BY: Will Frigerio, RBFL Student Editor
On March 21, 2022, the Securities and Exchange Commission proposed a rule that would require public companies to include climate related disclosures on registration statements and periodic reports. The proposed rule has prompted strong responses, both in support of the rule and arguing against it. Many commentators have questioned the viability of the proposed rule in light of a body of law known as the major questions doctrine, a series of Supreme Court cases that have struck down actions by federal regulatory agencies as unconstitutional.
The major questions doctrine is a relatively recent development. While the Supreme Court has traced the doctrine back to the 19th century, its application has proliferated in recent years. In a string of cases over the last two decades, the Supreme Court has ruled federal agency actions unconstitutional due to the breadth of authority asserted and the economic and political significance of that action. In these cases, the Court focused on whether the agency in question departed from its normal method of regulating, as well as the economic and political significance of the action the agency attempted to take.
West Virginia v. Environmental Protection Agency was the most recent application of the doctrine. There, the Supreme Court overruled an EPA rule promulgated in 2015 called the Clean Power Plan. The Clean Power Plan required existing coal-fired power plants to shift to natural gas or to renewable energy, mostly wind and solar.
In striking down the Clean Power Plan, the Supreme Court emphasized the change in the way the EPA was regulating, transitioning from making specific sources operate more cleanly to a system that would shift polluting activity from cleaner to dirtier sources. The Court also emphasized the economic and political significance of the rule.
In March of 2022, the SEC proposed a rule regarding environmental disclosure requirements for public companies. Naturally, this proposed rule perked many ears and prompted a range of responses, especially in the context of the major questions doctrine.
In one camp, a number of commentators that believe the proposed rule runs afoul of the major questions doctrine. Critics argue that the proposed rule differs from how the SEC has historically regulated and would impose significant costs on public companies.
In the other camp, commenters point out the differences between the Clean Power Plan and the proposed SEC rule: the costs are not as significant, and the proposed rule is in line with what the SEC has been doing for decades: investor oriented disclosures about risks faced by firms. The SEC has to protect investors, and this is just the newest iteration.
Time will tell how courts will grapple with the proposed SEC rule. The SEC rule is more in line with how the SEC has regulated in the past, and the economic impact likely won’t be as grave as the Clean Power Plan. But that is not to say the economic impact will be insignificant, and issues regarding the climate have proved politically trenchant. The rule is currently in notice and comment, and debate is still churning a year after the rule’s proposal.