Skip to main content

Supreme Court: Companies can’t be sued for not disclosing climate risk

As the SEC struggles to enforce new corporate climate disclosures, the high court grants companies even more wiggle room.

Law theme, gavel or mallet of the judge

A judge's gavel. Photo: Shutterstock/Atthapon Niyom

The U.S. Supreme Court unanimously ruled shareholders cannot sue companies for securities fraud when they fail to disclose information about future risks, unless the omission made their statements deliberately misleading. 

The decision benefits companies by allowing them more leeway to pick and choose what they disclose to investors. If a company is silent about a risk it faces, it cannot be sued, the court said. But if a company makes a statement that is misleading because it omits information necessary to understand the risks in full, it may still be liable for fraud, the ruling says.

The case, Macquarie Infrastructure vs Moab Partners, was filed by Moab after Macquarie didn’t disclose that its revenue was vulnerable to an international regulation that phased out high-sulfur freighter fuel.

This verdict comes after the Securities & Exchange Commission’s new climate disclosure rule was paused due to ongoing litigation. The SEC rule requires companies to report risks related to Scope 1 and 2 emissions if they might be material to investors. Thirty-two Republican senators and Democrat Sen. Joe Manchin also recently co-sponsored a resolution to overturn the SEC’s rule.

Does this affect the SEC’s climate disclosure rule?

The Supreme Court’s ruling is officially precedent. But it will not significantly affect the SEC’s standing in its lawsuit, according to Maria Egan, vice president and director of shareholder engagement at Reynders McVeigh Capital Management.

The Supreme Court "is setting a precedent to some extent that a company can’t be sued for securities fraud for pure omissions but not technically for half-truths," said Egan. "The SEC can still step in and take enforcement action."

The timing of the ruling and the pausing of the SEC’s rule could give companies an excuse to pause their environmental reporting.

"It could be a moderate disincentive for companies to move forward with increased and standardized disclosures," said Egan, although she remains optimistic. Indeed, she cited California and the European Union’s mandated reporting requirements as an example of the future of corporate climate reporting.

"[Industry is] optimistic about trends for increased environmental reporting," concluded Egan. "It has come a long way."


Correction: An earlier version of this story misstated the name of Reynders McVeigh Capital Management. 

[Continue the conversation on climate policy at Circularity 24 (May 22-24, Chicago), the leading conference for professionals building the circular economy.]

More on this topic