The Securities and Exchange Commission (SEC) has voted to cease defending its climate disclosure regulations in court, marking a significant shift in U.S. corporate sustainability reporting requirements. This decision, announced on March 27, 2025, under Acting Chairman Mark Uyeda's leadership, has substantial implications for the ESG landscape.
The Decision
The SEC’s withdrawal from defending its climate disclosure rules comes amidst ongoing litigation before the U.S. Court of Appeals for the Eighth Circuit. Originally adopted in 2024, the rules were intended to provide investors with standardized information about companies' climate-related risks, emissions, and the financial impact of those risks. Uyeda justified the withdrawal by stating, “The goal of today’s Commission action is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.”
The regulations faced swift opposition from industry trade groups and Republican state attorneys general, who argued the SEC had overstepped its authority. The legal challenge quickly gained momentum, and with the change in SEC leadership, the agency opted not to continue defending the rules.
Caroline Crenshaw, the lone Democratic commissioner, sharply criticized the move. She described it as an attempt to “unlawfully undo valid regulations” and accused her colleagues of “watching the rule’s demise while eating popcorn on the sidelines.”
Market Implications
The decision reintroduces regulatory uncertainty for companies. Many had already begun preparing internal systems and compliance structures based on the 2024 rules. Now, in the absence of a federal standard, they may be forced to rely on voluntary reporting frameworks or navigate a fragmented set of expectations from investors, states, and international markets. This lack of uniformity is likely to lead to inconsistent reporting practices and difficulties in cross-company comparisons.
Investors, meanwhile, will face greater challenges in accessing reliable and comparable data on climate-related risks. Without SEC-mandated disclosures, much of the burden of transparency shifts to individual companies and third-party ESG data providers. Investors will likely need to increase due diligence efforts, adopt varied methodologies, and potentially absorb higher costs to obtain the data needed to manage climate risk effectively.
The Broader Context
This decision does not exist in isolation—it aligns with a broader trend of regulatory rollback on climate issues in the U.S. and signals a widening divergence between American and international disclosure approaches.
The divergence creates complexity for multinational corporations that must now navigate different expectations in different jurisdictions. This fragmentation may also create competitive disadvantages for U.S.-listed firms, especially those competing for capital in more disclosure-forward markets.
SEC Leaves the ISSB
In a related move that further isolates the U.S. from international sustainability efforts, the SEC recently withdrew from two key ISSB governance groups: the IFRS Sustainability Jurisdictional Working Group and the Sustainability Standards Advisory Forum. These groups are central to building alignment on global ESG disclosure standards.
The SEC’s exit from these forums signals a significant retreat from coordinated climate disclosure initiatives and weakens the U.S. role in shaping global ESG norms.
Market Response
Despite the rollback, some companies may continue voluntary climate-related disclosures. Those that have already invested in reporting infrastructure may opt to maintain transparency to meet investor expectations, mitigate reputational risk, and support long-term sustainability goals.
Simultaneously, ESG data providers and rating agencies are expected to play a more prominent role in filling the information gap. Financial institutions may also develop their own internal frameworks to evaluate climate risks, further privatizing what was once a public regulatory function.
Looking Forward
The path ahead remains uncertain. State-level legislation may introduce a patchwork of new rules. Global investors—particularly those with mandates in the EU or UK—may continue demanding robust disclosures from U.S. firms. And future federal administrations could choose to reintroduce or reshape mandatory disclosure regimes.
In the interim, companies and investors will need to adapt by maintaining flexible reporting systems, monitoring evolving voluntary frameworks, and diversifying their sources of ESG data. While federal requirements may have receded, the underlying investor interest in climate-related financial risk is not going away. Climate disclosure, in one form or another, remains firmly on the radar.
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