In its Response Brief, the SEC argued against the nine petitions on the following grounds:
- The SEC has statutory authority to adopt the Rules, because the Rules (i) regulate the securities market, not the environment; (ii) require disclosures on registrants’ financial performance; and (iii) apply a “materiality” approach to only “require disclosure of information important to investors’ investment and voting decisions.” The SEC further cited Loper Bright Enterprises v. Raimondo to explain that the Rules are within the SEC’s congressionally granted authority. In addition, the SEC clarified that the major questions doctrine established by West Virginia v. EPA does not apply and, in any event, does not undermine the Rules.
- The SEC adopted the Rules because the SEC believed that the Rules would facilitate informed investment and voting decisions by providing more detailed, consistent, and comparable information. Furthermore, the SEC has explained and substantiated the need for the Rules, analyzed the record evidence, and considered reasonable alternatives.
- The SEC reasonably considered the cost of the Rules and the Rules’ possible impact on efficiency, competition, and capital formation.
- The SEC satisfied the Administrative Procedures Act’s procedural requirements because the Rules followed a “rigorous notice-and-comment process” and the SEC reasonably considered comments received. For example, the SEC added materiality qualifiers, eliminated the originally proposed Scope 3 disclosure requirement, and relied on supplementary studies.
- The Rules are consistent with the First Amendment, because (i) the Rules are subject to the lesser scrutiny applicable to commercial disclosures and require “uncontroversial” and “purely factual” disclosures, and (ii) the required disclosures are “reasonably related to a legitimate government interest” and are not “unjustified or unduly burdensome.”
- The nine petitioners’ requested relief is overbroad.
The petitioners are due to submit their reply briefs by September 3, 2024. Previously, on June 17, 2024, they filed their respective opening briefs to the Eighth Circuit.
In the meanwhile, on June 24, 2024, and June 25, 2024, several amici briefs were filed with the Eighth Circuit in support of the petitioners; on August 15, 2024, some amici briefs were filed with the Eighth Circuit in support of the SEC.
According to the Rules, certain larger registrants are required to file their first climate-related disclosures with the SEC as early as 2026 covering their climate-related information for fiscal year 2025. However, on April 4, 2024, the SEC voluntarily stayed the Rules, while indicating its determination to vigorously defend the Rules’ validity in court. Therefore, even if the Rules are vacated by the Eighth Circuit, it is possible that the SEC will appeal before the U.S. Supreme Court. It is also likely that the SEC may consider adopting a new phase-in timetable if it finally wins the judicial battle.
Although both the SEC’s Rules and the California climate disclosure rules are currently being challenged in court, many U.S. businesses have already been proactive in preparing for the global trend of sustainable developments, such as building out sustainability programs and teams, according to a recent survey released on August 15, 2024 by EcoOnline, a London-headquartered SaaS technology company for chemical safety, environmental health and safety, and ESG.
