Sierra Club sues SEC over climate reporting rule

A leading environmental group sued the Securities and Exchange Commission on Wednesday, arguing that its new climate disclosure rule threatens to leave investors in the dark about the full scope of companies’ climate risks.

The Sierra Club and the Sierra Club Foundation filed a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit, challenging the Wall Street regulator’s recently approved rule requiring public companies to disclose certain climate risks.

The suit contends the rule won’t provide investors with enough information about companies’ potential exposures. The groups — which say they manage millions of dollars of investments, including employees’ retirement savings — are represented by Earthjustice, an environmental law nonprofit.

“We are saying not only does the SEC have the authority to require these types of disclosures, in fact they made a mistake by dropping some very crucial disclosure requirements that were in the proposal — and a mistake that just is fundamentally wrong,” said Hana Vizcarra, senior attorney at Earthjustice.

The lawsuit comes amid an already pitched legal battle over the disclosure rule and marks the first to hit the SEC from the left for pulling back on its initial plans to require sweeping climate disclosures. At least four other challenges from Republican-led states, energy companies and their allies have been filed in conservative-leaning federal courts across the country.

A spokesperson for the SEC said the commission "undertakes rulemaking consistent with its authorities and laws governing the administrative process and will vigorously defend the final climate risk disclosure rules in court.”

Finalized along party lines, the SEC’s rule is a first-of-its-kind effort from the regulator to set up parameters around how and when companies should disclose information to investors about certain climate-related risks and their greenhouse gas emissions. The agency, led by Chair Gary Gensler, a Biden nominee, significantly pared back the rule from an earlier proposal that had incited a broad backlash from conservatives and corporate America.

But the changes went too far, the Sierra Club alleges.

In a statement, the group said investors “cannot adequately manage their investments without complete information on publicly-traded companies’ vulnerabilities to climate-related risks, including greenhouse gas emissions profiles.”

But the SEC’s rule allows “companies to selectively report their emissions,” the Sierra Club said, a nod to the agency’s decision to tie emissions disclosures to their significance, or materiality, to investors rather than outright mandating them.

“While the SEC’s final climate disclosure rule will provide investors with some much-needed information, the Commission’s arbitrary decision to remove robust emissions disclosure requirements and other key elements from the proposed rule falls short of what the law requires,” Sierra Club Executive Director Ben Jealous said in a statement.

The SEC’s rule was intended to provide investors with a new degree of clarity about companies’ climate-related disclosures, which are currently being issued under voluntary frameworks.

Gensler has stated he is confident in the SEC’s legal standing around the rule.

“There may be things that future commissions take up,” Gensler told reporters last week after the SEC finalized the rule. “But I think this is the appropriate step at this time.”