Eighth Circuit Orders SEC to Either Defend Climate Disclosure Regulation or Write New Rules

Today, the Eighth Circuit Court of Appeals ordered that the legal challenge to the Biden Administration's climate disclosure regulation be “held in abeyance” until the “Securities and Exchange Commission reconsiders the challenged Final Rules by notice-and-comment rulemaking or renews its defense of the Final Rules.”  In effect, the Eighth Circuit has rejected the attempt by the Trump Administration to compel the courts to issue an advisory opinion on whether the SEC's prior effort to engage in climate change-focused rulemaking was beyond the scope of their regulatory mandate.  Instead, the court--noting that the SEC has ceased to defend the climate change rule--has stated that “[i]t is the agency's responsibility to determine whether its Final Rules will be rescinded, repealed, modified, or defended in litigation.”  So, the SEC cannot simply abdicate this key responsibility to the courts.

Significantly, this decision by the Eighth Circuit will likely create substantial delay before the issue at the heart of the challenge to the climate disclosure regulation--whether the SEC's climate change rulemaking was ultra vires, i.e., beyond the SEC's authority--will be evaluated by the judicial system.  It seems highly unlikely that the Trump Administration's SEC will choose to defend the climate disclosure regulation in court (even if, as many commentators believe, the climate disclosure rule would likely be rejected by the judiciary), and so this decision by the Eighth Circuit will force the SEC to engage in another lengthy notice-and-comment rulemaking, which could easily take years.  (By way of comparison, the SEC's climate disclosure regulation was identified as a priority before the Biden Administration even entered office in 2021, but was not officially promulgated until March 2024.)   And any effort by a subsequent Democratic administration to revive a climate disclosure regulation would similarly take a lengthy period of time--and only then could another legal challenge be brought.  So, a test case that would limit the SEC's authority in the future now appears considerably less likely.

Still, it is important to note that this decision by the Eighth Circuit does not mean that the climate disclosure regulation will enter into effect.  Rather, as the court noted, “the Final Rules have been stayed, and [so] an abeyance will not cause material prejudice”--in other words, since no one is being forced to comply with rules that are not currently in force, there is no harm in delaying the resolution of the legal challenges.  (While it is possible that the Trump Administration's SEC could choose to simply stay enforcement of the rules, rather than defend the rules or engage in the notice-and-comment rulemaking process in an effort to withdraw or modify them, such an approach would allow a future Democratic Administration to remove the stay and resurrect the climate disclosure regulation fairly quickly--which is likely not an outcome that would be preferred by the current Administration.)