Climate disclosure rule halted by federal court in setback for SEC

Fracking companies secure pause in rule’s application, arguing they should not pay compliance costs while legal arguments continue.

The SEC’s new rule requiring publicly traded companies to reveal information related to climate change has been halted by a federal court.

The rule, approved by the SEC on March 6, was the first nationwide climate disclosure rule in the United States. It was passed by a 3-2 vote of SEC commissioners, with the decision split along party lines, and experts are already debating how effective it will be.

Even in a form many consider to have been a watered-down version of earlier proposals, the rule immediately prompted a group of nine Republican-led states to announce their intention to challenge it in court. But it’s a challenge from two fracking companies that has led to a pause in the application of the rule.

Liberty Energy and Nomad Proppant Services asked the Fifth Circuit Court of Appeal to put the rule “on hold” and argued that litigation against it was likely to succeed and so they should not face compliance costs while the legal arguments play out.

Application to pause

While the three judges on the panel, Judges Edith Jones, Stephan Higginson and Cory Wilson, did not give details of the reasons for granting the application to pause, the decision would seem to indicate they think moves to block the rule have some merit.

The SEC argued unsuccessfully that the two companies had not shown they would suffer “imminent and irreparable harm” and pointed out that Liberty Energy – the only petitioner that is publicly listed – already discloses some climate-related risks.

The regulator’s decision to drop the requirement for disclosure of Scope 3 emissions – those resulting from the activities of third parties in the company’s “value chain” – was seen as an attempt to help the rule withstand legal challenge. Given the speed with which the rule has been challenged in the courts that may not be the case, and the move has attracted criticism from climate groups who argue it means the SEC has “fallen short on a core mission” to provide investors with information they need.