We’ve previously discussed how the SEC’s proposed climate-related disclosures rule will face legal challenges once it is issued as a final release. However, the legal landscape has shifted dramatically since the rule’s proposal almost a year and a half ago. A new analysis from the Sabin Center for Climate Change Law examines the sea change in administrative law and what impact case law is likely to have. The article gives a general summary of the situation:
“When the SEC initially proposed the rule, the Supreme Court had not yet embraced the Major Questions Doctrine (MQD), a new doctrine that constrains the function of the administrative state. Other legal challenges have also arisen. Judicial deference to agency decisions is on the Supreme Court’s docket this year, threatening the established practice of accepting an agency’s judgment in cases of statutory ambiguity. Additional cases raise questions about the scope of businesses’ First Amendment rights, along with instances of stringent arbitrary and capricious review under the Administrative Procedure Act (APA). Together, these matters suggest a volatile litigation landscape that the SEC will have to navigate thoughtfully as it finalizes and defends the climate disclosure rule.”
The SEC is in a tenuous position, being subject not only to the new Major Questions Doctrine but also to traditional rulemaking challenges and a potential overruling of the Chevron Doctrine. These avenues for litigation mean that the SEC is working to make its final rule bulletproof. This may in part account for the continued delay of the final rule.
For those thinking that the MQD bar is too high and therefore the rule can be ignored, a note of warning: even if the rule ultimately fails in court, it will be some time before litigation is concluded. At least some level of compliance will likely be mandatory in the meantime. Additionally, with California’s new disclosure laws and the EU’s CSRD promulgated, GHG reporting will be mandatory for many companies regardless of the outcome of the SEC’s rule.
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