Introduction
In March 2024, the U.S. Securities and Exchange Commission (SEC) issued a landmark final rule requiring registrants to provide climate-related disclosures in their annual reports and registration statements. This move represented a significant shift toward formalizing sustainability and environmental risk reporting within the U.S. capital markets, bringing the SEC closer to global peers such as the European Union, which has enacted similar requirements.
However, the journey of the SEC’s climate disclosure rule has been turbulent. Legal challenges, political pushback, and practical concerns about the rule’s feasibility have significantly complicated its implementation.
This article explores the current status of the rule, major milestones, the broader regulatory landscape, implications for companies, and where things might be headed next.
Overview of the SEC’s Final Climate Disclosure Rule
The SEC’s final rule, issued in March 2024, mandates that companies disclose a variety of climate-related information. In the footnotes to the financial statements, registrants must provide information about:
- specified financial statement effects of severe weather events and other natural conditions
- certain carbon offsets and renewable energy certificates (RECs), and
- material impacts on financial estimates and assumptions that are due to severe weather events and other natural conditions or disclosed climate-related targets or transition plans.
Importantly, the rule scaled back from earlier proposals the Scope 3 greenhouse gas emissions (emissions from a company’s supply chain and customers) disclosures.
Compliance Timeline
The rule includes a phased compliance schedule with the effective dates for the first phase for calendar year-end companies as follows:
- Large Accelerated Filers (LAFs): Compliance begins with annual reports for the year ending December 31, 2025.
- Accelerated Filers (AFs): Compliance begins with annual reports for the year ending December 31, 2026.
- Non-Accelerated Filers (NAFs): Compliance begins with annual reports for the year ending December 31, 2027.
Notably, Smaller Reporting Companies (SRCs) and Emerging Growth Companies (EGCs) received significant relief from the most burdensome aspects of the rule.
Voluntary Stay and Legal Challenges
Shortly after the rule was finalized, several legal challenges were filed across multiple circuits. Petitioners, including business groups and state attorneys general, argued that:
- The SEC exceeded its statutory authority under the Securities Exchange Act.
- The rule imposes unjustified and costly burdens on companies, especially smaller issuers.
- Climate disclosures, particularly forward-looking ones, are inherently speculative and not suitable for the traditional financial reporting framework.
On April 4, 2024, in an effort to manage the legal complexity and avoid uncertainty for companies, the SEC issued a voluntary stay of the rule pending judicial review. This stay paused the rule’s effective dates until the lawsuits could be resolved.
SEC Withdrawal of Defense
In a dramatic turn, on March 27, 2025, the SEC announced that it would no longer defend the climate disclosure rule in court. SEC counsel notified the U.S. Court of Appeals for the Eighth Circuit that they were “no longer authorized to advance” arguments in favor of the rule.
This withdrawal significantly undermined the rule’s prospects. In response, Democratic attorneys general from several states, who had intervened to defend the rule, requested the Eighth Circuit to pause the litigation while the SEC determines its next steps. The court has directed the SEC to provide a status update by July 2025.
Why the SEC Backed Away
There are several likely reasons behind the SEC’s withdrawal:
- Political Pressure: Climate-related mandates remain highly polarizing. Facing sustained pressure from Congress and certain business constituencies, the SEC may have calculated that continuing the fight was politically untenable.
- Litigation Risk: Legal experts warned that the rule, if invalidated by a conservative-leaning judiciary, could set unfavorable precedents limiting SEC authority more broadly.
- Administrative Complexity: Implementing the rule, even if upheld, would have required massive interpretive guidance, substantial SEC resources, and enforcement challenges.
Broader Context: Global and State-Level Climate Disclosures
Even as the SEC rule falters, other regulatory forces are moving ahead.
California’s Climate Disclosure Laws
In 2023, California passed two major climate disclosure laws (“SB 253” and “SB 261”) requiring companies doing business in the state to disclose the following:
- SB 253 – For companies with greater than $1 billion in revenue, the Scope 1, 2, and 3 GHG emissions.
- SB 261 – For companies with greater than $500 million in revenue, the climate-related financial risks.
The California laws apply to both public and private companies and have effective dates beginning in 2026. They are considered even more aggressive than the SEC’s requirements and are also being challenged in court.
European Union: CSRD
Similarly, the European Union’s Corporate Sustainability Reporting Directive (CSRD) imposes detailed ESG disclosure requirements on thousands of companies, including many U.S. multinationals with significant EU operations.
Compliance for large companies begins in fiscal year 2024 reports (filed in 2025), meaning the global pressure for climate-related reporting is not going away.
Practical Implications for U.S. Companies
Given the SEC’s voluntary stay and legal withdrawal, the climate disclosure rule is effectively paused, and its future remains uncertain. However, companies may still need to comply with California’s laws and/or the EU’s CSRD.
Key Points to Consider:
- Monitoring: Companies should continue to monitor developments. Even if the current rule does not survive, future SEC administrations may reintroduce climate disclosure mandates.
- Alignment with Global Standards: Companies with international operations must prepare for CSRD and California’s laws regardless of the SEC’s rule.
- Incremental Readiness: Many companies are wisely choosing to build climate reporting capabilities gradually, even without a regulatory mandate, recognizing growing investor and stakeholder expectations.
Conclusion: Where We Go From Here
The SEC’s climate disclosure rule represented a bold attempt to modernize the U.S. financial reporting framework to include sustainability risks. However, the combination of legal opposition, political pushback, and administrative complexity has significantly derailed the effort — at least for now.
Companies must recognize that while federal requirements may be delayed, the broader momentum toward climate risk transparency continues globally and domestically. The strategic move is not to ignore ESG disclosures, but to prepare thoughtfully and in proportion to the company’s risk profile and regulatory exposure.
The SEC’s upcoming status report in July 2025 will offer critical clues as to whether the agency will revise, abandon, or attempt to resuscitate the climate disclosure framework. Regardless of the outcome, the landscape for corporate climate accountability is forever changed.
