The U.S. Supreme Court‘s decision to limit the Environmental Protection Agency's power to regulate greenhouse gas emissions has raised questions about whether the decision could impact the Securities and Exchange Commission (SEC) proposal to force companies to disclose their emissions.
Thursday's ruling restrained the EPA's authority to regulate power plant emissions, raising doubts about other federal agencies’ authority under the Biden Administration’s mandate to regulate companies’ greenhouse gas emissions.
That could potentially impact the SEC, which is drafting a controversial new rule requiring public companies to disclose their direct and indirect greenhouse gas emissions.
Former SEC attorney Walé Oriola, counsel at Faegre Drinker, said that “under the principle leaned on by the high court in the EPA case, the SEC should be cautious as it approaches finishing its climate disclosure rules. I think the EPA ruling would influence what requirements makes it into the final version of the rulemaking.”
Oriola also said that SEC staff is aware of the many questions about whether the SEC lacks authority to promulgate rules related to the disclosure of climate related risks and impacts on the financial outlook, strategy, and business model of an issuer.
But at the end of the day, because the proposed disclosure rules are financially material in nature, Oriola said he believed the high court would use the “chevron deference” doctrine to defer to the SEC’s interpretation that it has the broad authority granted by Congress ... ”which gave the agency authority to promulgate disclosure requirements that are 'necessary or appropriate in the public interest or for the protection of investors.’”
Some climate change activists and shareholder rights groups do not believe the Supreme Court ruling will derail the proposal. “We do not think yesterday’s SCOTUS rule on EPA Clean Air Act will have an impact on any court challenge to the SEC proposed rule on climate disclosure,” Andrew Behar, CEO of As You Sow, a Berkley, Calif.-based nonprofit that promotes corporate responsibility through shareholder advocacy, told Financial Advisor magazine.
“The new SEC rule that will require corporate disclosure be accurate, verified and included in the audit is the most basic requirement of good governance and commerce. It simply ensures trust between companies and their shareowners,” Behar said.
But John Pendergrass, vice president for programs and publications at the Environmental Law Institute, an independent nonprofit based out of Washington, D.C., disagreed. “Although the court’s decision in West Virginia v. EPA doesn’t directly affect the SEC climate disclosure rule, it certainly suggests the SEC, as well as every other agency, needs to emphasize the clear statutory basis for any new rule. The boundaries of the major questions doctrine are simply unclear at this time,” Pendergrass said.
The Supreme Court's ruling was based on the "major questions" legal doctrine, which requires that Congress give its explicit authorization for issues that have a broad impact on society
The court's six conservatives were in the majority in the decision authored by Chief Justice John Roberts, with three liberal justices dissenting.