The SEC Kills Its Climate Disclosure Rule — But Companies Can't Escape the Patchwork That Replaces It

On May 29, 2026, the Securities and Exchange Commission voted to formally propose rescinding the climate-related disclosure rules it adopted just two years earlier — regulations that required public companies to report greenhouse gas emissions and climate-related financial risks in their SEC filings [1]. The move, widely expected since the Trump administration took office, marks the end of a four-year regulatory saga that generated over 24,000 public comment letters, triggered litigation in six federal circuits, and forced corporate America to confront an uncomfortable question: how much do investors deserve to know about climate risk? [2]

But the repeal, if finalized after a 60-day comment period, will not return companies to the status quo ante. A web of state and foreign disclosure mandates — from California's emissions reporting law to the European Union's Corporate Sustainability Reporting Directive — remains binding on thousands of U.S. firms. The practical effect may be less deregulation than regulatory fragmentation.

What the SEC Rule Required — and What Was Already Cut

The rule the SEC is now rescinding was itself a significantly narrowed version of the agency's original March 2022 proposal [3]. The most consequential change: the final rule adopted in March 2024 dropped any requirement to disclose Scope 3 emissions — the indirect emissions generated across a company's entire value chain, from suppliers to end-use of products — which typically represent 70% to 90% of a company's total carbon footprint [4].

What survived into the final rule was a requirement for large accelerated filers to disclose Scope 1 (direct emissions from company operations) and Scope 2 (emissions from purchased energy) — but only when those emissions were deemed "material" to investors. The rule also mandated disclosure of climate-related risks, governance processes, transition plans, and financial statement impacts. Third-party attestation of emissions data was phased in for the largest filers [3].

Even this pared-down version drew immediate legal challenges. Nine petitions were filed across six federal circuits. The Eighth Circuit, selected by random draw, was assigned the consolidated case [5].

Source: Harvard Law School Forum

Data as of Apr 15, 2024CSV

The Legal Case For and Against Repeal

The SEC's rescission proposal rests on two pillars: that the rule exceeded the agency's statutory authority, and that its costs outweighed its benefits. SEC Chairman Paul Atkins stated that "SEC disclosure obligations should comply with the Commission's statutory authority, be guided by materiality as the North Star, avoid the practical effect of dictating corporate behavior, and be imposed only when the expected benefits justify the likely costs and burdens" [1].

Challengers raised four principal legal arguments against the original rule: that it exceeded the SEC's authority under the Securities Exchange Act, that it triggered the "major questions doctrine" — a Supreme Court principle holding that agencies need clear Congressional authorization for rules with vast economic or political significance — that it violated the First Amendment by compelling speech, and that it violated the Administrative Procedure Act [5].

The Eighth Circuit never reached the merits. After the SEC voted in March 2025 to stop defending the rule, acting Chair Mark Uyeda called the regulations "costly and unnecessarily intrusive" [6]. But the court refused the SEC's unusual subsequent request to rule on the merits of a rule the agency was no longer defending. In September 2025, the Eighth Circuit ordered the SEC to either "rescind, repeal, modify, or defend" the rules through proper channels — a pointed rebuke that forced the agency onto the formal notice-and-comment rulemaking path it is now following [7].

Commissioner Caroline Crenshaw, the sole remaining Democratic appointee, dissented throughout. "We are now firmly in a period of policy-making through avoidance and acquiescence, rather than policy-making through open, transparent, and public processes," she wrote in March 2025. "This approach does not benefit the markets, capital formation, or investors" [6].

Supporters of the rule argue the SEC has clear authority. The Securities Exchange Act empowers the Commission to require disclosure of information "necessary or appropriate in the public interest or for the protection of investors." Climate advocates point out that 84% of S&P 500 companies already identify climate change as a financial risk — up from 67% in 2021 — suggesting the market itself has recognized the materiality the SEC sought to standardize [8].

The Compliance Spending That May Go to Waste

The SEC estimated companies would incur direct compliance costs of approximately $6.37 billion per year under the rule [9]. On a per-company basis, estimated annual costs of roughly $1.2 million per filer translated, at the median S&P 500 price-earnings ratio of 23, to a hypothetical market capitalization impact of about $28 million — though that amounts to just 0.09% of the median S&P 500 firm's $29.7 billion market cap [9].

Many large companies had already invested heavily in compliance infrastructure before the repeal was announced. Ninety percent of S&P 500 companies were already voluntarily publishing ESG reports, 87% had disclosed climate-related targets, and 69.6% had aligned their reporting with the Task Force on Climate-related Financial Disclosures (TCFD) framework by 2023 [8][10].

Source: S&P Global / UCLA Anderson

Data as of Dec 1, 2024CSV

The precise aggregate amount spent specifically on SEC rule compliance — as opposed to broader voluntary ESG reporting — is difficult to isolate. Companies that built out emissions measurement systems, hired sustainability staff, and engaged assurance providers in anticipation of mandatory reporting now face uncertainty about the return on those investments.

Wall Street's Quiet Retreat

The repeal arrives against the backdrop of a broader institutional investor withdrawal from climate commitments. The same firms that once called loudly for mandatory disclosure have systematically reduced their support.

Vanguard withdrew from the Net Zero Asset Managers initiative in December 2022 [11]. BlackRock's support for environmental and social shareholder proposals fell to less than 2% in the 2025 proxy season, down from 12% in 2024. The firm said many proposals were "overreaching, lacked economic merit or sought outcomes unlikely to promote long-term financial value" [12]. State Street's support for environmental and social resolutions dropped to 22% in 2024, and the firm removed board diversity requirements from its 2025 proxy voting policy [13]. Across all three firms, combined support fell to 16.2% in 2024 [14].

Source: Morningstar / ESG Dive

Data as of Sep 1, 2025CSV

This retreat occurred even as over 4,000 investment firms managing more than $120 trillion in assets remained signatories to the UN-sponsored Principles for Responsible Investment — a framework that depends on the kind of standardized emissions data the SEC rule would have provided [15].

The tension is stark. BlackRock, even while slashing its support for environmental proposals, rejected 74 director nominations at 62 companies during one recent proxy season citing "concerns regarding inadequate disclosure or effective board oversight of climate-related risks" [15]. The firm appears to want climate data — it just does not want it mandated by the SEC.

The Patchwork Problem: California, the EU, and the Disclosure Floor

Proponents of repeal argue it reduces compliance burdens. But for many of the largest publicly traded companies, the federal rule's disappearance changes less than it might seem.

California's SB 253 — the Climate Corporate Data Accountability Act — requires U.S. companies with more than $1 billion in annual revenue that do business in California to report Scope 1, 2, and 3 emissions. The California Air Resources Board (CARB) adopted implementing regulations at its February 2026 board hearing. Scope 1 and 2 reporting is due by August 10, 2026; Scope 3 reporting begins in 2027 [16]. Because the law uses a broad "doing business in California" standard, it captures thousands of companies nationwide — and unlike the SEC rule, it requires Scope 3 disclosure and does not apply a materiality qualifier [17].

California's companion law, SB 261, requires companies with over $500 million in revenue to file biennial reports on climate-related financial risks. It is currently under a Ninth Circuit injunction, but companies have been advised to prepare for its potential reinstatement [16].

The EU's Corporate Sustainability Reporting Directive (CSRD) applies an even broader net. It requires disclosure of all three scopes of emissions under a "double materiality" standard — meaning companies must report both how climate change affects their finances and how their operations affect the environment. U.S. parent companies with significant EU revenue face reporting obligations beginning in 2029. The CSRD requires limited assurance initially, expanding to reasonable (audit-level) assurance by 2028 [3][18].

The result: a company subject to both California and EU requirements must now comply with two separate regimes that each go further than the SEC rule did — covering Scope 3, applying different materiality standards, and imposing their own assurance requirements — without the benefit of a single federal baseline that would have allowed streamlined compliance.

Which Industries Benefit Most from Repeal

The sectors with the most to gain from the federal rule's disappearance are those with the largest Scope 3 emissions — the category the SEC had already dropped but that California and the EU still require.

Oil and gas companies face enormous Scope 3 exposure because the combustion of their products by downstream consumers dwarfs their direct operational emissions. Similarly, automakers, airlines, agriculture, mining, and consumer goods companies with extensive supply chains would have faced pressure to quantify value-chain emissions that many have never systematically measured [4].

For these industries, the SEC repeal eliminates potential federal litigation exposure tied to emissions disclosures — particularly the risk that inaccurate or incomplete filings could trigger securities fraud claims. However, this liability shield applies only at the federal level. California's SB 253 creates its own disclosure obligations, and companies that file materially inaccurate emissions data under state law face separate enforcement risks.

The Voluntary Disclosure Track Record

The SEC's stated rationale for the original rule was that voluntary disclosure was insufficient for investor decision-making. The evidence broadly supports that concern.

A Harvard Business School study found that 74% of S&P 500 companies revised their emissions data at least once in corporate social responsibility reports between 2010 and 2020. The revisions skewed heavily in one direction: 135 million tons of Scope 1 emissions went underreported, while only 57 million tons were over-reported. The net underreporting exceeds the annual emissions of all but 35 countries [19].

"We are operating in a world without actionable corporate climate data. We're using bad data," said Ethan Rouen, the Harvard researcher who led the study [19].

Research on oil and gas companies' emissions reporting through the CDP (formerly the Carbon Disclosure Project) found unbalanced internal bookkeeping in 38.9% of cases, with roughly 37% of companies showing inconsistencies between facility-level breakdowns and declared global totals [20]. Studies of TCFD-aligned disclosure found that companies selectively report in areas deemed least material — governance and risk management — while providing less detail on strategy and metrics [21].

Opponents of the mandatory rule counter that these data quality problems are not solved by regulation — they reflect genuine measurement challenges, particularly for Scope 3, where companies must estimate emissions across complex global supply chains with limited data from suppliers.

Can a Future Administration Bring the Rule Back?

The procedural path the SEC has chosen — formal rescission through notice-and-comment rulemaking under the Administrative Procedure Act — has a significant consequence: it preserves the ability of a future administration to re-adopt a similar rule through the same process [22].

This is the critical difference from the Congressional Review Act (CRA), which House Republicans attempted to use in April 2024. Under the CRA, Congress has 60 days after an agency submits a rule to pass a joint resolution of disapproval. If successful, the rule cannot be "reissued in substantially the same form" without specific Congressional authorization — a permanent ban [23]. But the House resolution stalled, and the CRA's 60-day window expired in summer 2024 [23].

Because the SEC is using the APA route instead, a future Democratic administration could propose, take comment on, and finalize a new climate disclosure rule — though it would need to survive the same legal challenges the current rule faced. The full rulemaking cycle would likely take 18 to 24 months at minimum, and any new rule would almost certainly face immediate litigation [22].

Could Congress use the CRA to block a future rule? In theory, yes — if both chambers and the president agree. But the CRA is a blunt instrument. Its "substantially the same" prohibition lacks precise legal definition, and courts have not settled how broadly it applies [23]. A future SEC could argue that a redesigned rule with different thresholds or scope requirements is not "substantially the same" as the rescinded one.

The Costs of Fragmentation

The irony of the SEC's repeal is that it may produce exactly the outcome its proponents hoped to avoid. Rather than a single federal standard with consistent definitions, materiality thresholds, and reporting timelines, companies now face a patchwork of state and international mandates with varying requirements.

Jessye Waxman of the Sierra Club warned that "rescinding the rule would move markets backward by abandoning the prospect of a federal baseline for consistent, comparable, and decision-useful climate information. Treating climate disclosure as a political bargaining chip is a failure of investor protection and the public interest" [24].

Tom Zimpleman, an attorney with the Natural Resources Defense Council, put it more bluntly: "Climate risk is financial risk" [24].

The 60-day comment period now underway will test whether that argument still carries weight with an SEC that has made clear it disagrees. But regardless of the comment period's outcome, the underlying question — whether investors are entitled to standardized, comparable data on climate-related financial risks — will not be resolved by this repeal. It will simply be answered, for now, by Sacramento and Brussels instead of Washington.