SEC Proposes Full Rescission of Climate Risk Disclosure Rules

Regulatory Reversal Targets Climate Transparency Requirements

The Securities and Exchange Commission proposed a rule Friday to formally rescind the climate-risk disclosure regulation adopted in 2024. The agency said the rules exceeded its statutory authority. It also cited “independent, compelling reasons” to eliminate them entirely.

The proposal would rescind the climate disclosure rules “in their entirety,” according to a Friday press release. The 2024 rules would have required companies to disclose climate-related risks with material impacts. Other climate disclosures would have also been mandatory. The final rule never went into effect.

The Commission described the original rules as “overly burdensome and costly.” It called them a “dramatic overreach of the Commission’s statutory authority.” The agency said the rules were also “unsound as a matter of policy.” The proposed rescission marks a significant shift in regulatory philosophy.

The rules were challenged almost immediately after adoption. The Commission issued a stay pending completion of judicial review. Earlier, the agency decided to abandon its defense of the rule in court. This decision preceded the formal rescission proposal.

Market Transparency Concerns Emerge

Clean Air Task Force, a global nonprofit organization, criticized the proposed rescission. Frank Sturges, Senior Attorney at the organization, expressed concerns about market transparency. He said information about climate-related risks falls squarely within the SEC’s mandate.

“The SEC’s proposal to rescind its climate disclosure rule should raise serious concerns for investors about the future of market transparency in the United States,” said Frank Sturges.

The organization argued that climate-related risks include the quality and integrity of carbon offset claims. Sturges warned that throwing out the rule will move markets in the wrong direction. Investors will lack information needed to assess reputational, regulatory, and financial risks related to climate.

The voluntary market for carbon credits that are used as offsets is unregulated and opaque. Over $1.5 billion will be spent on carbon credits in 2026, according to estimates. Clean Air Task Force analyses of forest carbon and biomass protocols show concerns. A large share of these credits are based on protocols that don’t guarantee high-quality credits.

Carbon Offset Transparency at Stake

When the rule was first proposed, Clean Air Task Force highlighted carbon offset issues in its comments. Low-quality carbon offsets are one example of how gaps in public disclosure can harm investors and consumers alike. Climate disclosures would support greater transparency into when and how public companies rely on these carbon credits.

Kathy Fallon, Director of Land Systems at Clean Air Task Force, called the rule an important step toward transparency. She acknowledged the rule was imperfect. However, it would have given investors consistent information about financially material climate risks.

“While imperfect, the rule was an important step toward giving investors consistent information about financially material climate risks, including the use of carbon offsets,” said Kathy Fallon.

The organization emphasized the SEC’s core responsibility. The agency must protect investors and the public by ensuring access to material information. Fallon urged the Commission to withdraw this proposal. She recommended implementing disclosure requirements that give both investors and the public needed transparency.

Regulatory Background and Legal Challenges

The climate disclosure rules were developed through extensive public comment processes. They reflected growing investor demand for climate-related information. The rules would have required granular disclosure about climate-related matters. Nearly all public companies would have been affected.

The disclosure regime imposed new requirements relating to greenhouse gas emissions, risk, governance, and business impact. Registration statements and other filings would have included this information. The rules faced immediate legal challenges after adoption. Courts stayed implementation before the rules could take effect.

The Commission’s proposal to rescind represents a complete reversal of the prior regulatory approach. The rescission eliminates these disclosure frameworks entirely. Years of work toward standardized climate disclosure are being reversed. The proposal reflects a different view of the SEC’s statutory authority and policy priorities.

Implications for Corporate Reporting

The proposed rescission affects how companies report climate-related financial risks. Public companies would no longer face federal requirements for climate risk disclosures. This creates uncertainty for investors seeking comparable, consistent information across companies. Market participants have expressed concerns about losing transparency tools.

The original rules aimed to provide investors with decision-useful information. They would have standardized how companies disclose climate risks and opportunities. Without federal requirements, disclosure practices may become fragmented. Companies may adopt different approaches to climate reporting. This could make comparison and analysis more difficult for investors.

The voluntary carbon credit market lacks regulatory oversight. Transparency gaps in this market were one concern driving support for disclosure rules. Without mandatory disclosure, investors face challenges assessing how companies use carbon offsets. Questions about offset quality and effectiveness remain unaddressed in public reporting.

Future of Climate-Related Disclosures

The proposed rescission leaves the future of climate disclosure uncertain. Some companies may continue voluntary climate reporting. Others may reduce or eliminate such disclosures. The lack of standardized requirements could lead to inconsistent practices across industries. Investors may struggle to obtain reliable, comparable climate risk information.

The SEC’s proposal represents a fundamental policy shift. It prioritizes reducing regulatory burden over expanding disclosure requirements. The Commission argues the original rules exceeded its authority. Critics contend the agency is abandoning its transparency mandate. The debate reflects broader questions about the role of securities regulation in addressing climate risks.

The proposal will undergo a public comment period. Stakeholders can submit feedback on the planned rescission. The Commission will review comments before issuing a final rule. The outcome will shape corporate climate disclosure practices for years to come. Market participants are watching closely as this regulatory debate unfolds.