The comment period on the US Securities and Exchange Commission’s (SEC) proposed rescission of its 2024 climate disclosure rules closed on 3 August.
Under chair Paul Atkins, the commission presents rescission as a return to its traditional, issuer-specific and materiality-based approach, thereby casting the 2024 framework as a departure from materiality.
This characterisation obscures the real choice, which concerns how materiality should be applied: case by case under pre-existing general requirements, or within a dedicated architecture that structures the identification and standardises the reporting of climate-related risks.
Accounting standards determine whether and how assets, liabilities, income and expenses enter the accounts. They also require certain information that does not qualify for recognition – including possible future losses and significant uncertainties – to be disclosed in the financial statement notes.
Materiality guides these disclosures. In the US, information is material where there is a substantial likelihood that a reasonable investor would consider it important in making an investment or voting decision. For contingent events, materiality weighs likelihood against potential magnitude for the company.
Beyond the financial statements, securities regulation requires issuers to disclose material risk factors and to discuss and analyse known trends and uncertainties reasonably likely to have a material effect.
Climate-related matters were not outside this framework.
Responding to institutional investor concern about fragmented and potentially inadequate disclosure, the SEC issued guidance in 2010 confirming that existing requirements encompassed the material effects of physical climate risks and climate-related policy and market developments.
The intervention did not prove transformative. A 2018 Government Accountability Office review found that climate disclosures made under these general requirements varied in location and specificity, and were often generic or unquantified.
Comparability was also limited – a structural weakness, since materiality filters what must be reported, not how it is reported: individually defensible issuer disclosures may be difficult to compare or integrate at portfolio level.
Meanwhile, voluntary climate reporting expanded and sometimes helped to standardise processes and metrics, but was not required to identify financial material information as such. It could remain selective, strategic and disconnected from SEC filings, so more reporting did not necessarily mean more decision-useful information.
This was the information environment that the SEC’s climate-disclosure proposal sought to address. Citing increasing investor demand for consistent, comparable and reliable climate-related information, the commission presented it as an investor protection measure, not as environmental regulation. It expected a common framework to reduce information asymmetry and investors’ search, processing and estimation costs.
Its 2022 proposal built on the Task Force on Climate-related Financial Disclosures architecture. Facing concerted opposition and litigation threats from fossil-fuel interests and allied business and political groups, the SEC pared-back prescriptive requirements, dropped the requirement to disclose emissions across companies’ value chains including Scope 3, and subjected most substantive disclosures in the final rule to materiality – including Scope 1 and 2 emissions.
The result was not the expansive, investor-driven framework divorced from traditional, issuer-specific materiality portrayed by its critics, but a common climate disclosure architecture built predominantly around it.
The final rule was not perfectly calibrated. One provision would require companies to break down costs and losses associated with severe weather and other natural conditions when, in aggregate, they exceeded 1 percent of pre-tax results or shareholders’ equity. It could have imposed disproportionate costs on companies without necessarily producing material information and could have been revised or removed.
The proposed rescission would instead remove the entire dedicated climate-disclosure architecture.
It would not, however, abolish the conditional disclosure obligations that predated it: climate-related risks must still be considered under the surviving general requirements and disclosed when those requirements and materiality so dictate.
Nor would rescission eliminate reporting obligations for companies subject to state-level requirements or foreign regimes such as the EU’s Corporate Sustainability Reporting Directive. For those companies, much of the underlying data-collection and reporting work – and the associated governance and controls – will continue.
A federal baseline would have supported interoperability with these frameworks, reducing duplication and fragmentation for cross-regime reporters.
Rescission does not reduce investors’ need for climate information either. Because the rule never took effect, it leaves their existing information-acquisition burden intact, and that burden can be substantial.
CalSTRS told the SEC in 2022 that it was spending approximately $2.2 million annually on climate research, data analysis and risk-estimation methods, much of it for data needed to fill emissions-reporting gaps. These gaps also prevented CalSTRS from applying across its portfolio a policy linking votes on incumbent directors to a minimum level of climate-risk disclosure.
Its experience reflects a wider asymmetry: issuers have direct access to underlying information, while investors must rely on what is disclosed or estimate what is missing.
The arrangement is also inefficient. Reconstruction and reconciliation efforts are duplicated across investors, producing divergent proxies that typically cannot match the specificity and verifiability of issuer-reported data. Rescission therefore forgoes the prospect of more specific, reliable and comparable information produced more efficiently at source through standardised issuer reporting.
Materiality was never the dividing line. The choice was whether material climate risks would be identified and reported within a common federal architecture or left to issuer-by-issuer disclosure and investor reconstruction.
Rescission chooses fragmentation. Climate risks and conditional disclosure duties remain. What disappears is the prospect of disciplined, comparable reporting by those best placed to produce it.
Frédéric Ducoulombier is programme director for climate regulation and policies at the EDHEC Climate Institute at EDHEC Business School.
