The SEC announced on March 27, 2025 that it was officially ending its defense of the climate disclosure rule it adopted in March of 2024. The Enhancement and Standardization of Climate-Related Disclosures for Investors, which was an amendment to the Securities Act of 1933, faced court challenges from parties who felt it was too extreme and parties who felt it was not serious enough.
SEC Acting Chairman Mark T. Uyeda stated, “The goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.”
While this decision has ended the latest federal effort to regulate sustainability reporting, that doesn’t mean organizations are off the regulatory hook. In this article, we’ll discuss the implications for businesses moving forward, and unpack the ruling itself, which may still influence the shape of future regulatory efforts.
Investors will continue pushing for sustainability regulations
The SEC climate disclosure rule was enacted to increase transparency for investors, as financial institutions see an organization’s environmental, social, and governance (ESG) practices as a key component of evaluating the investment risk it poses—and standardized reporting makes it easier to compare and evaluate investment opportunities.
In a 2020 EY investor survey, one institutional investor encapsulated the consensus this way: “It is our conviction that companies that perform well on ESG are generally less risky, better positioned for the long term and possibly better prepared for uncertainty”
Whether there are federal standards or not, every investment firm has their own process for assessing an organization’s ESG-related risk. The lack of standards just makes it more complicated. The current SEC may characterize the climate disclosure rule as “costly and unnecessarily intrusive,” but investors will consider ESG data, and companies that don’t voluntarily provide it (or provide less detail) will simply have to accept that the financial risk their operations pose to investors may be less transparent than competitors.
The global trend is toward more stringent disclosure requirements
It’s been nearly a decade since 195 countries signed the Paris Agreement at the UN Climate Change Conference, and the 17 Sustainable Development Goals were adopted as part of the 2030 agenda. In this time, regulating bodies around the world have been working to increase transparency into the climate impact of industrial operations and implement mechanisms to hold businesses accountable for their contribution to global warming and climate change. But even without this shared global interest from governments, international investors and financial institutions are just as determined to evaluate sustainability data as US investors.
The International Financial Reporting Standards (IFRS) established the International Sustainability Standards Board (ISSB) in 2022, which released its first two disclosure standards in 2023. The UN has intended for this to serve as a basis for global sustainability reporting standards, and 13 jurisdictions have adopted these standards on a voluntary or mandatory basis, with an additional 22 planning to adopt them soon. The ISSB standards are based on the Sustainability Accounting Standards Board (SASB) standards, which are used voluntarily by thousands of companies in more than 80 jurisdictions.
The biggest barrier to implementing and adopting reporting standards has been lack of visibility: organizations didn’t have the necessary tools, processes, and data to disclose their Scope 1, 2, and 3 emissions. Right now, Scope 3 emissions are still difficult to track, particularly for enterprises with complex value chains. So as countries and regulators adopt or formulate standards, there’s often a grace period before organizations have to disclose Scope 3 emissions. But make no mistake: this level of transparency is where the world is heading. And while the process may seem insurmountable, or even “costly and unnecessarily intrusive” as the SEC has put it, organizations will want to continue laying the groundwork even if it’s not currently mandatory.
And depending on where in the US you operate, it may soon become mandatory, anyway.
Without an SEC disclosure rule, regulation falls to states
Federal sustainability disclosure rules establish a baseline that allows businesses to apply consistent reporting processes across their US operations. While the SEC ruling may have imposed greater requirements than many organizations were prepared for, it would have created a single, standardized rule for every state—so that every state didn’t have to create their own.
Granted, plenty of state governments and regulators aren’t interested in sustainability despite investor advocacy and the increasingly costly effects of climate change. These regulatory bodies may not establish reporting standards of their own, leaving businesses that operate under their jurisdictions to decide whether the pressure from investors is enough to establish their own reporting process, and then determine what frameworks or standards are best aligned with their needs.
But due to the SEC’s final decision, other states that do care about sustainability are now in a position where they can’t count on federal guidelines and have to establish their own. And many are already in the process of doing so. California’s senate bills 253 and 261 established state reporting guidelines in 2023, and the California Air Resources Board (CARB) has been laying the groundwork for enforcement. New York currently has bill 3456 in the senate, which would establish similar disclosure requirements, and they’ve been working on iterations of sustainability requirements for years. Colorado, New Jersey, Washington, and Illinois are all at various stages of passing their own requirements as well, and we can expect more states to follow suit in the near future.
Most states will have significant overlap in the bills they create and how they enforce them, and many are already using more mature implementations (like California’s) as a model, but when this process is left to the states, there will inevitably be variations, which organizations will have to navigate if they operate in multiple states with different disclosure rules.
Since these state disclosure rules will be limited to operations within state borders, state-specific requirements like California’s will likely provide the most relevant model. Still, the SEC’s disbanded climate disclosure rule may shape the specific requirements and parameters states establish—or that future administrations create in the years to come. So while it may not be in effect, it’s still worth examining what the SEC’s final climate disclosure rule required.
Understanding the SEC climate disclosure rule
The entire text of the proposed climate disclosure rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors, is 490 pages. However, much of this consists of the rationale and history of the rule’s creation, economic analysis of its impact, and administrative details. If you’re just looking for a general explanation of the rule and its requirements, the summary of the actual rule is just six pages long.
Here’s the quick version.
SEC climate disclosure rule summary
The SEC’s overview of their rule states that it would “require registrants to provide certain climate-related information in their registration statements and annual reports. The proposed rules would require information about a registrant’s climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition.”
This would also include “disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.” It would also include “certain climate-related financial metrics” that registrants would have to provide in financial audits.
The rule’s framework is modeled after the Task Force on Climate Disclosure’s (TCFD) requirements and the GHG Protocol. Here are the specific pieces of information organizations subject to the rule would have been required to report:
- The oversight and governance of climate-related risks by the registrant’s board and management
- How any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term
- How any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook
- The registrant’s processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the registrant’s overall risk management system or processes
- The impact of climate-related events (severe weather events and other natural conditions as well as physical risks identified by the registrant) and transition activities (including transition risks identified by the registrant) on the line items of a registrant’s consolidated financial statements and related expenditures, and disclosure of financial estimates and assumptions impacted by such climate-related events and transition activities
- Scopes 1 and 2 GHG emissions metrics, separately disclosed, expressed: Both by disaggregated constituent greenhouse gases and in the aggregate, and in absolute and intensity terms
- Scope 3 GHG emissions and intensity, if material, or if the registrant has set a GHG emissions reduction target or goal that includes its Scope 3 emissions
- The registrant’s climate-related targets or goals, and transition plan, if any
As with most disclosure rules right now, the SEC rule included parameters for organizations that would be exempt from more challenging disclosures, as well as a timeline for how soon various levels of disclosure would be required. Organizations that meet the definition of “smaller reporting company,” for example, wouldn’t be subject to the Scope 3 disclosure requirements, and for everyone else, Scope 3 disclosures would be delayed after the rollout for Scope 1 and 2 disclosures.
In general, larger organizations will be expected to invest in the necessary technologies and processes to implement sustainability disclosures sooner. And the more distributed your organization, the more likely it is that you’ll have to adhere to multiple standards—which may or may not follow the framework defined in the now defunct SEC rule.
Simplify sustainability reporting with Tango
In addition to staying on top of ever-evolving regulations, organizations face challenges with gathering data for sustainability reporting. They lack the tools to efficiently collect, organize, standardize, audit, and present their sustainability data. The larger your operations, the more disparate data sources you have, and the more difficult each of these processes becomes.
Tango Energy & Sustainability Management makes compliance easy by automating sustainability data collection, standardizing your data, auditing it for common errors, and formatting it according to your preferred reporting frameworks. If you operate in territories that use different frameworks, it’s just as simple to produce multiple reports.
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