information.
Given their exceedingly granular requirements, the Final Rules would
inevitably result in the disclosure of immaterial information about
climate-related matters.\190\
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\188\ 17 CFR 210.14-02(b)(1).
\189\ 17 CFR 210.14-02(b)(2).
\190\ This becomes evident when one considers that, prior to the
adoption of the Final Rules, registrants already had an obligation
to consider material impacts on the financial statements, including
those that may be driven by climate-related matters. See, e.g., 2010
Guidance at 6295 n.69 (stating that ``registrants must also consider
any financial statement implications of climate change issues in
accordance with applicable accounting standards, including [FASB]
[ASC] Topic 450, Contingencies, and FASB [ASC] Topic 275, Risks and
Uncertainties'').
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Requiring such granular disclosures about a single type of risk,
trend or event is at odds with a disclosure system that is intended to
elicit information about the most significant factors affecting a
registrant's operations and financial condition.\191\ The Commission's
disclosure regime generally does not require this level of detailed
disclosure for other factors affecting a registrant's business.\192\
Requiring such attention by registrants on climate-related matters,
specifically, may lead to registrants devoting an inappropriate amount
of attention to managing and reporting on such matters, which may not
be among the most significant factors affecting the registrant's
business. The Final Rules' misplaced focus, however, is not limited to
impacts on a registrant's allocation of resources. The sheer volume of
disclosures responsive to the Final Rules may hurt investors' abilities
to ascertain relevant information about the other factors affecting a
registrant because the climate-related disclosures could overshadow
material disclosures about those other factors.
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\191\ Registrants face a litany of risks in their operations.
However, as the Commission has previously stated, disclosure of
risks should be focused on the ``most significant'' or ``principal''
factors that make a registrant's securities speculative or risky.
See Modernization of Regulation S-K, Items 101, 103, and 105,
Release No. 33-10825 (Aug. 26, 2020) [85 FR 63726 (Oct. 8, 2020)].
\192\ While the Commission does require specialized disclosure
for certain types of offerings and transaction structures and for
particular industries such as oil and gas, these requirements are
not focused on a specific type of risk, trend or event and, unlike
the Final Rules, do not require virtually every registrant to devote
time and resources to determining whether it may have a disclosure
obligation under these regulations. See, e.g., 17 CFR 229.901
through 229.915 (roll-up transactions); 17 CFR 229.1601 through
229.1610 (special purpose acquisition companies); 17 CFR 229.1000
through 229.1016 (mergers and acquisitions); 17 CFR 229.1201 through
229.1208 (registrants engaged in oil and gas producing activities).
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Moreover, as discussed in section III.C.3, the Commission's attempt
to mitigate the burdensome granularity of the adopted requirements by
adding materiality qualifiers throughout the Final Rules fails to
adequately mitigate their distorting effects on registrant disclosures.
Given the complexity of making the materiality determinations required
by the Final Rules, many registrants may err on the side of over-
disclosure, burdening both investors and registrants with an avalanche
of climate-related information.
Thus, in our view, the Final Rules are inconsistent with and
inferior to the Commission's long-standing, registrant-specific
approach to disclosure of factors materially affecting a registrant's
operations and financial condition and therefore should be rescinded.
c. Recent Developments Underscore Why a Flexible, Materiality-Based
Approach Is Preferable
Recent efforts to scale back, set aside, or otherwise revise
various climate reporting regimes at the international level further
underscore why the Commission was misguided in adopting costly and
prescriptive requirements built around shifting investor preferences
and reporting trends. Investors are not monolithic and have differing
risk appetites, investment strategies, and analytical methods--and in
some cases non-financial interests--that affect their particular
investment decisions. In designing a disclosure regime, the Commission
should not seek to cater to the specific informational needs of every
subset of investors about each emergent topic. Rather, as the
[[Page 33311]]
Supreme Court directed when delineating a materiality standard for the
Federal securities laws,\193\ the Commission should look to whether the
reasonable investor would consider the information important in buying
or selling securities--and as discussed above, the common interests of
reasonable investors is in information regarding the financial
performance of a company, the pricing of securities, and the prospect
for economic and financial return from the disclosing company.\194\
Moreover, investors generally are better served by regulatory
requirements that can be adapted to registrants' specific
circumstances. Such bespoke disclosures are more likely to provide
material information than the one-size-fits-all disclosure approach of
the Final Rules. If, over time, market forces lead to coalescence
around certain disclosure practices, such practices are likely to be
more responsive to the changing needs of investors than the top-down
prescriptive approach of the Final Rules.
---------------------------------------------------------------------------
\193\ See Basic Inc. v. Levinson, 485 U.S. 224 (1988).
\194\ See supra section III.B.1.b.
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The soundness of these basic principles is well illustrated by the
challenges faced by other climate-risk reporting regimes since the
Final Rules were adopted. In adopting the Final Rules, the Commission
observed several ongoing developments related to climate-risk
reporting, which included, at the time, announcements by several
jurisdictions to adopt, apply, or otherwise be informed by the
International Sustainability Standards Board (``ISSB'') standards.\195\
The Adopting Release also highlighted the European Union's (``EU'')
adoption of the Corporate Sustainability Reporting Directive
(``CSRD''), which requires certain large and listed companies and other
entities, including non-EU entities, to report on sustainability-
related issues in line with the European Sustainability Reporting
Standards.\196\ In taking note of such developments, the Commission
acknowledged that these laws could reduce the compliance burden of the
Final Rules to the extent they impose similar requirements on
registrants subject to them.\197\
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\195\ As noted in the Adopting Release, the IFRS Foundation
formed the ISSB in November 2021, and in June 2023, the ISSB issued
General Requirements for Disclosure of Sustainability-related
Financial Information and Climate-related Disclosures (``IFRS S2'').
Adopting Release at 21680. The Adopting Release also observed that
several jurisdictions, including Australia, Brazil, Canada, Hong
Kong, Japan, Malaysia, Nigeria, Singapore, and the United Kingdom,
had announced plans to ``adopt, apply, or otherwise be informed by
the ISSB standards.'' Id.
\196\ Id.
\197\ See id. at 21681.
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Since the adoption of the Final Rules only two years ago, there has
been a noticeable effort to step back from these initiatives, calling
into question the Commission's decision to follow them with its own
highly prescriptive approach. These developments also undermine the
assumption that the emergence of other reporting regimes would help to
mitigate the significant costs of the Final Rules. For example,
entities that set international standards for climate-risk reporting
regimes, such as the ISSB and the EU, have revised their climate-
related disclosure standards, having found them to be burdensome,
overly complex, and/or duplicative. The ISSB has recently amended IFRS
to ``reduce complexity, the risk of duplicative reporting and the cost
of applying specific greenhouse gas emissions disclosure
requirements.'' \198\ In February 2026, the EU adopted legislation
revising the CSRD and the Corporate Sustainability Due Diligence
Directive (``CSDDD'') to simplify rules on sustainable finance
reporting and decrease compliance burdens.\199\ Specifically, the EU
removed around 80% of previously covered companies from the scope of
the CSRD, narrowed the scope of the CSDDD, and postponed the
implementation timelines of both Directives, among other changes.\200\
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\198\ ISSB, Amendments to IFRS S2, IFRS Sustainability
Disclosure Standard, Amendments to Greenhouse Gas Emissions
Disclosures (Dec. 2025), <a href="https://www.ifrs.org/content/dam/ifrs/publications/amendments/english/2025/issb-2025-1-amendments-ifrs-s2.pdf">https://www.ifrs.org/content/dam/ifrs/publications/amendments/english/2025/issb-2025-1-amendments-ifrs-s2.pdf</a>. This IFRS Sustainability Disclosure Standard indicates that
the climate-related disclosure requirements were amended in response
to ``challenges entities face in implementing IFRS S2 when applying
specific greenhouse gas emissions disclosure requirements.'' Id.,
paragraph BC80A.
\199\ See Directive (EU) 2026/470 (Feb. 24, 2026); Directive
(EU) 2025/794 (Apr. 14, 2025); European Commission, Directorate-
General for Financial Stability, Financial Services and Capital
Markets Union, Omnibus Package, Newsletter (Apr. 1, 2026), available
at <a href="https://finance.ec.europa.eu/news/omnibus-package-2025-04-01_en">https://finance.ec.europa.eu/news/omnibus-package-2025-04-01_en</a>;
Council of the European Union, Council Signs Off Simplification of
Sustainability Reporting and Due Diligence Requirements to Boost EU
Competitiveness, Press Release (Feb. 24, 2026), available at <a href="https://www.consilium.europa.eu/en/press/press-releases/2026/02/24/council-signs-off-simplification-of-sustainability-reporting-and-due-diligence-requirements-to-boost-eu-competitiveness/">https://www.consilium.europa.eu/en/press/press-releases/2026/02/24/council-signs-off-simplification-of-sustainability-reporting-and-due-diligence-requirements-to-boost-eu-competitiveness/</a>.
\200\ See supra note 199.
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These developments reinforce our determination that highly
prescriptive disclosure requirements based on shifting investor
preferences and reporting trends are inferior to a registrant-specific,
materiality-based reporting regime focused on the information a
reasonable investor would consider important in making an investment
decision.
2. The Final Rules Stray Well Beyond the Policy Concerns of the Federal
Securities Laws
An additional policy reason for rescinding the Final Rules is that
they do not respond to a gap in investor protection in the securities
disclosure regime; rather, they concern the divisive and unsettled
political and social issue of climate regulation. The Commission's role
is to protect investors; maintain fair, orderly, and efficient markets;
and facilitate capital formation. It is not to regulate how public
companies manage the effects of climate-related matters or to hijack
the public company reporting regime to further social policies
unrelated to the aims of the Federal securities laws. The Commission's
disclosure requirements should inform investors about a registrant's
operations and finances; it is not the province of the Commission to
drive changes in those operations absent specific direction from
Congress.\201\ The Final Rules, with their granular and highly
prescriptive requirements, inappropriately put a thumb on the scale
with respect to registrants' decisions about whether and how to manage
those effects. Indeed, under the Final Rules, even registrants for
which the effects of climate-related matters may have little to no
direct relevance to their particular facts and circumstances must
consider specific aspects of climate-related matters on at least an
annual basis to determine whether they are required to disclose
anything. For example, in order to comply with Item 1505, most, if not
all, LAFs and AFs that are not EGCs or SRCs will, to some extent, need
to adopt controls and procedures to assess the materiality of their
Scope 1 and 2 emissions and determine whether disclosure is required if
they do not already have them in place.\202\ Such conduct-altering
effects demonstrate that the Final Rules are different in kind from
existing disclosure obligations and stray well beyond what is required
in order to inform and protect the reasonable investor.
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\201\ See supra section III.B.2 for further discussion of how
the Final Rules intrude on State control over corporate governance
by effectively regulating issuers' internal affairs.
\202\ See Adopting Release at 21859.
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Separate and apart from the question of whether the Commission has
legal authority to promulgate the Final Rules discussed in section
III.B, as a policy matter, the Commission does not view disclosure
rules focused solely on
[[Page 33312]]
climate-related matters as an appropriate exercise of agency rulemaking
authority. The Commission has no interest in pushing the limits of its
regulatory authority. Whether and to what extent companies should be
generally required to disclose intrusive climate-related information is
a matter of significant political and practical importance. Absent a
clear statutory directive to the contrary, those matters belong to the
People's elected representatives, not agency officials, to decide.
As discussed above, more than fifty years ago, the Commission
stated that it does not have discretion under the Securities Act or the
Exchange Act to require disclosure for the sole purpose of promoting
social goals unrelated to those underlying these Acts.\203\ We agree
with the sentiments in the Commission's 1975 statement and with the
dissenting views expressed at the time of the Adopting Release by
Commissioners Hester M. Peirce and Mark T. Uyeda.\204\ The Final Rules
stray well beyond the policy concerns of the Federal securities laws
and should be rescinded in their entirety.
---------------------------------------------------------------------------
\203\ Environmental and Social Disclosure Release at 51660; see
supra section III.B.2.
\204\ Commissioner Hester Peirce dissented from the adoption of
the Final Rules, saying that they promise ``to spam investors with
details about the Commission's pet topic of the day--climate.''
Comm'r Hester M. Peirce, Green Regs and Spam: Statement on the
Enhancement and Standardization of Climate-Related Disclosures for
Investors (Mar. 6, 2024), available at <a href="https://www.sec.gov/newsroom/speeches-statements/peirce-statement-mandatory-climate-risk-disclosures-030624">https://www.sec.gov/newsroom/speeches-statements/peirce-statement-mandatory-climate-risk-disclosures-030624</a>. Commissioner Mark Uyeda made similar points,
saying that the Final Rules are ``climate regulation promulgated
under the Commission's seal'' and ``the culmination of efforts by
various interests to hijack and use the Federal securities laws for
their climate-related goals.'' Comm'r Mark T. Uyeda, A Climate
Regulation under the Commission's Seal: Dissenting Statement on The
Enhancement and Standardization of Climate-Related Disclosures for
Investors (Mar. 6, 2024), available at <a href="https://www.sec.gov/newsroom/speeches-statements/uyeda-statement-mandatory-climate-risk-disclosures-030624">https://www.sec.gov/newsroom/speeches-statements/uyeda-statement-mandatory-climate-risk-disclosures-030624</a>.
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3. The Final Rules Impose Significant Costs on Public Companies and
Their Shareholders That Are Not Justified by the Informational Benefits
They Provide to Some Investors
The significant costs of the Final Rules provide a separate,
compelling reason to rescind them in their entirety. In imposing new
disclosure obligations, the Commission should assess whether the
benefits of the information required to be disclosed--considered from
the perspective of the reasonable investor--justify the costs of
providing the disclosure. The Final Rules fall well short of this
standard. By eliminating the costly disclosure requirements in the
Final Rules, the proposed rescission would broadly benefit market
efficiency, competition, and capital formation.
By the Commission's own estimation, the Final Rules will
significantly increase the costs associated with public company
disclosures. Indeed, the Commission estimated that depending on the
registrant, annual compliance costs (averaged over the first ten years
of compliance) could range from less than $197,000 to over
$739,000.\205\ Updating these figures for inflation and aggregating
them across all affected registrants, we estimate that rescinding the
Final Rules could generate annualized savings of about $4.9 billion per
year over the next 10 years for all affected registrants.\206\
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\205\ Adopting Release at 21875.
\206\ See infra section IV.C.3.
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In the Adopting Release, the Commission acknowledged the
significant additional burdens that the Final Rules will impose on
registrants but nonetheless asserted that ``those burdens are justified
by the informational benefits of the disclosures to investors.'' \207\
We disagree with the Commission's determination that such a significant
imposition of costs is warranted in order to increase the disclosures
across registrants about a single type of risk that some registrants
may face. This conclusion is bolstered by the fact that, to the extent
this risk is material, information about that risk should be elicited
by existing disclosure requirements, as discussed in section III.C.1.a.
Thus, any marginal or theoretical informational benefits to be derived
from the Final Rules do not and cannot justify the substantial burdens
they impose on public companies and their shareholders.
---------------------------------------------------------------------------
\207\ Adopting Release at 21671.
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We recognize that some commenters to the Proposing Release
indicated that investors have faced and may continue to face costs
associated with obtaining or verifying information related to a
registrant's climate-related risks or management thereof.\208\ However,
we do not agree that it is appropriate to burden all shareholders of
almost all public companies with the high costs of the Final Rules in
order to subsidize the informational demands of certain investors who
choose to focus their investment strategies on climate-related matters
or who have interests other than the pursuit of a financial return that
are driving their informational demands. There are multitudes of
investment strategies, and investors bear all sorts of costs to search
for and verify information based on their chosen strategy. They should
be free to do so. Similarly, individual registrants may want to attract
climate-focused investors and choose to provide additional information.
They should be free to do so as well. But the entire market should not
be forced to bear the costs of providing more particularized
information than what the reasonable investor needs for an investment
decision. Market-based solutions to demands for particular information
are more appropriate. Therefore, notwithstanding that some investors
will not receive some of the informational benefits described in the
Adopting Release,\209\ we have determined that the proposed rescission
is the appropriate course of action for a disclosure regime focused on
providing material information to reasonable investors.
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\208\ See id. at 21678, n.113; see also id. at 21853
(``Commenters noted that with the limitations to the currently
available climate-related disclosures, extensive costs in the form
of data gathering, research and analysis are needed to process them
and to fill data gaps where possible in forming investment
decisions.'' (citation omitted)).
\209\ Section IV.C.2.a. of the Adopting Release identifies
several benefits of the Final Rules, which are discussed in more
detail below.
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Furthermore, despite the Commission's repeated assertions in the
Adopting Release, the layering of materiality qualifiers throughout the
Final Rules fails to adequately mitigate the overall burdens imposed on
registrants in the context of the Final Rules' highly prescriptive
disclosure requirements.\210\ For example, the Final Rules require
certain registrants to disclose Scope 1 and Scope 2 GHG emissions, if
material.\211\ The Adopting Release estimated that the compliance costs
to a registrant for these disclosures would be $151,000 in the first
year of compliance and $67,000 annually in subsequent years.\212\
Moreover, as the Adopting Release acknowledges, the costs of assessing
and monitoring the materiality of a registrant's emission ``could be
significant'' even in situations where the registrant ultimately
determines that they do not need to provide disclosure.\213\ The
Adopting Release did not separately quantify
[[Page 33313]]
these particular costs, which would arise from the efforts of a
registrant to measure its Scope 1 and Scope 2 emissions, including
establishing organizational boundaries and operational boundaries and
adopting a specific reporting protocol or standard.\214\ Only then,
after it has invested potentially significant resources to perform this
exercise, can a registrant make a determination about whether such
metrics are material.\215\ Thus, the Final Rules also require a
complicated analysis even to determine whether disclosure is
required,\216\ saddling every covered registrant with the costs of
collecting the necessary information and calculating emissions.
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\210\ Adopting Release at 21698 (explaining that the Commission
added an explicit materiality qualifier to Item 1502(b) to help
address concerns that the proposed rule could be ``unduly burdensome
for registrants''). See id. at 21700-01 (stating that subjecting
Item 1502(d) to ``materiality'' would ``help to mitigate the
compliance burden'').
\211\ 17 CFR 229.1505(a)(1). As a tacit acknowledgement of the
difficulty of making materiality determinations in the context of
emissions metrics, the Adopting Release provided guidance and
several detailed examples of when GHG emissions could be considered
``material.'' See Adopting Release at 21733.
\212\ See Adopting Release at 21875.
\213\ Id. at 21733.
\214\ Id. at 21875 (``While commenters provided estimates of the
overall costs of measuring and assessing GHG emissions and making
disclosure under [the Task Force on Climate-Related Disclosures
(``TCFD'')] disclosure frameworks, they did not provide a level of
detail that would enable us to reliably disaggregate the materiality
determination from the costs of disclosure more broadly.'').
\215\ Id. (``While [the Commission has] not provided a
standalone cost estimate of making such materiality determinations,
[the Commission's] estimates of the costs of governance disclosure,
disclosure regarding the impacts of climate-related risks on
strategy, business model, and outlook, and risk management
disclosure begin with TCFD disclosure as a starting point. Thus, to
the extent that a materiality or similar assessment is included in
the TCFD disclosure, this cost is reflected in the Commission's
compliance cost estimates with respect to [these] disclosure
items.'' (citation omitted).
\216\ Id. at 21733-21734. In either scenario, a registrant must
first assume the burden of calculating its Scope 1 and 2 emissions
in order to determine whether such emissions fit within the
Commission's vague notion of materiality in this context, or are
``reasonably likely,'' to be material at some future date. Id.
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The difficulty of making materiality determinations under the Final
Rules is further compounded by the complex and overlapping nature of
the required disclosures. For example, the Final Rules would require
registrants to disclose any climate-related target or goal if such
target or goal has materially affected or is reasonably likely to
materially affect the registrant's business, results of operations, or
financial condition.\217\ The Commission asserted that investors ``need
detailed information about a registrant's climate-related targets or
goals in order to understand and assess the registrant's transition
risk strategy and how the registrant is managing the material impacts
of its identified climate-related risks.'' \218\
---------------------------------------------------------------------------
\217\ See 17 CFR 229.1504(a).
\218\ Adopting Release at 21723.
---------------------------------------------------------------------------
The Commission adopted this requirement notwithstanding the fact
that, elsewhere in the Final Rules, a registrant is required to
describe any climate-related risks that have materially impacted or are
reasonably likely to have a material impact on the registrant,
including on its strategy, results of operations, or financial
condition.\219\ In addition, if a registrant has adopted a transition
plan to manage a material transition risk, it must describe the plan
and update its annual report disclosure about the transition plan each
fiscal year by describing any actions taken during the year under the
plan.\220\ The use of materiality qualifiers in such a complex,
interconnected, and highly prescriptive set of disclosure requirements
does not adequately mitigate the overall burdens of producing those
disclosures.
---------------------------------------------------------------------------
\219\ See 17 CFR 229.1502(a).
\220\ See 17 CFR 229.1502(e)(1).
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Because the error cost of miscalculating a disclosure obligation
includes a potential enforcement action by the Commission or a
securities fraud class action, registrants are left with the difficult
choice of either making their best judgments about materiality and
risking being subject to liability for coming to the wrong conclusion
or disclosing information that may not be material in an effort to
avoid liability. Investors do not benefit if ``management's fear of
exposing itself to substantial liability may cause it simply to bury
the shareholders in an avalanche of trivial information--a result that
is hardly conducive to informed decisionmaking.'' \221\
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\221\ TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 448-49
(1976).
---------------------------------------------------------------------------
As these examples show, the Commission's use of materiality
qualifiers does not adequately mitigate the burdens of the climate-
related disclosure requirements. Moreover, in the context of the
complex and overlapping nature of the Final Rules' disclosure
obligations, such materiality qualifiers do not meaningfully limit the
information that a registrant feels compelled to disclose, burying
investors in disclosures of limited value. Indeed, the numerous
materiality determinations required by the Final Rules merely mask how
the rules reached well beyond what a reasonable investor would consider
important in buying or selling securities.
We similarly disagree that the informational benefits of the Final
Rules justify the significant costs they would impose. The Adopting
Release asserts several benefits of the Final Rules, such as: (1) that
the information will enable investors to better assess material risks
in climate-related reporting and facilitate comparisons across firms
and over time; (2) the information is relevant to ensuring that the
risk is correctly priced into the securities; (3) the use of a
standardized disclosure framework will ``mitigate agency problems
arising from registrants being able to selectively disclose . . .
information, which reduces transparency and impairs investors' ability
to effectively assess the potential financial impacts of a registrant's
climate-related risks''; and (4) providing ``better information'' will
reduce information asymmetries between managers and investors as well
as amongst investors, which ``will improve liquidity and reduce
transaction costs for investors . . . , and may lower firms' cost of
capital.'' \222\ Although we acknowledge that the Commission may
consider these kinds of benefits when adopting new disclosure rules, we
disagree that these policy goals should be pursued at such significant
costs.
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\222\ See Adopting Release, section IV.C.1.a; id. at 21849.
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As discussed in section III.B.2, any assertions about the benefits
of the consistency and comparability of the disclosures elicited by the
Final Rules should be discounted because those benefits are
substantially compromised by the inconsistent, variable, and often
speculative assumptions necessary to make many of those disclosures.
Also, it is far from clear that these ``standardized'' disclosures
would serve the informational needs of investors and the marketplace
better than existing principles-based requirements that allow for more
particularized insight into a registrant's management, operations, and
financial condition.
In crafting a fit-for-purpose disclosure regime, the Commission
should consider not only the informational benefits to be derived from
the required disclosures but also the costs to produce those
disclosures, which are ultimately borne by investors themselves. In
doing so, the Commission should take into account whether the required
disclosures benefit existing and potential investors in most companies,
or only those with particularized investment strategies or
informational needs. In our evaluation, as we assess these factors, any
informational benefits to be derived from the Final Rules cannot
justify the significant costs they would impose on public companies and
their shareholders.
[[Page 33314]]
4. The High Costs of the Final Rules Are at Odds With the Commission's
Policy Objectives of Facilitating Capital Formation and Promoting
Public Company Status
The Commission's current agenda is focused on restoring the vigor
of public securities markets and encouraging companies to go public and
stay public.\223\ The number of public companies has diminished
significantly since 2000,\224\ with some observers pointing to the cost
of public company disclosure as one deterrent.\225\
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\223\ See, e.g., Chairman Paul S. Atkins, Revitalizing America's
Markets at 250 (Dec. 2, 2025), available at <a href="https://www.sec.gov/newsroom/speeches-statements/atkins-120225-revitalizing-americas-markets-250">https://www.sec.gov/newsroom/speeches-statements/atkins-120225-revitalizing-americas-markets-250</a>; Chairman Paul S. Atkins, Statement on Reforming
Regulation S-K (Jan. 13, 2026), available at <a href="https://www.sec.gov/newsroom/speeches-statements/atkins-statement-reforming-regulation-s-k-011326">https://www.sec.gov/newsroom/speeches-statements/atkins-statement-reforming-regulation-s-k-011326</a>. We also note that facilitating capital formation is one
of the three prongs of the Commission's tripartite mission and a
factor that the Commission must consider when making public interest
determinations in the context of rulemaking. See supra note 49 and
accompanying text.
\224\ See U.S. Securities and Exchange Commission Staff, SEC
Statistics & Data Visualizations: Reporting Issuers, Number of
Reporting Issuers by Calendar Year (2004-2024) (last updated Aug.
12, 2025), available at <a href="https://www.sec.gov/data-research/statistics-data-visualizations/reporting-issuers/number-reporting-issuers-calendar-year-2004-2024">https://www.sec.gov/data-research/statistics-data-visualizations/reporting-issuers/number-reporting-issuers-calendar-year-2004-2024</a> (indicating that the number of
reporting issuers has decreased from 9,656 in 2004 to 7,902 in 2024,
which represents an approximately 18.2% decline); EY, The Declining
Number of Public Companies and Mandatory Reporting Requirements
(June 2022), available at <a href="https://accf.org/wp-content/uploads/2022/06/EY-ACCF-The-declining-number-of-public-companies-and-mandatory-reporting-requirements-June-2022.pdf">https://accf.org/wp-content/uploads/2022/06/EY-ACCF-The-declining-number-of-public-companies-and-mandatory-reporting-requirements-June-2022.pdf</a> (considering the 2000-2019
period and estimating that ``[t]here were at least 800 fewer US
companies traded on major US exchanges at the end of 2019 because of
mandatory reporting requirements.'').
\225\ See, e.g., Michael Dambra, Laura Casares Field & Matthew
Gustafson, The JOBS Act and IPO Volume: Evidence that Disclosure
Costs Affect the IPO Decision, 116 J. Fin. Econ. 121 (2015), which
suggests regulatory burden is an important consideration in the
going-public decision.
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As discussed in section III.C.3, the Final Rules add substantially
to the cost and complexity of public disclosures by issuing and
reporting companies. If the Final Rules were to go into effect, they
would be in direct contravention of the Commission's current policy
objectives of promoting public company status and facilitating capital
formation.
The Final Rules increase the overall costs associated with
accessing and participating in capital markets. This increase in costs
has a deterrent effect on such participation, thereby reducing market
liquidity and depth, which ultimately hinders, rather than facilitates,
capital formation. Costly regulation can also divert registrants'
resources that could otherwise be spent on production, investment, or
innovation. In addition, it can reduce the incentives of registrants to
implement otherwise efficient business strategies, transition plans, or
goals because of direct and indirect costs of disclosing them. Such
disclosure requirements may disproportionately affect smaller firms
with resource constraints and limit their ability to grow and compete.
Regulatory costs can also influence the size of the public markets,
if companies decide to exit the markets or remain privately held to
avoid regulatory costs. This avoidance strategy widens the transparency
gap between public and private companies, negatively affecting
competition between public and private companies as well as capital
markets' information efficiency. Depending on market conditions and
other factors, registrants may also pass on their compliance costs to
third parties, such as consumers and workers. Beyond the desire to
avoid direct compliance costs, some companies may avoid going public if
they fear they will have to provide disclosure about an array of
socially and politically contentious issues. Such effects, taken
together, reduce overall productivity, constrain growth opportunities,
and depress economic efficiency, thus reducing future cash flows,
earnings expectations, and shareholder returns.
The high costs imposed by the Final Rules and related adverse
effects undermine the Commission's goals of facilitating capital
formation and improving the accessibility and attractiveness of public
company status. The Commission declines to impose such burdens on
registrants and therefore proposes to rescind the Final Rules in their
entirety.
Request for Comment
(1) Should we rescind the Final Rules in their entirety as
proposed? Why or why not?
(2) Are there aspects of the Final Rules that remain within the
Commission's statutory authority and should be retained? If so, how
would these items of disclosure be able to operate sensibly without the
rescinded portions of the Final Rules?
(3) Are there alternatives to outright rescission that we should
consider? For example, should we amend the Final Rules so that they
apply to a smaller subset of registrants or in more limited
circumstances? Alternatively, should we propose to replace the Final
Rules with less prescriptive and less costly disclosures about climate-
related matters? If so, how would such disclosures improve upon the
information already elicited by existing disclosure obligations? What
information about climate-related matters does a reasonable investor
need to make informed investment decisions?
(4) Does the proposed rescission negatively affect any reasonable
reliance interests that market participants may have had in the
operation of the Final Rules, notwithstanding that the rules were
stayed prior to effectiveness? Have any costs been incurred in
preparing to comply with the Final Rules, even though the Final Rules
have been stayed? If so, please explain why and describe the type and
magnitude of those costs.
(5) Do existing disclosure requirements serve to elicit adequate
disclosure about climate-related matters, when material to a specific
registrant? Why or why not? Should we revise the 2010 Guidance to
provide updated guidance about how existing disclosure obligations may
elicit information about climate-related matters?
(6) Have recent developments in climate reporting practices
affected the rationale for the Final Rules? If so, how?
(7) If the Final Rules were to go into effect, to what extent would
they impact firm decisions about whether to become or remain a public
company?
IV. Economic Analysis
A. Introduction
We are mindful of the costs imposed by, and the benefits obtained
from, our rules. Securities Act section 2(b) and Exchange Act section
3(f) require us, when engaging in rulemaking where the Commission is
required to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation.\226\ In addition, Exchange Act
section 23(a)(2) requires the Commission to consider the effects on
competition of any rules that the Commission adopts under the Exchange
Act and prohibits the Commission from adopting any rule that would
impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act.\227\ We are likewise
sensitive to the economic effects of rescinding our existing rules,
which may involve the reconsideration of the benefits, costs, and
impacts on efficiency, competition, and capital formation that were
assessed when adopting those rules.
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\226\ See 15 U.S.C. 77b(b); 17 U.S.C. 78c(f).
\227\ See 17 U.S.C. 78w(a)(2).
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[[Page 33315]]
We are proposing to rescind the Final Rules in their entirety for
the reasons articulated in section III. The proposed rescission would
significantly reduce regulatory compliance costs for registrants
affected by the Final Rules.
We consider below the potential benefits and costs of the proposed
rescission and the likely effects of rescission on efficiency,
competition, and capital formation. Many of the benefits and costs are
impracticable to quantify or estimate with any degree of certainty.
Where we are unable to quantify the economic effects of the proposed
rescission, we provide a qualitative assessment of the potential
effects and encourage commenters to provide data and information that
would help quantify the benefits and costs of the proposed rescission,
and the potential impacts of the proposed rescission on efficiency,
competition, and capital formation.
B. Economic Baseline
The baseline against which the benefits and costs and the effects
on efficiency, competition, and capital formation of the proposed
rescission are measured consists of current requirements for climate-
related disclosures and current market practices that relate to such
disclosures.\228\ For purposes of defining the baseline for this
Economic Analysis, we treat the Final Rules as if they are in effect
even though the Commission has stayed their implementation. Below we
describe the parties who are likely to be affected by the Final Rules
and therefore the proposed rescission, as well as existing rules or
laws that require or elicit climate-related disclosures and the current
market practice related to reporting on climate-related matters.
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\228\ See, e.g., Nasdaq Stock Mkt. LLC v. SEC, 34 F.4th 1105,
1111-14 (D.C. Cir. 2022). This approach also follows SEC staff
guidance on economic analysis for rulemaking. See SEC Staff, Current
Guidance on Economic Analysis in SEC Rulemakings (Mar. 16, 2012),
available at <a href="https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf">https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf</a> (``The economic
consequences of proposed rules (potential costs and benefits
including effects on efficiency, competition, and capital formation)
should be measured against a baseline, which is the best assessment
of how the world would look in the absence of the proposed
action.''); id. at 7 (``The baseline includes both the economic
attributes of the relevant market and the existing regulatory
structure'').
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1. Affected Parties
The proposed rescission of the Final Rules would apply to
registrants filing Securities Act and Exchange Act registration
statements as well as Exchange Act annual and quarterly reports. The
Adopting Release identifies several parties likely to be affected by
the Final Rules, and they would be the same parties affected by a
rescission of the Final Rules. The parties likely to be affected are:
registrants subject to the disclosure requirements imposed by the Final
Rules, as detailed below; users of information about climate-related
matters, such as investors, analysts, and other market participants;
and third-party service providers who may collect, review, and process
this information, including assurance providers and ratings
providers.\229\
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\229\ See Adopting Release, section IV.A.1
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In particular, the Final Rules require both domestic registrants
and foreign private issuers affected by the Final Rules to disclose
highly granular information on climate-related matters in a
standardized and centralized format in Commission filings. The affected
parties that directly benefit from the Final Rules include specific
subgroups: those investors who would use this information as part of
their particular investment strategies; financial intermediaries who
act on behalf of investors (e.g., asset managers, investment advisers,
pension fund managers) to the extent they incorporate climate-related
risks when constructing investment portfolios and evaluating
registrants' risk profiles; and stakeholders who would use the expanded
climate disclosures for advocacy or political purposes.\230\ The
affected parties that incur direct costs from the Final Rules include
all aforementioned registrants and by extension their shareholders--
broadly speaking all investors in these registrants, which is a class
of investors broader than the subgroup of investors directly benefiting
from the Final Rules.
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\230\ See Adopting Release, at 21683 n.172. Such purposes could
include promoting particular conceptions of acceptable corporate
behavior, compelling corporations and officials to regularly speak
on climate-related issues, or initiating progressively broader or
more frequent disclosure demands that could significantly increase
the burden of making disclosures. See, e.g., Hans B. Christensen,
Luzi Hail & Christian Leuz, Mandatory CSR and Sustainability
Reporting: Economic Analysis and Literature Review, 26 Rev. Acct.
Stud. 1176 (2021).
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The Final Rules affect both domestic registrants and foreign
private issuers filing registration statements and periodic reports
with the Commission, but they would not apply to Canadian registrants
that use the Multijurisdictional Disclosure System and file their
Exchange Act registration statements and annual reports on Form 40-
F.\231\ We estimate that during calendar year 2025, excluding asset-
backed securities issuers, there were 6,766 registrants that filed on
domestic forms and on Form 20-F.\232\ We also estimate that 2,348 of
these registrants were LAFs, 541 were AFs that are not SRCs or EGCs
(non-exempt AFs) and 3,877 were all other registrants (AFs that were
SRCs or EGCs, and non-accelerated filers (``NAFs'')).
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\231\ The number of domestic registrants and foreign private
issuers that would be affected by the Final Rules, if they go into
effect, is estimated as the number of companies, identified by
Central Index Key (``CIK''), that filed a unique Form 10-K, Form 10-
KT, Form 20-F, or amendments to these forms, during calendar year
2025, excluding asset-backed securities issuers. The estimates for
SRCs, EGCs, AFs, LAFs, and NAFs are based on data obtained by
Commission staff using a computer program that analyzes Commission
XBRL filings and manual review of filings by Commission staff.
\232\ There were 15 issuers with filer status missing among Form
10-K filers and one issuer with filer status missing among Form 20-F
filers in 2025. These registrants are not included into the total
registrants count.
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Out of these registrants, there were approximately 5,703
registrants that filed on domestic forms, and approximately 1,063
foreign private issuers that filed on Form 20-F. Among registrants that
filed on domestic forms, approximately 36 percent were LAFs, 7 percent
were non-exempt AFs, and 56 percent were AFs that were SRCs or EGCs,
and NAFs. In addition, we estimate that among the foreign private
issuers that filed on Form 20-F approximately 27 percent were LAFs, 11
percent were non-exempt AFs, and 62 percent were AFs that were SRCs or
EGCs, and NAFs.
The Final Rules would also require disclosures in registered
offerings, except with respect to business combination transactions
involving a company not subject to the reporting requirements of
section 13(a) or 15(d) of the Exchange Act. In many cases, registrants
would be able to meet these requirements by incorporating by reference
from their periodic reports. Registrants that have not previously filed
periodic reports, such as companies conducting initial public
offerings, would not have previously filed such reports to incorporate
by reference. In 2025, there were approximately 810 such companies that
conducted registered offerings on Form S-1 or F-1.\233\
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\233\ This estimate was calculated by searching EDGAR for all
registrants who filed a Form S-1 or F-1 in the year 2025. If
multiple registration statements were filed in 2025 by the same
registrant, the earliest was used. This list of registrants was then
compared to a list of periodic reports (Forms 10-K, 10-Q, 20-F, and
8-K) filed on EDGAR since 2018. Approximately 810 registrants filed
registration statements in 2025 that had not previously filed a Form
10-K, 10-Q, 20-F, or 8-K. Of those, approximately 340 did not
subsequently file a Form 10-K, 10-Q, 20-F, or 8-K in 2025 or in the
first calendar quarter of 2026, for example by operation of 17 CFR
240.12h-5 or 12h-7, indicating that they may incur lower or zero
cost of ongoing compliance because they are exempt from ongoing
Exchange Act reporting obligations.
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[[Page 33316]]
2. Current Regulatory Framework
a. Commission Disclosure Requirements
1. 2010 Guidance and Existing Rules
Apart from the Final Rules, existing Commission disclosure
requirements may, depending on the circumstances, require or elicit
disclosure of certain climate-related matters.\234\ The 2010 Guidance
emphasizes that certain existing disclosure requirements in Regulation
S-K and Regulation S-X may require disclosure about climate-related
matters.\235\ With respect to the most pertinent non-financial
statement disclosure rules, we note that: Item 101 of Regulation S-K
(Description of business) expressly requires disclosure regarding
certain material costs and effects of compliance with environmental
regulations; \236\ Item 103 of Regulation S-K (Legal proceedings)
requires disclosure regarding any material pending legal proceeding to
which a registrant or any of its subsidiaries is a party or of which
any of their property is the subject; Item 105 of Regulation S-K (Risk
factors) requires, where appropriate, a discussion of the material
factors that make an investment in a registrant or an offering
speculative or risky; \237\ and Item 303 of Regulation S-K
(management's discussion and analysis of financial condition and
results of operation) requires material historical and prospective
narrative disclosure to help investors assess the financial condition
and results of operations of a registrant.\238\ Registrants are
currently required to provide disclosure about climate-related matters
to the extent they are responsive to existing disclosure requirements,
such as those highlighted in the 2010 Guidance.
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\234\ See supra section III.C.1.a for discussion of how existing
disclosure obligations already elicit disclosure of material
climate-related matters. The Commission considers the current
disclosure of climate-related matters as part of the baseline
against which the benefits and costs of the proposed rescission are
measured.
\235\ For example, the 2010 Guidance discusses disclosure
obligations under 17 CFR 229.101, 17 CFR 229.103, and 17 CFR
229.303. For an overview of how climate change matters may be
required to be disclosed under existing rules, primarily Regulation
S-K and Regulation S-X, see 2010 Guidance, section III.
\236\ 17 CFR 229.101(c)(2)(i) (for non-SRCs), (h)(4)(xi) (for
SRCs). Item 101 of Regulation S-K was amended in 2020. When the 2010
Guidance was issued, Item 101(c)(1)(xii) required disclosure of the
material effects of compliance with environmental laws, and
thereafter, in 2020, the item was amended to reference the material
effects of compliance with all material government regulations, not
just environmental laws. See Modernization of Regulation S-K, Items
101, 103, and 105, Release No. 33-10825 (Aug. 26, 2020) [85 FR 63726
(Oct. 8, 2020)].
\237\ 17 CFR 229.105. Risk factors disclosure was addressed in
Item 503(c) of Regulation S-K at the time of the 2010 Guidance. See
17 CFR 229.503(c) (2009). This rule provision was revised and
relocated to Item 105 of Regulation S-K in 2019. See FAST Act
Modernization and Simplification of Regulation S-K, Release No. 33-
10618 (Mar. 20, 2019) [84 FR 12674 (Apr. 2, 2019)].
\238\ 17 CFR 229.303. The 2010 Guidance also discusses corollary
provisions applicable to foreign private issuers not filing on
domestic forms. The 2010 Guidance further states that, in addition
to the Regulation S-K items discussed therein, registrants must also
consider any financial statement implications of climate-related
matters in accordance with applicable accounting standards,
including FASB ASC Topic 450, Contingencies, and FASB ASC Topic 275,
Risks and Uncertainties. Finally, the 2010 Guidance notes the
applicability of Securities Act Rule 408 and Exchange Act Rule 12b-
20, which require a registrant to disclose, in addition to the
information expressly required to be included in a statement or
report, ``such further material information, if any, as may be
necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.'' 17 CFR
230.408(a); 17 CFR 240.12b-20.
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2. The Final Rules
In March 2024, the Commission adopted the Final Rules. The Final
Rules require registrants to disclose certain climate-related
information in their registration statements and annual reports.\239\
Among other things, the Final Rules require public companies to
disclose detailed information about the impact and management of
climate-related risks, GHG emissions, scenario analysis, internal
carbon prices and certain climate-related financial statement
effects.\240\ As discussed in section II, the Final Rules have not gone
into effect.
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\239\ See supra section II for a discussion of the requirements
of the Final Rules.
\240\ Id.
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3. Recently Proposed Rules
The Commission recently proposed amendments to streamline filer
statuses for Exchange Act reporting companies into two primary
categories: LAFs and NAFs.\241\ The proposed amendments would, among
other things, raise the public float threshold and seasoning
requirements for qualification as a LAF and extend certain existing
accommodations and scaled disclosures currently reserved for SRCs, EGCs
and/or NAFs to all NAFs under the proposed amendments, while continuing
to require compliance with non-scaled disclosure from LAFs. Because the
Final Rules also scaled disclosures based on filer status, if adopted,
the proposed amendments in the Filer Status Proposing Release would
affect which companies are subject to which requirements under the
Final Rules.
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\241\ See Enhancement of Emerging Growth Company Accommodations
and Simplification of Filer Status for Reporting Companies, Release
No. 33-11419 (May 19, 2026) [91 FR 30086 (May 21, 2026)] (``Filer
Status Proposing Release'').
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b. Existing State and Other Federal Laws
Existing State and other Federal laws require certain climate-
related disclosures and reporting. As a result of these reporting
requirements, some registrants subject to the Final Rules may already
be disclosing certain information about climate-related matters or may
be developing processes and systems to track and disclose such matters.
For instance, within the insurance industry, there are requirements
for mandatory climate risk disclosures for any domestic insurers that
write more than $100 million in annual net written premium.\242\ For
reporting year 2023, 1,700 companies provided climate risk disclosures
in response to the NAIC survey.\243\
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\242\ See Adopting Release, section IV.A.3; see also Nat'l Ass'n
of Ins. Comm'rs (``NAIC''), Redesigned State Climate Risk Disclosure
Survey (adopted Apr. 6, 2022), available at <a href="https://www.insurance.ca.gov/0250-insurers/0300-insurers/0100-applications/ClimateSurvey/upload/2022RevisedStateClimateRiskSurvey.pdf">https://www.insurance.ca.gov/0250-insurers/0300-insurers/0100-applications/ClimateSurvey/upload/2022RevisedStateClimateRiskSurvey.pdf</a>
(describing the scope and intent of the climate risk disclosure
survey and providing guidance on the applicability of the survey).
As of 2024, 24 States and the District of Columbia require these
domestic insurers to disclose their climate-related risk assessment
and strategy via the NAIC Climate Risk Disclosure Survey. The 24
States are Arizona, California, Colorado, Connecticut, Delaware,
Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Nevada, New Hampshire, New Jersey, New Mexico, New York,
Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington
and Wisconsin. Cal. Dep't of Ins., NAIC Climate Risk Disclosure
Survey Results--Home, available at <a href="https://interactive.web.insurance.ca.gov/apex_extprd/f?p=201:1">https://interactive.web.insurance.ca.gov/apex_extprd/f?p=201:1</a> (last visited
April 6, 2026).
\243\ This estimate is based on Form 20-F and Form 10-K filings
in calendar year 2023 and 2023 NAIC survey results. Cal. Dep't of
Ins., Climate Risk Disclosure Survey Database, available at <a href="https://interactive.web.insurance.ca.gov/apex_extprd/f?p=201:1">https://interactive.web.insurance.ca.gov/apex_extprd/f?p=201:1</a> (last visited
March. 13, 2026).
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Federal and State reporting requirements related to GHG emissions
also exist.\244\ Since the adoption of the Final Rules, officials have
proposed amendments to eliminate or reduce the climate-related
disclosure obligations of some of these programs, or these disclosure
obligations have been challenged in courts. Notably, at the Federal
level, with respect to the Greenhouse Gas Reporting Program, which
requires that each facility that directly emits more than 25,000 metric
tons of CO<INF>2</INF>e per year to report its direct emissions to the
EPA,\245\ the EPA proposed amendments in September
[[Page 33317]]
2025 to largely end the reporting program.\246\ The proposed
amendments, if adopted would eliminate program obligations to disclose
GHG emissions for most source categories (e.g., power plants, cement
and steel) in addition to delaying the requirement to report GHG
emissions for the remaining source categories until 2034.\247\
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\244\ See Adopting Release, section IV.A.3. for a discussion of
Federal and State GHG reporting programs that were in existence at
the time of the adoption of the Final Rules.
\245\ See 40 CFR part 98.
\246\ See EPA, Reconsideration of the Greenhouse Gas Reporting
Rule [90 FR 44591 (Sept. 16, 2025)]; see also EPA, EPA Releases
Proposal to End the Burdensome, Costly Greenhouse Gas Reporting
Program, Saving up to $2.4 Billion (Sept. 12, 2025), available at
<a href="https://www.epa.gov/newsreleases/epa-releases-proposal-end-burdensome-costly-greenhouse-gas-reporting-program-saving-24">https://www.epa.gov/newsreleases/epa-releases-proposal-end-burdensome-costly-greenhouse-gas-reporting-program-saving-24</a>
(overview of proposed amendments).
\247\ Id.
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In the Adopting Release, the Commission also discussed the climate-
related reporting requirements set forth in California's Climate-
Related Financial Risk Act (``Senate Bill 261'') and Climate Corporate
Data Accountability Act (``Senate Bill 253'').\248\ In November 2025,
the Ninth Circuit granted a motion to enjoin enforcement of Senate Bill
261 and denied a motion to enjoin enforcement of Senate Bill 253.\249\
As a result, although litigation remains ongoing, companies subject to
Senate Bill 253 will be required to disclose their Scope 1 and Scope 2
emissions beginning in 2026 \250\ and their Scope 3 emissions beginning
in 2027.\251\ But companies subject to Senate Bill 261 will not be
required to begin reporting their climate-related financial risks and
measures in 2026 as Senate Bill 261 originally required unless the
litigation concludes and the Ninth Circuit upholds Senate Bill
261.\252\
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\248\ See Adopting Release at 21681.
\249\ See Order, U.S. Chamber of Com. v. Randolph, No. 25-5327,
2025 U.S. App. LEXIS 32205 (9th Cir. Nov. 18, 2025).
\250\ The draft regulations for Senate Bill 253 indicate that
the reporting deadline of Aug. 10, 2026, remains unchanged for
reporting Scope 1 and Scope 2 emissions. See Cal. Air Res. Bd.,
Article 6: California Climate Disclosures (Dec. 2025), available at
<a href="https://ww2.arb.ca.gov/sites/default/files/barcu/regact/2025/sb253-261/reg%20text.pdf">https://ww2.arb.ca.gov/sites/default/files/barcu/regact/2025/sb253-261/reg%20text.pdf</a>.
\251\ See SB-253, Climate Corporate Data Accountability Act,
2023-2024 Senate, Reg. Sess. (Cal. 2023), available at <a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253">https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB253</a>.
\252\ See supra note 249; see also Lisa Rushton, Womble Bond
Dickinson (US) LLP, California's Climate Risk Disclosure Law Paused.
What SB 261's Injunction Means for Businesses (Dec. 9, 2025),
available at <a href="https://natlawreview.com/article/californias-climate-risk-disclosure-law-paused-what-sb-261s-injunction-means">https://natlawreview.com/article/californias-climate-risk-disclosure-law-paused-what-sb-261s-injunction-means</a> (discussing
the legal landscape following the Ninth Circuit's injunction).
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c. International Disclosure Requirements
Registrants that are listed or operate in jurisdictions outside the
United States may also be subject to those jurisdictions' disclosure
and reporting requirements. As a result, some registrants subject to
the Final Rules may have in place, or be developing, processes and
systems to track and disclose information about climate-related
matters. For example, in the Adopting Release, the Commission discussed
the TCFD's framework for climate-related financial reporting and the
plan for several jurisdictions to support or adopt climate disclosure
requirements consistent with the TCFD recommendations.\253\
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\253\ See Adopting Release, section IV.A.4.
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In the Adopting Release, the Commission further discussed the
ISSB's climate-related disclosure standards and the fact that several
jurisdictions had announced plans to adopt, apply, or otherwise be
informed by the ISSB standards.\254\ In December 2025, the ISSB issued
amendments to IFRS S2 to, among other things, reduce complexity, the
risk of duplicative reporting and the cost of applying specific GHG
emissions disclosure requirements by clarifying the Scope 3 reporting
requirements and excluding the requirement to disclose certain
emissions.\255\ The ISSB stated that the amendments were aimed to
reduce complexity, the risk of duplicative reporting and the cost of
applying specific GHG emissions disclosure requirements in IFRS S2,
while not significantly reducing the usefulness of information for
users of general purpose financial reports.\256\
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\254\ See Adopting Release, section II.A.3.
\255\ See supra notes 195 and 198.
\256\ See supra note 198.
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In the Adopting Release, the Commission also discussed the
reporting requirements for certain companies to disclose their GHG
emissions under the CSRD.\257\ In February 2026, the EU adopted
legislation revising the CSRD and CSDDD to, among other things, narrow
the scope of covered companies under the CSRD and postpone the
implementation timelines of relevant Directives.\258\
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\257\ See Adopting Release, section IV.A.4.
\258\ See supra note 199.
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3. Current Market Practices
This section updates staff analyses in the Adopting Release that
described then current market practices with regard to several types of
climate-related disclosures, including those made in Commission filings
and in other contexts. These practices display variation over time and
across several dimensions, such as by disclosure type, by status as an
LAF, AF, NAF, EGC and/or SRC (``filer status''), by industry, or with
respect to their use of third-party assurance. In addition, this
section describes recent changes in selected third-party climate
disclosure frameworks that may influence the disclosures described
above.
a. Climate-Related Disclosures in Commission Filings
In the absence of the Final Rules' implementation, the SEC's
existing disclosure obligations elicit disclosure about material
climate-related matters. Registrants may also voluntarily choose to
disclose climate-related information. To help inform on current
disclosure practices, Commission staff updated the analysis included in
the Adopting Release regarding climate-related disclosures in
Commission filings.\259\
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\259\ See Adopting Release, section IV.A.5.a.
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Commission staff reviewed 87,865 annual reports (Forms 10-K and 20-
F) submitted from January 1, 2016, to December 31, 2025, to determine
the number containing any of these climate-related keywords: ``climate
change,'' ``climate risk,'' ``global warming,'' ``greenhouse gas(es)''
or ``GHG emission(s).'' \260\ As in the Adopting Release, the staff
assumed that the presence of any of these climate-related keywords in
any part of the annual report indicates disclosure of some climate-
related information, but this keyword analysis is not meant to capture
the substantive depth or quality of climate-related disclosure. This
analysis also does not purport to identify causality, such as the
extent to which observed market practices result from specific market
events, policies, or regulations (including the Commission's
development and adoption of the Final Rules). We include this analysis
because it is a useful descriptive statistic for characterizing current
market practices and is consistent with prior Commission analysis in
the Adopting Release. This analysis, which is empirical evidence on
existing disclosure practices under the 2010 Guidance, helps provide a
more complete picture of the current baseline for the purpose of
evaluating the incremental effects of the proposed rescission.
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\260\ This section of the release refers to these keywords
collectively as ``climate-related keywords.'' The selection of
climate-related keywords is a combination of keywords used in the
Final Rules and those identified in Christine Chou, Robin Clark &
Steven O. Kimbrough, What Do Firms Say in Reporting on Impacts of
Climate Change? An Approach to Monitoring ESG Actions and
Environmental Policy, 30 Corp. Soc. Resp. & Env't Mgmt. 2671 (2023).
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Table 1 summarizes the incidence of any of the aforementioned
climate-
[[Page 33318]]
related keywords in Forms 10-K and 20-F filed from January 1, 2024, to
December 31, 2025. The data show that about 47 percent of all filings
submitted in 2024 and 2025 contained at least one climate-related
keyword. The proportion is greater, about 52 percent, among foreign
private issuers filing on Form 20-F.\261\
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\261\ Foreign private issuers who elected to file their annual
report on Form 10-K would be classified as domestic filers for the
purposes of this analysis of climate-related keywords.
[GRAPHIC] [TIFF OMITTED] TP03JN26.001
Figure 1 shows that the percentage of Form 10-K and Form 20-F
filings that contain climate-related keywords has increased between
2016 and 2025, particularly as of 2021.
[[Page 33319]]
[GRAPHIC] [TIFF OMITTED] TP03JN26.002
Table 2 shows the breakdown of annual filings with any of the
climate-related keywords by filer status in 2024 and 2025. In both
years, the share of filings with climate-related keywords submitted by
LAFs and AFs was significantly greater than the share of filings with
climate-related keywords submitted by NAFs. For example, in 2024 and
2025, 79 and 81 percent of filings submitted by LAFs contained climate-
related keywords, compared to 33 percent of those submitted by NAFs.
Relatedly, one report finds that 84 percent of S&P 500 companies
disclosed climate change as a risk factor in 2024.\262\
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\262\ See Matteo Tonello, Corporate Climate Disclosures and
Practices: Risk, Emissions, and Targets, Harv. L. Sch. Forum on
Corp. Governance (May 3, 2025) (``Corporate Climate Disclosures and
Practices: Risk, Emissions, and Targets''), available at <a href=
[…truncated; see source link]Indexed from Federal Register on June 3, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.