Dr. Nouf Al-Balawi

When the world’s largest financial market retreats from climate disclosure rules, it might seem that other markets will follow suit. But what is happening today points to a different outcome: regulation is not disappearing; rather, its center of gravity is shifting.

On May 29, the U.S. Securities and Exchange Commission proposed rescinding its adopted climate disclosure rules, arguing that they exceeded its legal authority, imposed compliance costs disproportionate to their benefit to investors, and strayed from the principle of financial materiality that underpins the U.S. disclosure system.

These are serious legal objections. It is legitimate to ask whether the market regulator overstepped its role into climate policymaking, and whether all the required data is genuinely valuable to investors. But the legal debate does not answer the most important economic question: who writes the rule when Washington retreats?

Within the United States, California offers a clear answer. While the federal government debates rescinding its rule, major U.S. companies—both public and private—are preparing to submit their emissions data to the state under a law covering businesses with over $1 billion in revenue that operate there. Business groups that welcomed the SEC’s retreat are now fighting a legal battle against California’s law, arguing that one state is trying to become the de facto regulator of the national market. This battle reveals that the dispute is no longer just about the scope of disclosure, but about who has the authority to impose it.

American federalism gives states room to move in different directions. Yet California’s influence stems not only from its constitutional status but from the size of its economy; major corporations cannot ignore a market of this weight, even when their headquarters and main operations are outside the state.

The same picture is repeated globally. As Washington reviews its rules, the United Kingdom is building its national framework based on the International Sustainability Standards Board (ISSB) standards, the European Union is easing some requirements without abandoning disclosure, and other countries are incorporating sustainability standards into their regulatory frameworks. This means that American multinationals will not escape the disclosure net even if the SEC rules are scrapped. They will still be required to provide information by the markets they operate in, global customers, financiers, and investors who incorporate climate risks into their decisions.

Therefore, the question is no longer whether companies will produce sustainability data, but under which framework they will produce it.

If rules differ across states and markets, the cost of scoping, data alignment, interpreting differences in materiality, emissions boundaries, verification levels, and reporting timelines rises. The problem is not only the number of disclosures but the uncertainty that makes it difficult to build a stable compliance system. Hence the growing importance of international standards.

The ISSB standards aim not to impose a uniform environmental policy but to provide a common language for information that may affect an entity’s value and investors’ decisions. Countries may not apply them in the same way, but they give markets a reference point that reduces fragmentation.

The U.S. retreat, perhaps unintentionally, could strengthen these reference points. The more volatility within major economies, the more attractive a standard that can be used across multiple markets becomes.

This raises a question that goes beyond climate itself: can the United States retreat from building its domestic rule while retaining its role in shaping global rules?

Withdrawing from regulation does not insulate U.S. companies from foreign requirements, but it may limit Washington’s ability to influence the language those companies use when disclosing in other markets.

As for countries building their frameworks today, including Gulf states, the lesson is clear. The choice is not between emulating the American or European model, but in building a gradual, stable national framework based on a comparable reference, taking into account market maturity and compliance costs. Investors do not seek the highest number of disclosures, but reliable data and predictable rules. This is an economic advantage in itself: companies can adapt to a clear rule, but they hesitate before a framework that changes with every political cycle.

Washington may proceed with rescinding its rules, and courts may redraw the boundaries of California’s experiment, but the competition to write disclosure standards will continue. Regulatory influence in the global economy is measured not only by market size, but by a state’s ability to produce a stable rule that others trust. Whoever retreats from writing it leaves the seat open for someone else to write in their place.

International Affairs and Global Strategies Advisor