The U.S. Securities and Exchange Commission’s move to formally rescind its 2024 climate disclosure rule represents a significant turning point in the evolution of ESG-related regulation and the associated D&O risks. According to the federal regulatory tracking website, SEC staff submitted a proposed rule entitled “Rescission of Climate-Related Disclosure Rules” to the Office of Information and Regulatory Affairs for review on May 4, 2026, formally initiating the withdrawal process. 

The SEC further confirmed its position in a May 7, 2026, letter submitted to the U.S. Court of Appeals for the Eighth Circuit in the consolidated litigation challenging the rule, advising the court that the Commission “does not intend to renew its defense of the Rules” and that it had submitted the rescission proposal for review. The move follows the Commission’s earlier March 2025 vote to end its defense of the rule in the pending litigation.

The rescission effort reflects the priorities of SEC Chair Paul Atkins, whose leadership has emphasized a return to what the agency describes as a “materiality-focused” approach to securities regulation. While many companies may view the rollback as a regulatory reprieve, the reality may prove more complicated. As prior ESG-related cases discussed on the D&O Diary have demonstrated, ESG disclosure-related exposure is unlikely to disappear simply because the federal regulatory environment has shifted.

Indeed, in several respects, the withdrawal of a uniform federal framework may increase disclosure complexity and litigation risk.

The Climate Disclosure Rule and the Iowa Litigation

When the SEC adopted its climate disclosure rules in March 2024 under then-Chair Gary Gensler, the agency framed the regulation as a response to growing investor demand for standardized and comparable climate-related information. The rules would have required public companies to disclose climate-related risks, governance oversight processes, and greenhouse gas emissions metrics, including Scope 1 and Scope 2 emissions disclosures for many issuers. 

The SEC argued at the time that climate-related risks increasingly impacted financial performance and therefore fell squarely within the agency’s investor protection mandate. Gensler stated that the rules would provide investors with “consistent, comparable, decision-useful information” while offering issuers clearer reporting standards. 

The rules immediately generated substantial opposition. Business groups, industry organizations, and Republican-led states filed multiple lawsuits that were ultimately consolidated before the Eighth Circuit in State of Iowa et al. v. U.S. Securities and Exchange Commission. The plaintiffs argued that the SEC exceeded its statutory authority by attempting to impose environmental regulation through securities disclosure requirements. 

In response to the litigation, the SEC voluntarily stayed the rule’s compliance deadlines pending judicial review. Following the change in administration, the Commission informed the court that it would no longer defend the rules and now has formally moved toward rescission through notice-and-comment rulemaking. 

At least for now, the SEC’s climate disclosure regime appears likely to come to an end in its current form. However, the issues that gave rise to the rules, investor scrutiny of climate-related risks and ESG disclosures, remain very much in place.

Europe and California

Even as the SEC steps back, other jurisdictions continue to move forward with climate-related disclosure requirements, although the dynamics have shifted meaningfully from where they stood even a year ago.

Most notably, the European Union’s Corporate Sustainability Reporting Directive (CSRD) imposes extensive disclosure obligations on thousands of companies, including many non-European issuers with significant EU operations. The CSRD requires disclosures relating to emissions, climate risks, transition planning, governance oversight, and sustainability impacts. Unlike the SEC’s traditional disclosure framework, the CSRD adopts a “double materiality” standard, requiring companies to disclose not only how ESG-related issues affect corporate financial performance, but also how the company’s operations impact society and the environment.

However, as discussed in prior D&O Diary posts, the European Parliament recently voted to delay portions of the CSRD implementation timeline and pare back certain requirements amid growing concerns regarding compliance burdens and economic competitiveness. 

Similarly, California continues to advance climate-related disclosure obligations through statutes such as the California Climate Corporate Data Accountability Act and related legislation requiring many companies doing business in the state to report greenhouse gas emissions data, including Scope 1, Scope 2, and potentially Scope 3 emissions.

At the same time, California’s initiatives now face increasing political and legal pressure. In April 2025, the White House issued the Executive Order entitled “Protecting America from State Overreach,” targeting certain state climate-related initiatives and signaling potential federal resistance to state-level ESG regulation. As previously discussed on the D&O Diary, that Executive Order may create additional uncertainty regarding the future implementation and enforcement of California’s disclosure statutes. 

The result is not a straightforward expansion of ESG regulation, but rather a more fragmented and evolving regulatory environment in which disclosure obligations continue to develop unevenly across jurisdictions.

Even as the SEC steps back, other jurisdictions are moving aggressively forward with expansive ESG reporting requirements.

Discussion

From a D&O liability perspective, the SEC’s retreat from prescriptive climate disclosure regulation may actually heighten certain forms of disclosure risk.

Most notably, the absence of a uniform federal framework increases uncertainty regarding what ESG information companies should disclose and how those disclosures should be framed. Companies now must exercise greater judgment in determining what climate-related information may be material to investors. Those judgments may later be second-guessed in securities litigation if plaintiffs allege that disclosures were incomplete, inconsistent, or misleading.

At the same time, multinational companies face increasingly difficult consistency challenges across jurisdictions. Climate disclosures appearing in European sustainability reports, California-related filings, SEC reports, investor presentations, and public sustainability statements must remain sufficiently aligned to avoid creating discrepancies that plaintiffs or regulators may later exploit.

For example, a company making expansive climate commitments in Europe under a double materiality framework while providing more limited U.S. disclosures could face scrutiny regarding whether its statements are consistent across reporting regimes. The fragmentation itself may become a source of litigation risk.

These developments also may heighten board oversight expectations. D&Os are often expected to oversee ESG governance, disclosure controls, operational resiliency, and climate-related risk management processes. Failure to do so may give rise to derivative claims framed as oversight failures, particularly where ESG-related risks intersect with operational, reputational, or financial challenges.

Importantly, the SEC’s withdrawal from prescriptive rulemaking does not eliminate enforcement exposure. The Commission retains broad authority under existing antifraud provisions to pursue allegedly misleading disclosures, including ESG-related statements.

Perhaps the most important takeaway from these developments is that companies should not conclude that climate change and ESG-related issues no longer matter simply because the political environment has changed.

As previously discussed in the D&O Diary’s 2025 Top Ten post, the underlying operational realities associated with climate risk have not disappeared. Companies and boards still must grapple with issues such as supply chain resiliency, operational preparedness, alternative sourcing, physical climate exposure, and long-term business adaptability.

This is particularly true in sectors with significant exposure to climate-related operational risk, including agriculture, oil and gas exploration and development, brewing, manufacturing, and other water-intensive industries.

Five or ten years from now, boards may well be judged not based on what the political environment looked like in 2026, but on whether they adequately prepared their companies for changing operating conditions. Future plaintiffs could challenge the extent to which boards addressed climate resiliency, anticipated operational disruption, or implemented appropriate governance and disclosure controls.

In that sense, while the SEC’s rescission effort clearly reflects a significant political and regulatory shift, the long-term D&O risks associated with climate change and ESG-related governance have not disappeared. If anything, the current fragmentation and uncertainty may place an even greater premium on disciplined disclosure practices, strong internal controls, and thoughtful board oversight.