The Securities and Exchange Commission (SEC) last month moved to dispense with a 2024 rule requiring public companies to disclose their climate-related risks.
If successful, the void left by the recission would add to the patchwork of evolving rules, investor scrutiny, and global mandates facing U.S. public companies as climate-related exposures intensify.
It would also result in a return to judgment, consistency, and governance as the hallmarks for ensuring that climate-related disclosures remain defensible and aligned with a company’s broader risk management practices.
The rise and retreat of federal climate disclosure requirements
In March 2024, the SEC adopted a rule requiring public companies to disclose material climate risks (opens a new window), including governance, strategy, emissions, and financial impacts. The SEC framed these requirements as consistent with long-standing disclosure principles, reflecting investor recognition that climate-related risks can affect financial performance.
The 2024 rule was a byproduct of the rise of environmental, social, and governance (ESG) investment principles that had gained steam in the previous decade but have faced significant pushback more recently (opens a new window). The rule emerged alongside broader efforts to standardize climate and sustainability reporting globally, including frameworks developed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures and the International Accounting Standards Board.
The 2024 rule never took effect, however, as legal obstacles stalled implementation immediately after the final rule was announced. In response to litigation filed by several state attorneys general, trade groups, and individual companies, the SEC voluntarily stayed implementation of the rule in April 2024.
In March 2025, the SEC — now under the second Trump administration — decided it would no longer defend the rule in court. And last month, the SEC formally began the withdrawal process (opens a new window), describing the rule as “overly burdensome and costly” and as a challenge for companies going or seeking to stay public. “We must re-examine the costs, burdens, and benefits of disclosure mandates to make becoming and remaining a public company more attractive again,” SEC Chair Paul Atkins said in a statement (opens a new window) announcing the proposed rescission.
Greater flexibility, greater exposure
Despite its detractors, the SEC rule would have provided U.S. public companies with a uniform federal framework to follow when making climate-related disclosures. Now, public companies are left to determine whether climate-related risks are material to their financial performance or operations and disclose them accordingly.
This retrenchment to the status quo, however, does not eliminate climate reporting-related risks for public companies.
For one, although companies have greater flexibility in the timing and scope of climate-related disclosures, they also face more ambiguity as disclosure decisions become company- and industry-specific. The absence of a clear, blanket standard increases exposure to second-guessing by investors, analysts, and other stakeholders, who may challenge whether companies adequately disclosed climate risks after adverse events.
Moreover, companies face a fragmented climate reporting landscape around the world. In the U.S., the withdrawal of the SEC’s nationwide rule leaves companies navigating emerging state standards and mandates, including California’s Climate Corporate Data Accountability Act, with similar legislation under consideration in New York. Elsewhere, the EU’s Corporate Sustainability Reporting Directive mandates standardized reporting, while the U.K. is advancing new standards.
Importantly, the California, EU, and U.K. requirements apply to companies with operations in those jurisdictions, regardless of where (or even whether) they are listed on public exchanges.
Even without regulatory mandates, stakeholder expectations will continue to drive climate-related disclosures. Many investors still view climate risk as financially or operationally material, while employees and customers increasingly expect environmental responsibility and transparency. Many organizations have already made public ESG commitments or published sustainability reports, creating incentives to maintain or expand disclosures. As a result, some companies may elect to continue reporting at levels similar to what the SEC rule would have required, despite its absence.
Even as policy direction shifts, the physical and financial realities of climate risk are becoming more pronounced. The fact is that climate risk remains a fundamental challenge for businesses, contributing to more frequent and severe extreme weather events that can disrupt operations, supply chains, and other critical assets.
Failure to disclose these risks could expose companies and their directors and officers to securities and shareholder litigation alleging misstatements, omissions, and breaches of fiduciary duty. Without a uniform standard, the absence of a rule may increase scrutiny of companies’ judgment and decision-making, raising the likelihood that disclosures will be challenged after the fact.
Strengthening governance as scrutiny intensifies
As with diversity, equity, and inclusion initiatives (opens a new window) and labor classification (opens a new window), federal policy on climate reporting may continue to shift between Democratic and Republican administrations, creating ongoing uncertainty for public companies.
In this environment, disclosure-related exposures may become harder to predict — and more significant. Directors and officers liability (D&O) insurance remains critical, covering claims tied to alleged disclosure failures, including regulatory and shareholder actions, even absent a specific SEC climate rule.
The SEC’s new stance aligns with broader changes in disclosure expectations, including a potential shift toward semiannual reporting (opens a new window). As reporting cadence evolves, each disclosure may attract greater scrutiny, increasing the importance of accuracy and completeness.
Companies should work closely with their insurance brokers to review policy language and confirm coverage will respond as expected. For underwriters, climate impacts and the quality of attendant disclosures will remain key factors, but expectations will become more nuanced and location- and industry-specific.
As such, underwriters are less likely to apply a one-size-fits-all standard and may probe more deeply where climate exposure is material. Multinational companies, especially those operating in jurisdictions with mandatory disclosure regimes, should expect heightened scrutiny, as should companies in climate-sensitive industries, such as agriculture, energy, and mining
Ultimately, the focus is shifting from compliance with specific rules to broader questions of governance, risk management, and transparency. Companies should prioritize disciplined, well-documented approaches to assessing the materiality of climate risk. Input from in-house and outside counsel is essential, with greater emphasis on disclosure quality and consistency. Organizations that apply the same rigor to climate disclosures as to other critical governance concerns will be better positioned to withstand scrutiny from investors, regulators, and plaintiffs alike.
For more information and insights, visit our D&O insurance page here, (opens a new window) or contact a member of your Lockton Professional & Executive Risk team.
