10 States Mount Challenge to SEC’s Climate Disclosure Rule on Day of Its Approval

Ten states are mounting a federal court challenge to the U.S. Securities and Exchange Commission’s (SEC’s) climate disclosure rule, which the SEC had approved just hours earlier on Wednesday. 

West Virginia Attorney General Patrick Morrisey said his state and Georgia are leading the lawsuit to be filed in the U.S. Court of Appeals for the 11th Circuit. The other states are Alabama, Alaska, Indiana, New Hampshire, Oklahoma, South Carolina, Virginia, and Wyoming.

“We’ve been waiting for this for a very long time,” Morrisey said.

“And while the administration and the SEC made some changes to the proposed rule, what they’ve released today is still lively in defect and illegal and unconstitutional,” he added. “And that’s why we take the action that we’re taking today. We believe that we’re going to proceed in court and prevail.” 

The SEC responded in a statement: “The Commission undertakes rulemaking consistent with its authorities and laws governing the administrative process and will vigorously defend the final climate risk disclosure rules in court.”

The SEC’s climate disclosure rule requires certain large registrants to disclose information on a company’s direct greenhouse gas emissions (Scope 1) or its indirect emissions (Scope 2). The final rule excluded the proposed Scope 3 requirement, which would have required public companies to disclose greenhouse gas emissions by entities in their supply chain.

SEC Chair Gary Gensler defended the rule at Wednesday’s voting session. “The SEC has no role as to climate risk itself, but we do have a role with regard to disclosures,” he said. “I would say consistent with the agency’s disclosure rules over these decades, today’s final rules are grounded in materiality, and materiality represents a fundamental building block of the disclosure requirements under the federal securities law.” 

But Morrisey said the SEC is a “financial regulator,” not an environmental overseer. “They [at the SEC] are designed to look at fraud in the pricing marketplace related to securities. We think that this rule is going to make it virtually impossible for companies to calculate how their environmental impact is material.”

Morrisey noted that his state previously challenged a federal regulation and won in the U.S. Supreme Court in 2022, when the justices ruled in West Virginia v. Environmental Protection Agency that the EPA had exceeded its authority under the Clean Air Act. 

“We believe that these federal agencies, and very specifically the SEC, that they need to stick to the statutory mandate that Congress gave them and avoid manipulating private actors for the sake of progressive policy,” Morrisey said. “This is yet another attempt to advance an agenda without statutory authority. And I, for one, am not going to let that happen. And I’m glad to be joined with so many states in this effort.”

From: National Law Journal