SEC Withdraws Climate Rule Defense, Eases Rule 506(c) Investor Verification – What Companies Need to Know

The SEC’s decision on March 27, 2025 to cease defending its Climate-Related Disclosure Rules—originally adopted in March 2024—marks a significant shift. Despite the voluntary stay put in place in April 2024 while legal review proceeds, the rules themselves remain in effect; however, with the agency withdrawing its legal defense, a ruling by the Eighth Circuit in favor of challengers now looms more likely.

A pivotal development came with the SEC’s status report submitted in July 2025: the Commission affirmed it does not intend to reconsider or revise the rules at present. It simultaneously declined to commit to enforcing or adhering to them should the court clear them. This suggests that, administratively, the current leadership is avoiding definitive decisions until the legal challenge is resolved.

On the private offerings side, the no-action letter issued on March 12, 2025 under Rule 506(c) greatly lightens compliance requirements. For offerings with minimum investments at or above $200,000 (for individuals) or $1,000,000 (for entities), issuers may now rely on written representations that investors are accredited and that investment is not third-party financed, provided issuers hold no contrary knowledge. Critical caveats still apply: this relief does not extend to offerings that do not meet the minimums; issuers must still observe state, tax, and other regulatory requirements.

Together, these developments create a paradox of risk and opportunity. Public companies must navigate uncertainty around climate disclosures—balancing investor and regulatory expectations without incurring unnecessary compliance costs. Meanwhile, fund managers and private issuers now have greater flexibility in structuring offerings under Rule 506(c), potentially accelerating capital-formation activity among accredited investors and private vehicles. However, they, too, face risks if representations prove false or if regulatory or judicial interpretations evolve.

Key open questions remain:

• Will the Eighth Circuit ultimately invalidate the climate disclosure rules, and on what grounds—statutory authority, nondelegation, First Amendment, or APA procedural defects?
• If the rules are upheld, will the SEC enforce them aggressively even absent its own defense, or continue to signal reluctance?
• How will markets—particularly ESG-sensitive investment funds, reporting agencies, and institutional investors—respond or adjust expectations during this period of regulatory flux?
• How will state and international regulatory regimes layer on or diverge from federal climate disclosure standards, given this vacuum of federal certainty?