SEC Abandons Legal Defense of Climate Disclosure Rules

As widely expected, the SEC today announced that it had voted (2-1, along party lines) to end its defense of the climate disclosure rules. The rules were adopted a year ago this month by a 3-2 vote (also along partisan lines, when the agency had a Democratic majority). The SEC previously had stayed the rules pending the completion of judicial review of the consolidated Eighth Circuit legal challenges. Briefing in the litigation was concluded during the Biden administration but a date for oral argument had not been scheduled.

In the announcement, SEC Acting Chair Uyeda again criticized the rules as “costly and unnecessarily intrusive.”

Following today’s vote, the staff sent a letter to the court stating that the SEC withdraws its defense of the rules and that SEC counsel are no longer authorized to advance the arguments in support of the rules outlined in the brief earlier filed by the Gensler-led SEC.

It is unclear at this point how the court will respond and whether another party to the litigation (such as the Democratic state attorneys general) will step up to lead defense of the rules.

Dissenting Statement: ‘The Commission Has Left the Building’

Commissioner Caroline Crenshaw, currently the agency’s lone Democrat, issued a blistering dissent, accusing the current Republican majority of playing politics and attempting to dismantle the rules “unlawfully”:

“The Administrative Procedure Act (APA) governs the process by which we make rules. The APA prescribes a careful, considered framework that applies both to the promulgation of new rules and the rescission of existing ones. There are no backdoors or shortcuts. But that is exactly what the Commission attempts today….

The Commission’s actions are inconsistent with the APA, historical practice, and they embody bad governance. We do not have license to wholesale abandon agency action simply because the now-constituted Commission would not have supported the rule when it passed. The new majority cannot now rewrite history to change the outcome of a properly held Commission vote.

To be clear, the arguments in the Commission’s Response Brief remain substantively sound. There has been no change in the relevant statutory authority; no new judicial precedent or doctrine; nor any change in the vigorous demand by the investing public. There is no new administrative record, comment file, or economic analysis. As I have said before, the only change here is politics.

Today’s actions are but one symptom of a much larger problem — the Commission taking shortcuts in order to achieve preferred outcomes — this time by skirting the APA. We are now firmly in a period of policy-making through avoidance and acquiescence, rather than policy-making through open, transparent, and public processes. This approach does not benefit the markets, capital formation, or investors. In this instance, the majority of the Commission is hoping to let someone else do their dirty work.”