ANALYSIS: Attorneys Say SEC Climate Rule Won’t Remain Intact

The SEC stayed its new climate rule in April, less than one month after its release, due to the multiple legal challenges that were filed.

It’s too soon to tell what the ultimate resolution of the SEC climate rule will be, but attorneys don’t appear to be particularly optimistic about the rule overcoming all of the legal challenges it currently faces.

Most Attorneys Think Rule Will Only Survive in Part

The majority of 211 law firm and in-house respondents (136 law firm and 75 in-house) to Bloomberg Law’s State of Practice survey thought the rule would survive in part. This is likely because attorneys perceive some aspects of the rule to be more prescriptive than others—which was a major concern expressed by commenters on the proposed rule.

A slightly higher percentage of law firm respondents thought the rule would be overturned (29.4%) than their in-house counterparts (25.3%).

Attorneys working in different practice areas differ somewhat in their outlook, however.

Nearly three in four attorneys who work on securities and ESG matters—subject areas directly affected by the climate rule—thought that the rule would survive partially intact.

Labor and employment (49%) and litigation attorneys (53%) were least likely to say that the rule would partially survive.

So, which part of the climate rule is likely to survive?

Attorneys Skeptical of Emissions Disclosures

Climate rule disclosures target emissions, climate-related targets and goals, certain information in financial statements, risk mitigation strategies, and climate-related governance. All of these will likely face substantial legal hurdles, the survey respondents said.

Thirty-seven percent thought that GHG emissions disclosure requirements faced the most substantial legal hurdles—even though the SEC rolled back Scope 3 disclosure requirements from the proposed rule.

On the heels of GHG emissions are climate-related goals and targets: 36% of attorneys indicated that those disclosures faced the most substantial legal hurdles. Corporations are increasingly mentioning climate-related goals and targets in Form 10-K Risk Factors, so it makes sense that attorneys are questioning the legality of requiring certain additional disclosures, considering the risks associated with these goals.

At 20%, governance disclosures garnered the lowest percentage, but is nevertheless a reminder that no part of the rule is seemingly safe from being declared invalid.

Bloomberg Law subscribers can find related content on our Practical Guidance on the SEC Climate Rule, our In Focus: SEC Rulemaking page, our ESG Practice page, as well as our Practical Guidance: ESG Stakeholders, Frameworks & Regulation page.

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