The Clock Continues to Tick for SEC Climate Proposal

Juhi Desai

Associate Editor

Loyola University Chicago School of Law, JD 2024

In March 2022, the U.S. Securities and Exchange Commission (SEC) released a 490-page proposal encouraging organizations to adopt climate-focused regulations. The policies could include climate disclosure requirements and an expense report detailing the effect climate change has on businesses. However, shortly after the release, the SEC was flooded with a mixed review of feedback from the public. The response to this proposal has added to the political agenda of the Biden-Harris administration ever since it pushed for stronger climate change regulatory policies. As of October 2022, the SEC announced that to properly review the suggested edits, it would push back its official reporting release date.

The SEC proposal

The proposal totaling almost 500 pages was released in March 2022 setting forth its criteria for businesses to become more transparent in their environmental impact. According to Bloomberg Law, the proposal calls for requiring companies to “disclose their carbon footprint, including greenhouse gas emissions from the supply chains” in periodic reports. This would not only assess the risks an agency is being exposed to, but it also helps the SEC understand which climate-related risks are having a “material impact” on business functions.

The proposal not only helps the SEC understand what impact climate change has on various agencies, but it also has a financial benefit. According to a press release from the SEC on March 21, 2022, the detailed disclosures would also allow potential investors to assess the risks prior to any sales and would allow them to mitigate any potential damages or losses.

The SEC is not alone in wanting agencies to report such findings. Companies are already required to disclose similar information under the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. The scope of the SEC proposal is broader and would encompass a wide scope of climate-related activities.

Initially, the SEC wanted to complete its climate report by October and thus only had its comment section open for 30 days after the publication of the proposal on the Federal Register page. However, after the rush of comments came in calling for significant changes, mainly to reevaluate the proposal, the reporting deadline was pushed back indefinitely. Another factor that led to pushing back the deadline was the result of the Supreme Court case, West Virginia v. Environmental Protection Agency (EPA).

A technical glitch that occurred shortly after the proposal’s release prevented online users to share their comments regarding the SEC’s agenda. To compensate for the lost time, the SEC reopened the comment portal in October, allowing users to share how they really felt about the proposal after also having reviewed the recent SCOTUS decision. As of October 21, 2022, there have been 11,433 comments calling for a variety of amendments.

The Biden-Harris administration

The bipartisan woes continue to halt yet another Biden administration proposal. Since the start of his presidency, President Biden has faced multiple pushbacks from his opposing party regarding his proposed plans. From several women’s rights issues to his student loan forgiveness program, Republican congressmen have attempted to block the liberal policies.

Even with climate policies, the opposition remains strong. For example, in West Virginia v. EPA, the Supreme Court limited the powers of federal agencies and their ability to regulate businesses.

Whereas Biden wants to be at the forefront of combating climate change and its adverse effect on the world, the Court wants to ensure federal agencies do not exceed their scope whilst in the fight.

West Virginia v. EPA

The Supreme Court docket has been very full and eventful this year. After overturning Roe v. Wade in May, the justices also decided to rule on West Virginia v. EPA in June. The Court held that “agencies need clear permission from Congress to create regulations that have major economic or political effects.” A 6-3 decision led by the conservative majority, significantly limits the SEC from implementing its proposal. Under this new rule, federal agencies will have to ensure they do not exceed the scope of congressional authority and must be able “to point to clear congressional authorization for the power it asserts.” This decision came three months after the SEC released its Climate-related report.

Although no changes have yet been put into effect since the ruling, the SCOTUS decision coupled with the mixed public feedback on the proposal made way for the SEC to adjust its proposal.

What’s next?

The Office of Information and Regulatory Affairs (OIRA) website lists the SEC proposal in its final rule stage. The SEC’s goal was to have the disclosure amended with all proposed changes by November 1, 2022, however, they have now left the new deadline date blank.

It is still yet to be decided what the new deadline will be. Although the SEC does not believe the proposal will be ready by the first quarter of 2023, it hopes to release it sometime in 2023. Of course, this release will come after the committee implements the proposed changes.

With the conservative court and its ruling on the new EPA Supreme Court case, it is hard to tell whether this proposal will be enacted with the same climate-friendly agenda the SEC initially had in mind. With a 6-3 conservative majority, it is harder to imagine that proposals with a rigorous push for climate change will be accepted without a fight.

Although it’s unfortunate that the SEC’s timeline was delayed, it’s good to know that it takes consumer feedback into consideration when making its decision on what policies it should require businesses to comply with. The question remains whether the SEC will be able to adopt the changes prompted by the consumers while still complying with the new SCOTUS decision and the agenda of the executive branch.