Sierra Club and Earthjustice Sue SEC Over Weakened Climate Risk Disclosure Rule

The Sierra Club and the Sierra Club Foundation, represented by Earthjustice, have taken legal action against the Securities and Exchange Commission (SEC) over its recently finalized rule on climate risk disclosure. The lawsuit, filed in the U.S. Court of Appeals for the D.C. Circuit, contends that the SEC's final rule falls short of adequately addressing climate-related risks faced by public companies, consequently failing to provide investors with necessary information.

The SEC's final rule, released in March 2024, has drawn criticism for its perceived concessions to industry interests. Notably, the rule rolls back requirements for companies to disclose their greenhouse gas emissions, with particular emphasis on Scope 3 emissions, which stem from supply chains and product usage. These emissions are often significant contributors to a company's overall carbon footprint, especially in industries with high pollution levels.

Investors, including the Sierra Club and its members, have expressed concerns about the weakened disclosure requirements, arguing that they undermine investors' ability to make informed decisions about the financial risks associated with climate change. Climate-related risks, such as physical asset loss, supply chain disruptions, regulatory challenges, and legal liabilities, pose substantial threats to companies and their investors.

The Sierra Club and Sierra Club Foundation manage substantial investments, including employee 401Ks, and represent millions of members and supporters with significant financial interests. They assert that without comprehensive information on companies' climate-related risks, including emissions profiles, investors are unable to effectively evaluate their investments and safeguard their assets.

Ben Jealous, Executive Director of the Sierra Club, stated, "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." Jealous emphasized the importance of ensuring that investors have access to complete and accurate information to make informed decisions and protect their assets.

Similarly, Dan Chu, Executive Director of the Sierra Club Foundation, highlighted the SEC's responsibility to provide investors with the tools and information necessary to assess climate-related risks effectively. Chu remarked, "The new disclosure rules fall short of providing us with the complete and consistent information we need to assess the significant financial risk that climate poses to companies and investments."

The lawsuit underscores the fundamental legal authority of the SEC to mandate climate-based disclosures and urges the agency to fulfill its obligation to protect investors and maintain fair and efficient markets. The plaintiffs, alongside Earthjustice, aim to hold the SEC accountable for ensuring that disclosure requirements adequately reflect the growing importance of climate-related risks in investment decision-making.

In response to the SEC's final rule, the Sierra Club, the Sierra Club Foundation, and Earthjustice have actively engaged in the rulemaking process, submitting multiple comments advocating for stronger disclosure requirements. Despite these efforts, the final rule failed to address the concerns raised by investors and environmental advocacy groups.

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