RIP SEC Climate Rule. Disappointed? Of Course. Disheartened? Not At All.

The SEC has now abandoned its defense of the climate disclosure rule. This is a surprise to nobody. Even though the rule has been abandoned, it still represents a pivotal moment in the evolution of corporate sustainability reporting. I was brought in to the SEC in February of 2021 to work on the climate rule so obviously I’m not thrilled with the direction this has ultimately taken. But am I disheartened? Not at all. The progress made over the past four years has fundamentally reshaped how companies and investors approach climate-related disclosures. Today, businesses are not starting from scratch. Instead, they are building on a foundation of harmonized global standards, emerging national regulations built on those standards, and state-level laws like California’s SB 253 and SB 261, which align with the global standards. Together, these requirements provide a clearer path forward for climate reporting that was badly needed four years ago.

Where We Were Four Years Ago – Fragmentation, Confusion, and Cost

Alphabet Soup

Before the SEC introduced its climate disclosure rule, the ESG reporting landscape was highly fragmented. Companies relied on a variety of voluntary frameworks, such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Climate Disclosure Standards Board (CDSB), International Integrated Reporting Council (IIRC), and many others, each with different methodologies and metrics tailored to specific audiences or issues. This patchwork system created significant challenges for comparability and consistency, as companies often disclosed ESG information in disparate formats across sustainability reports, websites, proxy statements, and other forums.

The absence of standardized reporting led to confusion among stakeholders, including investors who struggled to integrate ESG data into decision making due to inconsistencies and lack of reliability. What’s more, ESG rating agencies applied their own methodologies, sometimes assigning drastically different scores to the same company, further complicating the landscape. This environment was often described as the "wild west" of ESG reporting, with businesses overwhelmed by survey fatigue and contradictory demands from rating agencies, investors, and other stakeholders.

Calls for Standardization and Harmonization

Many companies expressed frustration with the fragmented system. I spoke with hundreds of companies both in my practice at Latham & Watkins and then when at the SEC working on the climate rule. Many were struggling under the weight of burdensome compliance requirements, high costs of assembling disparate data for multiple audiences, and difficulty in meeting diverse expectations from different stakeholders. Companies increasingly advocated for a unified framework to simplify reporting processes, reduce costs, and enhance comparability with peers. They said that they wanted to tell their own story rather than being subject to the whims of raters but they couldn’t decline to engage with rating firms because of the consequences of a poor rating. Industry groups tended to take nuanced stances. While generally opposing overly prescriptive mandates, they uniformly acknowledged the need for material climate-related risk disclosures within a flexible framework. One prominent business group lamented that businesses were "all over the map" regarding how they approached ESG issues, underscoring the challenges posed by the lack of universally accepted standards.

Investors, for their part, were among the most vocal proponents of harmonization. They clearly expressed the need for consistent and reliable data to better assess risks and opportunities and allocate capital effectively. Investors argued that standardized disclosures were critical for integrating material sustainability factors into their financial modeling and understanding of companies’ risks and opportunities.

The calls for standardization came from all corners—companies seeking streamlined processes, investors demanding reliable data, and organizations advocating for global harmonization. These demands laid the groundwork for regulatory efforts like the SEC's climate disclosure rule aimed at enhancing consistency and comparability in ESG reporting.

The SEC Rule: A Catalyst for Change

The SEC’s climate rule was designed to address the inefficiencies and inconsistencies of the fragmented voluntary reporting landscape that preceded it. By requiring public companies to disclose material climate-related risks, the rule aimed to provide investors with comparable, decision-useful data. It drew heavily from established frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol rather than reinventing the wheel.

During the drafting process, we engaged with a wide range of stakeholders—companies, industry groups, investors, NGOs, economists, standard setters, and others —to ensure the rule properly took into account the market and economic realities associated with climate disclosures. The resulting proposal reflected a balance between rigorous disclosure requirements and flexibility for businesses to craft their disclosures to tell their own story based on their own assessment of their climate-related risks and strategies. While the rule will not be enforced by this administration, its legacy endures in the global momentum it fostered.

The ISSB: Leading Global Harmonization

Probably the most significant manifestation of this global momentum is the range of uptake of the International Sustainability Standards Board (ISSB) standards. The ISSB’s two standards—IFRS S1 (General Sustainability-related Disclosures) and IFRS S2 (Climate-related Disclosures)—are now becoming the global baseline for sustainability reporting. Like the SEC climate rule, these standards align closely with the TCFD recommendations and the GHG Protocol, requiring companies to disclose material climate-related risks and opportunities as well as their Scope 1, 2, and 3 GHG emissions.

The ISSB’s work has gained widespread support internationally. More than 35 countries—representing over half of global GDP—are actively considering incorporating these standards into their regulatory frameworks. Jurisdictions such as Canada, Japan, Singapore, Australia, Brazil, Nigeria, and Turkey have already announced plans to align their sustainability disclosure requirements with ISSB standards. This unprecedented level of adoption signals that harmonized reporting is no longer an aspiration but a reality.

Why ISSB Standards Matter

The ISSB’s standards address many of the challenges that plagued voluntary reporting frameworks:

• Consistency: By providing a single global baseline, they minimize discrepancies between competing standards.

• Comparability: Investors will be able to better assess companies’ climate-related risks and performance across industries and regions.

• Efficiency: Businesses can streamline their reporting processes by adhering to one set of globally recognized requirements.

California’s Leadership

In the absence of federal action in the U.S., states like California have stepped up to fill the regulatory void. California’s SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act) represent some of the most comprehensive climate disclosure laws in the country.

SB 253 requires large US entities doing business in California with revenues exceeding $1 billion to report their Scope 1, Scope 2, and eventually Scope 3 emissions annually. These reports must follow the Greenhouse Gas Protocol and be assured by an independent third party.

SB 261 mandates biennial disclosures of climate-related financial risks for US entities doing business in California with revenues over $500 million. SB 261 complements the emissions disclosures under SB 253 by focusing on financial exposure to climate risks. Like the ISSB standards, these laws align closely with the GHG Protocol and TCFD. Because of this deliberate alignment with the ISSB standards, most companies will be able to use their ISSB reports to satisfy their California reporting obligations. These laws set a de facto standard for climate disclosures in the U.S., and are the model for similar bills currently pending in New York, New Jersey, Colorado, and Illinois.

The SEC’s 2010 Guidance – What’s Old is New Again

For public companies operating in U.S. markets today, the SEC’s 2010 interpretive guidance on climate disclosures remains a critical resource. While it does not impose new legal obligations, it clarifies how existing disclosure rules apply to climate-related risks under Regulation S-K and other federal securities regulations.

Key areas covered include:

• The impact of legislation or regulation on business operations.

• Risks or opportunities arising from international accords or treaties.

• Indirect consequences of regulatory or business trends (e.g., shifts in demand for low-carbon products).

• Physical impacts of climate change on assets or operations.

Companies are well advised to review this guidance alongside emerging global standards like those from ISSB to ensure their disclosures meet both regulatory requirements and investor expectations.

Why We’re Not Back at Square One

Despite setbacks at the federal level, we are far ahead of where we were four years ago:

1.       Established Frameworks: The widespread adoption of the TCFD recommendations and GHG Protocol methodologies provides a solid foundation for consistent reporting. These are embodied in the ISSB standards.

2.       Global Momentum: With more than 35 countries adopting or aligning with ISSB standards, harmonized reporting is becoming a global norm.

3.       State-Level Action: California’s laws and companion bills in New York, New Jersey, Colorado and Illinois demonstrate that subnational governments can drive meaningful progress in sustainability reporting.

4.       Corporate Readiness: Many businesses are already making good progress in aligning their practices with ISSB standards or similar frameworks in anticipation of investor demands and current and future regulations.

These developments mean that companies today face far less confusion than they did just a few years ago.

Conclusion

While I am disappointed that the SEC’s climate disclosure rule will not be defended in court, this comes as no surprise. I remain optimistic about the progress we’ve made toward harmonized sustainability reporting. The rise of ISSB standards as a global baseline, coupled with state-level leadership from California, ensures that businesses have clear guidance on what to disclose about climate-related risks.

We are not back at square one; instead, we are building on a strong foundation laid over recent years. Companies can now look to ISSB standards for global alignment while leveraging existing SEC guidance for compliance within U.S. markets. Investors benefit from greater transparency and comparability across industries and regions. The road ahead is challenging but promising—one where harmonized reporting becomes not just a regulatory requirement but also a strategic advantage for businesses committed to transparency and accountability.