SEC Climate Disclosure Rule paused under Trump

State-level initiatives: Filling the regulatory void

In response to the federal government’s retreat, several states have initiated their own climate disclosure laws:​

• California: Enacted the Climate Corporate Data Accountability Act (SB 253), requiring companies with annual revenues exceeding $1 billion to report Scope 1 and 2 emissions by 2026 and Scope 3 emissions by 2027. 
• New York: Proposed the Climate Corporate Accountability Act (SB 3456), mandating similar disclosures from large businesses operating within the state. ​
• New Jersey: Introduced Bill S4117, requiring companies with significant revenues to disclose their greenhouse gas emissions. ​

These state-level actions reflect a growing determination to maintain momentum on climate transparency despite federal pullbacks.​

What a freeze means for businesses

The SEC’s decision to freeze its climate disclosure rule sends ripple effects across corporate America. For businesses (particularly those already preparing to align with the rule), the implications are strategic, operational, and reputational.

1. Compliance uncertainty creates planning challenges

Many companies have already invested in preparing for compliance with the SEC Climate Disclosure Rule. They have done this by developing internal emissions tracking systems, aligning with frameworks like the Taskforce on Climate-related Financial Disclosures (TCFD), and engaging climate risk consultancies. The freeze disrupts these timelines and raises questions about how to prioritise sustainability reporting going forward.

• Scenario planning becomes essential: Companies now need to prepare for multiple possible regulatory futures, balancing federal inaction with active state-level mandates like those in California and New York.
• Dual reporting pressures may emerge: Businesses operating in different states may have to comply with a patchwork of regional disclosure laws without national standardisation. 

2. Risk of reputational exposure

The absence of federal requirements does not mean the absence of stakeholder scrutiny. Investors, consumers, employees, and civil society increasingly expect transparent climate action and disclosures.

• Voluntary reporting becomes a differentiator: Firms that continue disclosing voluntarily, especially using globally recognised frameworks like the International Sustainability Standards Board (ISSB) or the Global Reporting Initiative (GRI), may gain reputational advantage and investor trust.
• Greenhushing temptation: Conversely, some firms may now retreat from public disclosures. This is a risky move that could appear evasive or uncommitted to ESG principles.

3. Investment and capital access impacts

Many institutional investors now integrate climate risk into their assessments. The lack of consistent, mandated disclosures makes it harder for investors to assess long-term exposure and performance, potentially affecting investment decisions.

• Investor confidence may waver: Firms not disclosing material climate risks could be viewed as higher-risk or less transparent, affecting capital allocation.
• Cost of capital could rise: Companies without climate-aligned risk management may find it harder to attract ESG-focused funds or favourable financing terms.

4. Internal momentum at risk

In many organisations, regulatory requirements act as a catalyst for internal sustainability alignment. When these requirements are delayed or removed, the urgency and buy-in across departments, especially from senior leadership, can weaken.

• ESG teams may lose influence: Sustainability professionals may find it harder to secure funding and C-suite support without external compliance pressure.
• Integration of climate strategy into operations may slow: Particularly in resource-constrained companies where ESG is not yet embedded into business strategy.

5. Missed opportunity for global alignment

Globally, regulators are moving toward more unified sustainability reporting. The ISSB’s standards (IFRS S1 and S2) are being adopted in jurisdictions from Canada to Singapore.

• US firms risk falling out of step: This is particularly the case with international reporting norms, which could hinder competitiveness in global markets.
• Multinationals face added complexity: Needing to comply with both international rules and inconsistent U.S. state-level mandates increases the level of complexity. 

Final thoughts

The SEC’s decision to pause its climate disclosure rule has triggered a wave of state-level responses, underscoring the urgent need for cohesive and standardised climate reporting frameworks. As the regulatory landscape becomes increasingly fragmented, policymakers, businesses, and stakeholders must work together to establish unified solutions that uphold transparency, strengthen accountability, and support meaningful climate action.

In a world where fragmented regulations create confusion and dilute the impact of sustainability efforts, comprehensive and consistent climate disclosures are vital. We advocate for a harmonised approach – one that balances the imperative for transparency with the practical realities of implementation. Only then can businesses play their full part in achieving global climate goals with clarity and confidence. Acquiring knowledge and skills is an important part of this equation, and our practical business sustainability courses are here to help you on that journey.