Where the debate begins

The US Securities and Exchange Commission proposed in May to revoke a rule requiring companies to disclose specific climate-related information. This regulation, developed under the previous administration, was never formally implemented and had already faced litigation threats from multiple Republican-led states and industry groups. Under the Trump administration, the SEC stated the rule represented a "significant overreach" of its authority.

However, some large asset managers and public pension funds argue that climate-related information is financially material, placing them in stark opposition to major business groups that support the rule's repeal. During the SEC's 60-day comment period, Vanguard Group, the world's second-largest asset manager managing $12 trillion, sought a balanced approach in its submission. Vanguard agreed that policymakers should avoid imposing "costly, confusing, and overly burdensome" disclosure requirements, while also noting the value of "standardized and comparable material risk disclosures, including material climate-related risks." The firm pointed out that when companies identify material climate-related risks, the resulting disclosures could aid in more accurate valuation and price discovery.

Why institutional investors are divided

Norway's sovereign wealth fund, which manages about $2 trillion, also took a cautious stance in its response, opposing an outright revocation of the rule. However, it suggested that alternatives exist to address the SEC's concerns about scope and cost while preserving a baseline for financially material disclosures. Several public pension funds opposed the SEC's move, including the California Public Employees' Retirement System, the California State Teachers' Retirement System, and New York State Comptroller Thomas DiNapoli, who oversees the $294.4 billion New York State Common Retirement Fund. In its letter, the California Public Employees' Retirement System argued that revoking the rule would lead to inconsistent reporting standards, forcing investors to collect data through proprietary questionnaires and third-party estimates, resulting in fragmented, less reliable, and more costly information.

In contrast, industry groups such as the Business Roundtable, which represents CEOs of over 200 major US companies, supported the rule's repeal. The American Petroleum Institute stated that a "full and swift revocation" would bring "real benefits," eliminating significant unnecessary compliance burdens and protecting investors from being overwhelmed by irrelevant information. The institute's oil and gas company members would be notably affected due to the rule's focus on greenhouse gas emissions, climate-related risks, and energy transition planning.

The transatlantic split in asset management

Notably, individual asset managers showed a geographic split, reflecting a divide across the Atlantic. AllianceBernstein's London-based EOS division, which manages about $2.4 trillion, stated it continues to believe investors will benefit from "consistent, comparable, and reliable disclosures of material climate-related risks and opportunities," while agreeing with the SEC on eliminating duplicate disclosure requirements. However, AllianceBernstein's Pittsburgh headquarters submitted a separate letter supporting the rule's repeal, advocating for a return to "a disclosure framework centered on materiality, issuer-specific analysis, and the Commission's long-standing principles-based approach."

Former SEC Commissioner Allison Herren Lee, who oversaw the development of the climate risk disclosure rule, said she was not surprised by investor opposition to the repeal. She noted that before the rule was proposed, the SEC received substantial feedback from investors and issuers in support of it. Although US companies may not be bound by federal sustainability reporting laws, they could still be subject to disclosure rules in other jurisdictions. Several states, including New Jersey, Colorado, and Illinois, have proposed state-level reporting rules. New York has advanced a bill requiring companies to disclose emissions, and California will require businesses operating in the state with annual revenue exceeding $1 billion to publish operational emissions disclosures by November.

Maryland Comptroller Brooke Lierman wrote to the SEC opposing the policy shift, noting that the fragmented reporting requirements emerging at the state level would increase corporate operating costs. She argued that the SEC establishing uniform disclosure standards would benefit all parties.