U.S. SEC Climate Disclosure Rules Spark Flurry of Litigation

Following the U.S. Securities and Exchange Commission ("SEC")'s adoption of the climate-related disclosure rules on March 6, 2024, dozens of parties filed petitions for review across different appellate courts. The Judicial Panel on Multidistrict Litigation selected the Eighth Circuit to hear all challenges to the SEC's rules, and the SEC voluntarily stayed the rules on April 4, 2024. Since then, litigation has proceeded and continues to expand with interest groups, trade associations, and 43 states (and D.C.) participating in legal challenges on both sides. 

On June 6, 2024, the Eighth Circuit granted voluntary dismissals on behalf of the Sierra Club and Natural Resources Defense Council ("NRDC"). In its dismissal request, NRDC stated it "decided to focus its resources on advocating for improvements to climate-related financial disclosures outside of this litigation." Similarly, the Sierra Club stated they "now believe that focusing our resources on advocating for improved investor protections outside of court, while also supporting efforts to defend the SEC's fundamental authority to require disclosure of climate-based risks, is the most effective way to ensure investors have the information they need to properly evaluate companies' exposure to such risks and thus effectively manage their asset portfolios."

In accordance with the court's briefing schedule issued May 20, 2024, petitioners' opening briefs were due June 14, 2024, and amicus briefs in support of petitioners' brief were due June 24, 2024. 

Petitioners advance numerous distinct challenges to the SEC rules. First, all petitioners argue the final rule exceeds the SEC's statutory authority to mandate these types of disclosures, emphasizing recent Supreme Court decisions requiring clear authorization for agency actions of major economic and political significance. Second, most petitioners argue the final rule does not provide sufficient evidence or explanation to justify its broad mandate and costs, and that more explanation is also needed in light of the agency's change of position as to its authority. Third, some petitioners argue the prior proposed rule did not give sufficient notice of the final rule as ultimately issued, including the evidence offered in its support. Fourth, some petitioners argue that the final rule mandates statements on matters of political debate in violation of the First Amendment. Fifth, some petitioners argue that the SEC's view of its authority is so broad as to violate the "nondelegation doctrine," a constitutional rule limiting Congress's ability to delegate decision-making without an intelligible principle to apply.

Numerous amici filed 13 briefs supporting petitioners, generally echoing some of these arguments and adding other points of emphasis. Some call attention to particular evidence in petitioners' support, such as past agency statements and legislative history. Others raise concerns as to specific impacts of the final rule, such as potential costs to corporate governance or to the agricultural industry. And some argue that the final rule conflicts with broader constitutional principles, such as the proper separation of powers among the federal branches of government and between state and federal authorities.

The respondents' consolidated response brief was filed on August 5, 2024. The respondents' consolidated response brief emphasizes the SEC's "well-established statutory authority" to promulgate the final rule and the modifications made to the proposed rule to make required disclosures more useful and less costly. In addition, the respondents argue that the SEC reasonably explained its decision to adopt the rule, satisfied Administrative Procedure Act requirements, and acted in a manner consistent with the First Amendment. Lastly, the respondents argue that petitioners' request to completely vacate the rule is overbroad, and that the Court should consider more limited relief if it accepts petitioners' arguments. 

The SEC highlights the Supreme Court's recent Loper Bright Enterprises v. Raimondo decision and argues that its emission reporting requirements in the final rule should still be permitted despite the Court's rollback of Chevron deference. Specifically, the agency argues that the 1933 Securities Act and 1934 Securities Exchange Act "expressly delegate" to the SEC the "discretionary authority" to mandate these types of climate-related disclosures since investors use this type of information to make informed decisions. Further, the respondents argue that "the Commission reasonably explained the rules and the basis for them," in accordance with Loper. 

More than 10 intervenor and amicus briefs have been filed since August 15, 2024, in support of the SEC's position. The briefs argue that the final rule comports with the First Amendment, satisfies the nondelegation doctrine, and is supported by substantial evidence, among other arguments in support of the respondents. 

Pursuant to an extension issued June 20, 2024, petitioners' reply briefs are due September 17, 2024.