U.S.: SEC Reevaluates Climate Disclosure Rule amid New Leadership

On February 11, 2025, Acting Chair of the U.S. Securities and Exchange Commission (the “SEC”) Mark Uyeda announced that the SEC had requested that the U.S. Court of Appeals for the Eighth Circuit delay scheduling arguments in the case challenging the SEC’s Enhancement and Standardization of Climate-Related Disclosures for Investors rule (the “Climate Rule”) “to provide time for the Commission to deliberate and determine the appropriate next steps.”

The Climate Rule was adopted in March 2024 and is currently facing legal challenges that were consolidated in the Eighth Circuit. In his recent statement, Acting Chair Uyeda cited concerns related to the SEC’s statutory authority to issue the Climate Rule, the validity under the Administrative Procedures Act of the rule-making process to develop the Rule, and the costs imposed on SEC registrants to comply with the Rule. Acting Chair Uyeda also noted the recent Presidential Memorandum regarding a regulatory freeze, which orders executive departments and agencies to rereview pending regulations and rules.

Links:
Acting Chairman Uyeda Statement
Presidential Action: Regulatory Freeze Pending Review

U.S.: Challenge to California Climate Disclosure Laws Partially Dismissed

On February 3, 2025, the U.S. District Court for the Central District of California issued an order granting the State of California’s request to dismiss several causes of action in a suit challenging California’s climate disclosure laws.

The suit was brought in January 2024 by U.S. industry groups, including the California Chamber of Commerce, American Farm Bureau Federation, and Western Growers Association (the “Plaintiffs”). The suit involves challenges to California’s Climate Corporate Data Accountability Act (“SB 253”) and Climate-Related Financial Risk Act (“SB 261”). Together, the laws require companies that “do business” in California and with revenues above specified thresholds to disclose information related to their direct and indirect greenhouse gas emissions, as well as on their climate-related financial risks and mitigation efforts. (See our November 2024 Client Update for more information.)

The Plaintiffs challenged the laws on three grounds, alleging that they: (i) violate the First Amendment to the U.S. Constitution; (ii) are preempted by federal law and thus violate the Supremacy Clause of the U.S. Constitution; and (iii) violate constitutional limits on extraterritorial regulation by attempting to regulate greenhouse gas emissions beyond California’s borders. The state moved to dismiss grounds two and three.

With regard to SB 253, the court held that the Plaintiffs’ challenges were not yet ripe for judicial review because the law mandates action by the California Air Resources Board (“CARB”), but does not itself impose any requirements on the Plaintiffs. In particular, because CARB has not yet put forth the regulations required under the law, the court held that the challenges were not yet justiciable.

With regard to SB 261, the court held that the Plaintiffs had standing to challenge the law and that their challenges were ripe for judicial review because the law imposes requirements directly on the Plaintiffs. The court, therefore, proceeded to consider whether the Plaintiffs had stated a claim under the two causes of action that the state had moved to dismiss.

• Regarding the alleged Supremacy Clause violation, the court held that the Plaintiffs had failed to state a claim because they: (i) failed to cite any authority supporting their argument that a disclosure regime of the kind envisioned under SB 261 is a de facto regulatory system subject to preemption; and (ii) failed to identify a federal law that would preempt SB 261, given that SB 261 does not regulate greenhouse gas emissions but rather disclosures related thereto. The court dismissed this ground with prejudice.

• Regarding the extraterritoriality challenge, the court held that the Plaintiffs failed to plausibly allege discriminatory purpose or any differential treatment of in-state and out-of-state economic interests that would result in discrimination. The court held that the Plaintiffs also failed to plausibly allege a significant burden on interstate commerce. However, the court recognized that the Plaintiffs could raise facts that would support an interstate commerce claim and thus dismissed the ground without prejudice, giving the Plaintiffs 21 days to file an amended complaint.

Link:
Order

U.S.: Trump’s Anti-DEI Orders Challenged by City of Baltimore and Other Groups

On February 3, 2025, the Mayor and the City Council of Baltimore, National Association of Diversity Officers in Higher Education, American Association of University Professors, and Restaurant Opportunities Centers United (collectively, the “Plaintiffs”) filed a complaint in the U.S. District Court for the District of Maryland, Baltimore Division, challenging two executive orders (the “EOs”) issued by the Trump administration:

• EO 14151 (Ending Radical and Wasteful Government DEI Programs and Preferencing), which targets diversity, equity, and inclusion (“DEI”) and environmental justice programs in the public sector, including by terminating related federal grants and contracts; and

• EO 14173 (Ending Illegal Discrimination and Restoring Merit-Based Opportunity), which targets DEI initiatives in the private sector, including by carrying out civil investigations and restricting funding.

The Plaintiffs assert that the EOs: (i) exceed presidential authority because the U.S. Constitution vests spending powers in Congress and does not provide the President unilateral authority to terminate “‘equity-related’ grants and contracts” without express statutory backing; (ii) violate the Fifth Amendment’s due process clause by being unconstitutionally vague in failing “to provide a person of ordinary intelligence fair notice of what is prohibited”; and (iii) violate the First Amendment because they impermissibly restrict free speech by threatening “civil compliance investigations,” deterring DEI programs and principles, and are “designed to chill federal contractors’ and grantees’ speech related to diversity, equity, inclusion, and accessibility.”

The Plaintiffs further assert that the EOs fail to define key terms such as “DEI,” “DEIA,” “equity,” “equity-related,” or “illegal DEI and DEIA policies,” leaving the Plaintiffs to guess which federal grants may be canceled or which organizations are potentially violating the EOs.

The Plaintiffs requested that the court declare the EOs “unlawful and unconstitutional” and grant preliminary and permanent injunctions to halt their enforcement.

Links:
Complaint (filed February 3, 2025)
Executive Order 14151 (Ending Radical and Wasteful Government DEI Programs and Preferencing)
Executive Order 14173 (Ending Illegal Discrimination and Restoring Merit-Based Opportunity)

EU: Platform on Sustainable Finance Publishes Recommendations on Simplifying the EU Taxonomy

On February 5, 2025, the EU Platform on Sustainable Finance (the “PSF”) published a report setting out recommendations for the European Commission to simplify the EU Taxonomy. The report sets out four “core proposals”:

• reducing the corporate reporting burden, including by introducing a materiality threshold for all nonfinancial company key performance indicators;

• simplifying the green asset ratio, including by allowing estimates and proxies in calculating exposure to green investments in non-EU entities;

• taking a more practical approach to the Do No Significant Harm criteria, including by introducing a “lighter” compliance assessment process; and

• making it easier for SMEs to access sustainable finance, including by creating two new approaches and classifications for sustainable loans available to listed and non-listed SMEs.

The report was produced in response to a push by the European Commission—referred to as the Omnibus proposal—to simplify EU sustainability reporting obligations primarily set out in the EU Taxonomy, Corporate Sustainability Reporting Directive, and Corporate Sustainability Due Diligence Directive. (For more on the Omnibus proposal, see our Debevoise Debrief here and our previous ESG Update here.)

The PSF estimates that its recommendations would reduce the reporting burden for nonfinancial companies by more than a third compared to the EU Taxonomy’s current requirements.

Link:
Report

This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.