Is it pencils down already? As has previously been reported, a number of groups have filed petitions in different circuits requesting review of the SEC’s final climate disclosure rules. On March 6, the date of adoption of the final rules, one group, Liberty Energy Inc. and Nomad Proppant Services LLC, petitioned the Fifth Circuit for review of the final rule. On March 8, Petitioners filed a motion asking the Court to issue an administrative stay and a stay pending review of the rule. Yesterday, the Court granted Petitioners’ motion for an administrative stay.
In their motion, Petitioners brought out the old favorites: the “major-questions” doctrine, arbitrary and capricious, and First Amendment. To Petitioners, the rule represents “revolutionary change”—for which the SEC lacks authority. In their view, a stay pending review was warranted because they were likely to prevail on the merits:
“First, the Rule fails the major-questions doctrine….There is no clear authority for the SEC to effectively regulate the controversial issue of climate change, at an acknowledged cost of over $4.1 billion (a figure that is dramatically underinclusive)—a conclusion reinforced by the fact that Congress has given the Environmental Protection Agency clear authority to require detailed emissions disclosures. Second, the Rule is arbitrary and capricious because it fails to account for the SEC’s drastic change in position and is premised on evidence the Rule admits is at-best mixed, which precedent holds is insufficient to justify an SEC rule….Third, the Rule violates the First Amendment by mandating controversial disclosures using controversial frameworks and effectively mandating discussions about climate change.”
Petitioners argued that, without a stay, they would suffer “irreparable injury in the form of unrecoverable compliance costs and constitutional injuries.” More specifically, the “formal data collection needed to comply with the Rule’s severe weather event and climate-related risk disclosures begins in January 2025, but Petitioners will start incurring nonrecoverable compliance costs now because they must create ‘elaborate internal control systems and disclosure control procedures to capture and distill information related to physical and transition risks, severe weather events, severe natural conditions, and greenhouse gas emissions.’” In addition, Petitioners contended, “Nomad faces an especially imminent and irreparable harm because, as a small non-public company, it has no systems in place for collecting piles of compliance data, and thus will have to stand up those processes entirely from scratch so it can report them to Liberty….. Petitioners will also imminently suffer impairment of First Amendment rights, including from their boards being forced to engage in the climate-change dialogue…. The ‘loss of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury.’”
The SEC disagreed that petitioners’ asserted harms were immediate. The challenged rules, the SEC contended, “have not yet been published in the Federal Register, have extended compliance dates that will not require any disclosures before March 2026 at the earliest. And there is no reason to rule on petitioners’ stay motion now, before the Judicial Panel on Multidistrict Litigation even assigns a court to hear the multiple pending challenges to the rules.” In the SEC’s view, the Petitioners were
“not likely to succeed on the merits because the rules fit comfortably within the Commission’s long-standing authority to require the disclosure of information important to investors in making investment and voting decisions and are consistent with the Commission’s prior exercise of that authority. The rules require factual disclosures tailored to each company’s facts and circumstances. A robust record supports the Commission’s findings and the Commission’s conclusions were both reasonable and reasonably explained. Nor have petitioners shown that their claimed injuries—which are speculative and remote—outweigh the harm of staying rules that will provide significant benefits to the investing public.”
How long will the stay continue? Stay tuned.
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