Republican-Led States Sue SEC Over Climate Risk Disclosure Rules

Ten Republican-led states have sued to challenge new federal rules that require U.S.-listed companies to report climate-related risks, a spokesperson for the West Virginia Attorney General’s Office said on Wednesday, hours after the U.S. Securities and Exchange Commission approved the rules.

The states, which also include Georgia, Alabama and Alaska, filed the petition at the Atlanta-based 11th U.S. Circuit Court of Appeals, according to the spokesperson. The rules aim to standardize climate-related company disclosures about greenhouse gas emissions, weather-related risks and how they are preparing for the transition to a low-carbon economy.

The Sierra Club environmental group, meanwhile, said it was considering suing the SEC because it believed the new rules did not go far enough.

The SEC, Wall Street’s top regulator, said the information would give investors reliable information about financial risks companies face related to climate change.

An SEC spokesperson said in a statement that the agency crafts rules that are consistent with its legal authority, and that it will “vigorously defend” the climate disclosure rules in court.

First proposed in 2022, the rules are part of Democratic President Joe Biden’s efforts to leverage federal agency rulemaking to address climate change threats. Similar disclosure requirements have been adopted in Europe and in California.

West Virginia Attorney General Patrick Morrisey on Wednesday said during a press conference that the Biden administration is trying to act as a “puppeteer” using public companies to drive forward its climate agenda.

Republican-led states had been signaling their intent to challenge the rules for years, arguing in public comments in 2022 that they amount to back-door environmental regulations that go beyond the SEC’s legal authority.

They claimed then the rules would require companies to create, gather and disclose a “crushing” amount of material that goes well beyond the finance-based disclosures that investors need.

Anticipating legal challenges, the Biden administration had dropped more ambitious elements of the rules requiring companies to disclose “Scope 3” emissions, indirect emissions by suppliers or customers.

For many businesses, Scope 3 emissions account for 70% of their carbon footprint, according to the consulting firm Deloitte.

The final SEC rules also allow larger companies to determine whether emissions from their own operations and the power they purchase constitute information investors need to make decisions.

Morrisey said that despite changes to the proposed rule, the finalized rule was still defective and unconstitutional.

The Sierra Club, one of the largest environmental advocacy groups in the U.S., said in a statement it was considering filing a lawsuit to challenge the SEC’s decision to remove the more robust reporting requirements. The group said it would also defend the SEC’s legal authority to issue and implement the rules.

In California state court, litigation has been already been filed by business groups including the U.S. Chamber of Commerce challenging that state’s climate disclosure laws, which include Scope 3 emissions disclosure requirements. That lawsuit filed in January said the state’s laws will impose “massive” costs on businesses and violate free speech protections in the U.S. Constitution by compelling the disclosures.