Republican officials and corporate lobbyists are preparing a multi-pronged legal assault on the Biden administration’s effort to help investors hold public corporations accountable for their carbon emissions and other climate change risks.
The US Securities and Exchange Commission (SEC) proposed new climate disclosure rules in March that would require public companies to report climate-related impacts and risks to their businesses.
The regulator ever since He received more than 14,500 comments. Submissions from 24 Republican state attorneys general and some of the nation’s most powerful industry associations suggest these groups are preparing a series of legal challenges after regulation ends, which could happen as soon as next month.
“I expect a litigation challenge will be forthcoming immediately once the final rule is published,” Jill E Fisch, a professor of business law at the University of Pennsylvania, told The Guardian. “They probably already have their complaints drawn up and are ready to file them.”
some opponents claim to require companies to publish climate-related information infringes about their right to freedom of expression. Others (often the same) tell that the rule exceeds the statutory authority of the SEC.
Both criticisms feature prominently in comments from Republican attorneys general and the US Chamber of Commerce, which spent more than $35 million lobbying the federal government in the first half of 2022, according to OpenSecrets. The Republican letter warns that if the new disclosure requirements are finalized, “capitalism will fall by the wayside.”
The SEC’s proposal does not establish an environmental policy or require companies to take any climate-related action other than to make more information publicly available.
Objections to freedom of expression and legal authority have been received with deep skepticism of legal experts and former SEC officials.
In a letter to the commission, John Coates, a professor at Harvard Law School and former general counsel to the SEC, said that instead of challenging the climate disclosure rule on its merits, “critics have resorted to mischaracterizing the proposal and inventing their own fictitious rule.”
In another letter, a bipartisan group of former SEC officials, legal scholars, securities law experts, and corporate attorneys indicated that “the SEC has mandated environmental disclosure at least since the Nixon administration.” While not all of the letter’s authors support the substance of the rulemaking, they agreed without exception “that there is no legal basis to question the commission’s authority to require climate-related disclosures from public companies.”
“The SEC is enacting a disclosure rule that is right in its wheelhouse,” said Fisch of the University of Pennsylvania. “It’s exactly what Congress told him to do, and he has done it consistently since 1933.”
But charges of legal authority and free speech, tenuous as they are, are not the only reasons opponents of the climate disclosure rule have hinted at litigation.
In a recent analysis, The Guardian revealed how the Business Roundtable, a lobbying group for the CEOs of America’s largest companies, opposes a key provision of the SEC proposal that would require some large companies to measure and report the emissions generated throughout its supply chains, known as Scope 3 Emissions.
In addition to questioning the substance of the regulation, the Business Roundtable also refused the SEC’s estimate of how much it would cost companies to comply. (The organization said in an email that its comments “[are] focused on identifying challenges in the proposed rule in the hope that the SEC will address them”).
The SEC projects that companies will face compliance costs of $490,000 to $640,000 in the first year of climate reporting and less in subsequent years. (By comparison, a 2019 study foretold that climate change could cost businesses about $1 trillion over the next five years).
A detailed assessment by Shivaram Rajgopal, professor of accounting and auditing at Columbia Business School, concluded that even without taking into account none benefits of the climate disclosure rule, the costs would be negligible for most companies. “The loss in market cap, if any, from compliance costs is probably too small for any outsider to detect and separate from the daily volatility in equity returns for unrelated reasons,” Rajgopal wrote. .
Last quarter, ExxonMobil made nearly $18 billion in profit, the largest quarterly profit in company history. During the same period, General Motors generated more than $35 billion in revenue, while Walmart reported revenue of almost 153,000 million dollars. The Economist recently reported that after-tax corporate profits as a share of the US economy have risen to their highest level since the 1940s.
ExxonMobil, GM and Walmart are members of the US Chamber of Commerce and the Business Roundtable. according to a report of the Center for Political Accountability, a nonprofit organization, during the 2020 election cycle, each company donated at least $125,000 to the Republican Attorneys General Association, which supports the political campaigns and legal agendas of Republican attorneys general around the world. the country.
In their letter to the SEC, 24 of these attorneys general I call the commission’s cost-benefit analysis “woefully inconclusive” and warned that finalizing climate disclosure rules “will undoubtedly raise legal challenges.”
The Business Round Table, for its part, described the analysis as “fundamentally flawed” and said its member companies “believe [the costs of the rule] will be orders of magnitude more than the SEC estimates.” The House issued a similar condemnation, writing in his voluminous filing that the SEC’s “economic analysis … is incomplete and substantially understates the costs of compliance.”
When asked for comment, neither organization specifically responded to questions about whether it planned to take legal action against the SEC if the final rule is not significantly changed.
Trade associations can be expected to instinctively oppose new regulations, but in the past such statements have proven to be more than routine political rhetoric. On multiple occasions in response to prior rulings, the chamber and the Business Roundtable have successfully south the SEC for cost-benefit reasons.
In 2011, following a lawsuit filed by the two groups, the DC Circuit shot down an SEC rule that would have made it easier for shareholders to consider new board members for public companies, deeming the rule “arbitrary and capricious.” The decision in Business Roundtable v SEC said the commission “neglected its legal obligation to assess the economic consequences of its rule,” citing, among other figures, a cost estimate submitted to the SEC by the chamber.
In their comments on the climate disclosure proposal, the Republican attorneys general and the House cite Business Roundtable v SEC in stating that the SEC’s cost-benefit analysis is flawed.
The Republican letter is co-led by Patrick Morrisey, the West Virginia attorney general who recently successfully led a legal challenge to the Environmental Protection Agency (EPA).
In West Virginia v EPA, the Supreme Court backed up a relatively novel legal notion, the so-called “major issues doctrine,” to stop an EPA effort to regulate greenhouse gas emissions from power plants. As the Bulletin of the Atomic Scientists explained“Under this doctrine, when a regulation crosses a certain threshold of being ‘material’ – a line that remains poorly defined – the court rejects the regulation unless it has been clearly authorized by Congress.”
The doctrine of the big questions appearance be the basis of Morrisey’s campaign against the climate disclosure rule. In a television appearance in July, Morrisey said that the Biden administration “cannot get majorities in Congress to support their policies, so they are trying to resort to [regulations]. But as we saw with West Virginia v EPA, I don’t think the courts will allow that to happen.” (Morrisey’s office did not respond to emails requesting comment.)
“I do not think there is any natural reason to infer that the court’s decision [in West Virginia v EPA] it would have implications for the SEC,” said Jill Fisch of the University of Pennsylvania. “At the same time, you can read the West Virginia case and say, ‘This is part of the Supreme Court, and federal courts in general, looking at government agencies differently. This is cutting fourth branch, the power of the administrative state.’ And if that’s true, in theory, everything is on the line.”
“Historic legal precedent suggests the SEC has a pretty strong case,” said Tyler Gellasch, president and CEO of the nonprofit Healthy Markets Association. “But if you’re the Business Roundtable, you don’t necessarily need historic legal precedent on your side. You just need a court today. And that seems much more likely today than it would have been at any point in modern history.”