The Securities and Exchange Commission (SEC) is shifting its stance on a contentious rule requiring public companies to disclose climate-related financial risks, signaling a potential rollback under its new leadership.
Acting SEC Chairman Mark Uyeda announced Tuesday that the commission is asking a federal court to delay oral arguments in a legal challenge to the rule, indicating that the SEC under his leadership may not continue defending it. Uyeda pointed to various factors influencing the decision, citing the opposition he and fellow Republican Commissioner Hester Peirce expressed when the rule was finalized in March 2024.
With two commissioner seats currently vacant, Uyeda and Peirce now hold a 2-1 majority, giving them significant influence over the SEC’s agenda. Both have argued that the climate disclosure rule exceeds the commission’s authority, asserting that existing reporting requirements already provide sufficient transparency for investors. They also contend that the compliance costs outweigh any potential benefits and that the SEC is inappropriately positioning itself as a climate regulator.
“These views, the recent change in the composition of the commission, and the recent presidential memorandum regarding a regulatory freeze bear on the conduct of this litigation,” Uyeda said Tuesday. “Therefore, I have directed the commission staff to notify the court of the changed circumstances and request that the court not schedule the case for argument to provide time for the commission to deliberate and determine the appropriate next steps in these cases.”
Deregulatory Shift Extends to CAT Reporting
This decision follows another regulatory rollback announced Monday, when Uyeda granted an exemption to the Consolidated Audit Trail (CAT) reporting requirements. The exemption removes certain personally identifiable information, such as customers’ names and addresses, from the reporting system, citing security concerns.
Uyeda noted that the SEC had previously exempted other sensitive data, including Social Security numbers, from CAT reporting requirements in 2020, underscoring the commission’s ongoing concerns over data security and privacy.
Democratic Commissioner Caroline Crenshaw strongly opposed both moves, arguing that they undermine investor protections. She emphasized that CAT, established in response to the 2010 flash crash, is a critical tool for regulators to monitor trading activity and detect market anomalies. Removing key customer information, she argued, weakens the system’s ability to identify suspicious transactions and prevent market disruptions.
Crenshaw was equally critical of Uyeda’s decision to halt the SEC’s defense of the climate disclosure rule. She maintained that the rule provides investors with essential information for evaluating companies’ climate-related financial risks.
“The commission had clear authority to adopt this rule when we approved it last March,” Crenshaw said Tuesday. “The only things that have changed since then are political dynamics, not the substance of the rule.”
Investor Advocates Warn of Market Risks
Investor advocacy groups also criticized the SEC’s retreat from the climate disclosure rule. Better Markets, which had supported the SEC’s legal defense with an amicus brief, argued that the commission has “broad statutory authority” to mandate corporate disclosures. The group warned that abandoning the rule would leave investors without critical insights into climate-related risks.
“That is why the SEC passed the rule in the first place—not to regulate climate change but to ensure that investors know about the climate-related risks that matter just like other risks that are important to investors,” said Benjamin Schiffrin, director of securities policy at Better Markets. “The suggestion that the SEC will no longer defend the rule will prevent investors from receiving essential information about public companies and therefore harm our markets.”
Implications for Wealth Advisors and RIAs
For wealth advisors and registered investment advisors (RIAs), these regulatory shifts could have direct implications. The rollback of climate risk disclosures may make it more challenging to assess the long-term financial health of publicly traded companies, particularly those in industries with significant exposure to climate-related risks. Advisors who incorporate environmental, social, and governance (ESG) factors into investment strategies may need to rely on voluntary corporate disclosures or third-party research to fill the gap left by the SEC’s decision.
Additionally, changes to CAT reporting could impact market transparency and surveillance efforts. While data security is a valid concern, reducing the scope of available trading information may limit regulators’ ability to detect fraud and manipulation, potentially affecting market integrity. Advisors and RIAs focused on investor protection may need to monitor whether these regulatory rollbacks lead to increased market volatility or compliance challenges.
As the SEC’s new leadership continues to reshape its regulatory agenda, wealth advisors should stay informed about ongoing changes that could affect investment strategies, disclosure practices, and market oversight.
