The Fragmentation Doctrine: Institutional Collapse and Regulatory Decoupling in the SEC's ESG Disclosure Retreat

Abstract

The U.S. Securities and Exchange Commission's abandonment of its 2024 climate-disclosure rules represents not merely a policy reversal but a crisis of institutional legitimacy that exposes the fragility of mandatory disclosure governance when supported primarily by regulatory authority rather than by pragmatic stakeholder consensus. This article argues that the SEC's retreat, when analyzed through the lens of institutional organization theory, particularly Meyer & Rowan's decoupling thesis and Suchman's taxonomy of organizational legitimacy, reveals a deeper phenomenon, the migration of disclosure governance from coercive to pragmatic legitimacy, and the simultaneous fragmentation of global regulatory regimes into incompatible poles. The practical result is that multinational corporations now face a "compliance paradox," navigating simultaneously mandatory, voluntary, and mixed regimes across jurisdictions (European Union, India, Japan, the United Kingdom, and the United States) that embody incommensurable materiality standards and assurance requirements. This article develops the concept of "decoupling-as-fragmentation" to describe this multi-regime instability and demonstrates that absent a restoration of regulatory consensus or an evolution toward pragmatic legitimacy grounded in genuine investor demand (rather than political ideology), corporate disclosure practice will increasingly become a site of contestation between competing institutional logics. The article concludes with legislative recommendations for Congress and the SEC that recognize the limits of unilateral regulatory authority and the necessity of aligning disclosure mandates with demonstrated stakeholder preferences.