Republicans Plan Legal Attack on Climate Disclosure Rules for Public Companies | Climate crisis

Republican officials and corporate lobby groups are launching a multi-pronged legal attack on the Biden administration’s effort to help investors hold public companies 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.

Since then, the regulator has received more than 14,500 comments. Communications from 24 Republican state attorneys general and some of the country’s most powerful industry associations suggest these groups are preparing a series of legal challenges after the settlement is finalized, which could happen as early as next month.

“I would expect a legal dispute to start immediately once the final rule is released,” Jill E Fisch, professor of business law at the University of Pennsylvania, told The Guardian. “They have probably already drafted their complaints and are ready to file.”

Some opponents say requiring companies to publish climate-related information violates their right to free speech. Others (often the same ones) argue that the rule exceeds the legal authority of the SEC.

Both criticisms are prominently featured in comments from Republican Attorneys General and the U.S. Chamber of Commerce, who 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 climate-related actions other than making more information available to the public.

Objections to free speech and legal authority were met with deep skepticism by legal experts and former SEC officials.

In a letter to the committee, John Coates, a Harvard Law School professor and former SEC general counsel, said that instead of challenging the climate disclosure rule on its own merits, “critics have resorted to misrepresenting the proposal and inventing his own imaginary rule “.

In another letter, a bipartisan group of former SEC officials, law scholars, securities law experts and corporate attorneys noted that “the SEC has enforced environmental disclosure at least since the Nixon administration.” While not all authors of the letter support the substance of the regulation, they agreed without exception “that there is no legal basis for doubting the commission’s authority to impose climate-related communications on public companies.”

“The SEC is enacting a disclosure rule that is square inside its wheelhouse,” said Fisch, of the University of Pennsylvania. “That’s exactly what Congress told him to do, and he has done consistently since 1933.”

But legal authority and free speech charges, however weak, aren’t the only reasons opponents of the climate disclosure rule have hinted at litigation.

In a recent analysis, the Guardian revealed that the Business Roundtable, a lobby group for CEOs of America’s largest corporations, opposes a key provision of the SEC’s proposal that would require some large corporations to measure and report emissions. generated along their supply chains, known as Scope 3 Emissions.

Graph showing the difference between Scope 1, 2 and 3 emissions.

In addition to challenging the substance of the rule, the Business Roundtable also rejects the SEC’s estimate of how much it would cost businesses 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 predicts companies will face compliance costs ranging from $ 490,000 to $ 640,000 in the first year of climate reporting and less in subsequent years. (By comparison, a 2019 study predicted that climate change could cost companies around $ 1 trillion over the next five years.)

A detailed assessment by Shivaram Rajgopal, a professor of accounting and auditing at Columbia Business School, concluded that even without taking into account whatever benefits from the climate disclosure rule, the costs would prove negligible for most companies. “The loss of market capitalization, if any, due to compliance costs is probably too small to be detected by any outsider and to separate it from the daily volatility of equity returns for unrelated reasons,” Rajgopal wrote.

Last quarter ExxonMobil earned nearly $ 18 billion in profit, the largest quarterly earnings in the company’s history. Over the same period, General Motors generated more than $ 35 billion in revenue, while Walmart reported nearly $ 153 billion in revenue. The Economist recently reported that after-tax corporate profits as a share of the US economy rose to the highest level since the 1940s.

ExxonMobil, GM and Walmart are members of the United States Chamber of Commerce and the Business Roundtable. According to a report by the nonprofit Center for Political Accountability, 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 GOP attorneys general across the country. .

In their letter to the SEC, 24 of these attorneys-general called the Commission’s cost-benefit analysis “woefully unfinished” and warned that finalizing climate disclosure rules “will undoubtedly bring legal challenges.”

The Business Roundtable, meanwhile, described the analysis as “fundamentally flawed” and said that associated companies “believe [the costs of the rule] they will be orders of magnitude more than the SEC estimates. The chamber issued a similar sentence, writing in its voluminous remark that “the SEC’s economic analysis … is incomplete and substantially underestimates compliance costs.”

Asked for comment, neither organization specifically answered the question of whether they intended to take legal action against the SEC if the final rule had not changed significantly.

Trade associations might be expected to instinctively oppose the new regulations, but in the past such claims have turned out to be more than ordinary political rhetoric. On multiple occasions in response to previous regulations, the Chamber and Business Roundtable have successfully sued the SEC on cost-benefit grounds.

In 2011, following a lawsuit filed by the two groups, the DC circuit abolished a SEC rule that would have made it easier for shareholders to consider new directors of joint stock companies, deeming the rule “arbitrary and capricious”. The decision in Business Roundtable v SEC stated that 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, Republican Attorneys General and the Chamber each cite Business Roundtable v SEC as saying 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 approved a relatively new 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 Atomic Scientists explained, “According to this doctrine, when a regulation exceeds a certain threshold of being ‘important’ – a line that remains poorly defined – the court rejects the regulation unless it has been clearly authorized by Congress.” .

The doctrine of the main questions appears to be the basis of Morrisey’s campaign against the rule of climate disclosure. In a July televised appearance, Morrisey said the Biden administration “can’t get congressional majorities behind their policies, so they’re trying to resort to [regulations]. But as we saw with West Virginia v EPA, I don’t think the courts will let that happen. “(Morrisey’s office did not respond to emails requesting comment.)

“I don’t think there is any natural reason to infer that the court decision [in West Virginia v EPA] 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 you can say, ‘This is part of the Supreme Court, and federal courts in general, that they take a different look at government agencies. This is reducing the fourth branch, the power of the administrative state. “And if that’s true, in theory, everything is up for grabs.”

“Historical legal precedents suggest the SEC has a pretty strong case,” said Tyler Gellasch, president and CEO of the nonprofit Healthy Markets Association. “But if you are the Business Roundtable, you don’t necessarily need historical legal precedent on your side. You just need a court today. And this seems much more probable today than it would have been at any time in modern history ”.

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