The U.S. Securities and Exchange Commission (SEC) has initiated the process to formally rescind its controversial climate-related disclosure rules for public companies, marking a significant shift in the regulatory landscape for environmental, social, and governance (ESG) reporting. This move, widely anticipated following political changes, signals a retreat from a federally mandated approach to climate risk disclosure, leaving companies to navigate a more complex and fragmented global regulatory environment. Experts caution that while the SEC’s specific rule may be withdrawn, the broader imperative for climate disclosure remains, driven by investor demand, international regulations, and the evolving risk of enforcement actions.
A Tumultuous Journey for Climate Disclosure Rules
The SEC’s attempt to establish comprehensive climate-related disclosure requirements for public companies has been a protracted and contentious endeavor. The initial proposal in March 2022 aimed to mandate the reporting of material climate-related risks in annual reports and registration statements for all SEC registrants, with a more specific requirement for greenhouse gas (GHG) emissions data from a subset of companies. This proposal was met with a swift and strong backlash from various industry groups, including the U.S. Chamber of Commerce, which argued that the rules would impose significant compliance burdens, negatively impact the U.S. economy, and deter companies from pursuing initial public offerings (IPOs) in the United States.
The controversy escalated with immediate legal challenges. The SEC responded by issuing a stay on the rule’s effectiveness just a month after its adoption in early 2024. The political winds shifted dramatically with the return of a new administration, leading to a change in the SEC’s defense of the rule in court. By 2025, under the leadership of a newly appointed chairman, the administration ceased its defense, effectively rendering the rule moot during the remainder of its term. This paved the way for the formal proposal to rescind the rules, announced on May 29, initiating a 60-day public comment period.
Industry Reactions and Expert Analysis
The SEC’s decision to move toward rescinding the climate disclosure rule has been met with a mix of relief and concern. Charles D. Riely, a partner at Jenner & Block, noted that for many public companies, the removal of this specific mandate is welcome news, primarily due to the perceived significant compliance burdens associated with the rule. "The debate reflected both the SEC’s decision to mandate disclosure of specific subject matter and the significant compliance burdens involved," Riely told CCI. "Although companies will still have to grapple with how to handle ESG-related disclosure, the fact that no version of this rule will go into effect is welcome news at many public companies."
However, experts like Lance C. Dial of K&L Gates highlight that the absence of a uniform SEC rule does not absolve companies of their climate disclosure obligations. The global regulatory landscape is increasingly complex, with various jurisdictions enacting their own climate reporting requirements. "Across the globe, governments and regulators have adopted several versions of climate risk reporting requirements, and the state of California has its own regime," Dial explained. "So, companies, especially larger ones, still have climate risk disclosure compliance obligations, even without the SEC rules. In fact, to the extent the SEC rules could have served as a standard for U.S. issuers, their rescission may make this global reporting more inconsistent and complex."
A Fragmented Global Landscape of Climate Disclosure
The SEC’s rescission proposal arrives at a time when climate disclosure mandates are becoming more prevalent and stringent internationally. California, for instance, has enacted its own expansive climate reporting rules that apply to both public and private U.S. companies meeting specific size and business activity thresholds within the state. These California rules go further than the SEC’s proposed mandates by requiring disclosure of Scope 3 emissions—indirect emissions from upstream and downstream activities—which can constitute a significant portion of a company’s total carbon footprint, estimated by some analyses to be as high as 95%. These California regulations are also facing legal challenges, with certain aspects currently on hold pending litigation.
Beyond California, other U.S. states are actively considering their own climate reporting regimes, contributing to a patchwork of state-level obligations. On the international stage, the European Union’s Corporate Sustainability Reporting Directive (CSRD) represents a far more comprehensive framework. The CSRD mandates extensive disclosure on ESG policies, energy consumption, emissions, labor practices, and diversity. Crucially, it also requires companies to not only report but also actively mitigate their negative environmental and social impacts. These EU rules are projected to impact approximately 3,000 non-EU entities, including a substantial number of U.S. companies, underscoring the growing global pressure for robust climate accountability.
The Enduring Relevance of Disclosure and Enforcement Risk
Despite the SEC’s move to rescind its specific climate rule, the underlying drivers for climate-related disclosure remain potent. Investors continue to demand transparency on climate risks, and companies that have already begun reporting such data, particularly major index constituents like the S&P 500 (where nearly 90% disclose Scope 1 and Scope 2 GHG emissions), are unlikely to cease their efforts. This voluntary reporting, coupled with existing SEC guidance from 2010 acknowledging that climate-related factors can be material and require disclosure under Regulation S-K, means that companies are still subject to scrutiny.
"The SEC—under this administration or the next—could still bring an enforcement action if it alleges that a company’s statement about climate issues was wrong or omitted material information," Riely stated. "So could shareholders. What matters is that there is no new obligation, and no new set of disclosures, that public companies are required to make." This implies that while a specific rule is being withdrawn, the risk of SEC enforcement actions related to misleading or incomplete climate-related statements persists.
Furthermore, companies that have established internal infrastructure and integrated ESG reporting into their corporate culture are unlikely to dismantle these systems. Abbey Raish of BCLP noted that the establishment of governance and controls for climate and ESG information has become a baseline expectation, with audit committees, boards, and management teams already elevating their oversight. "Most are unlikely to unwind that, given ongoing scrutiny from investors and other stakeholders," Raish commented. "If the SEC climate rule is rescinded, we haven’t seen the end of climate disclosure requirements, it’s just a pivot to a more fragmented and less predictable environment. For compliance and risk leaders, the focus should shift from ‘whether to comply’ to how to manage across multiple regimes while maintaining credible, decision-useful disclosure.”
Investor Demand and Market Expectations
The SEC’s justification for rescinding the rule, partly based on investor demand and existing voluntary reporting, suggests a deliberate shift towards a market-driven approach. However, this approach may create its own set of challenges. The absence of a federal standard could lead to inconsistencies in reporting quality and comparability, making it more difficult for investors to make informed decisions. The potential for reputational risk also plays a significant role. Companies that have voluntarily disclosed ESG metrics may face public scrutiny if they suddenly cease doing so, potentially raising questions about their commitment to sustainability or changes in their internal operations.
"Halting this disclosure altogether once you’ve set the market expectation can pose real reputational risk as it may raise questions about consistency, credibility and what may be changing behind the scenes," Raish explained. "Once disclosure becomes standard practice, silence stands out more than absence ever did."
The Road Ahead: Uncertainty and Adaptation
The rescission of the SEC’s climate disclosure rule is not necessarily the final chapter in the story of climate risk reporting in the United States. Legal challenges to the rescission itself are anticipated, and a future SEC could potentially reintroduce similar or revised rules. The current proposal withdraws the SEC climate rules for now, but it is unlikely to end the broader debate over climate disclosure. Companies are now tasked with navigating a complex web of evolving state, international, and voluntary reporting requirements. The focus for compliance and risk leaders will undoubtedly shift from meeting a single federal mandate to managing a more intricate landscape of diverse regulatory regimes, all while striving to provide credible and decision-useful disclosures to stakeholders. The journey towards standardized and effective climate risk reporting in the U.S. remains a dynamic and ongoing process.
