(The Hill) - West Virginia Attorney General Patrick Morrisey announced a coalition of 10 states will file a legal challenge to new regulations requiring public companies to disclose their climate-related risks and direct greenhouse gas emissions.
The Securities and Exchange Commission (SEC) voted 3-2 Wednesday to approve the climate disclosure rule, which will go into effect in 2026. Intense blowback from the business community delayed the passage of the final rule as the agency combed through thousands of comment letters following the initial proposal in 2022.
West Virginia and Georgia co-led the petition for review filed in the U.S. Court of Appeals for the 11th circuit, Morrisey said, joined by Alabama, Alaska, Indiana, Oklahoma, South Carolina, Wyoming and Virginia. A copy of the petition later provided to The Hill also lists New Hampshire as a plaintiff.
“This is a backdoor move to undermine the energy industry,” Morrisey said. He later added, “This is yet another attempt to advance an agenda without statutory authority, and I for one am not gonna let that happen.”
The new rules sparked immediate backlash from business groups and Republicans who have long opposed the change. Although the final rule rolled back a provision that would have required companies to report emissions that stem from their supply chains and products, it could face additional legal challenges.
In addition to challenging the SEC’s statutory authority to advance the rule, Morrisey said “this rule also appears to have some serious First Amendment problems.”
“We have concerns with compelled speech, and this is setting up a framework where the federal agency is forcing companies to put forth initiatives and disclose information that it might not otherwise want to do,” Morrisey said.
U.S. Chamber of Commerce Center for Capital Markets Competitiveness Executive Vice President Tom Quaadman said the business lobbying giant is “carefully reviewing the details of the rule and its legal underpinnings to understand its full impact.”
“While it appears that some of the most onerous provisions of the initial proposed rule have been removed, this remains a novel and complicated rule that will likely have significant impact on businesses and their investors. The Chamber will continue to use all the tools at our disposal, including litigation if necessary, to prevent government overreach and preserve a competitive capital market system,” Quaadman said.
Senate Banking Committee ranking member Tim Scott (R-S.C.) also vowed to fight the rule under the Congressional Review Act, a law that allows Congress to review and potentially overrule new federal regulations through a joint resolution.
“Ignoring the concerns of Americans, small business owners, and stakeholders from across the country, [SEC] Chair [Gary] Gensler pressed forward with a final rule that falls outside his agency’s authority and does far more to advance the Biden administration’s far-Left climate agenda than uphold the SEC’s mandate to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation,” Scott said.
House Financial Services Committee Chair Patrick McHenry (R-N.C.) blasted the “immense consequences” of “such disastrous regulations” and announced a field hearing scheduled for March 18.
“When fewer companies are entering our public markets than any time in recent memory, we should be making it easier for firms to go and stay public. Instead, Chair Gensler is overstepping his statutory authority, piling on massive new compliance costs that will be destructive to workers, investors, and job creators alike. Our capital markets are currently the envy of the world,” McHenry said.
Gensler cast the updated rule as one that “benefits investors and issuers alike” and would standardize reporting that many companies are already doing. Of the 1,000 biggest stocks on the Russell Index, around 90 percent already publish some form of climate disclosure and nearly 60 percent disclose information about their emissions.
But opponents say it would discourage private companies from going public, require significant financial investment in disclosure controls, increase costs for consumers and undermine American business competitiveness.
The two Republican SEC commissioners lambasted the rule as an improper play to force companies to adopt a progressive climate agenda, with Republican Commissioner Mark Uyeda describing it as “climate regulation promulgated under the commission seal.”
Sen. Kevin Cramer (R-N.D.), a member of the Banking Committee, called the rule “the definition of federal overreach.”
“Congress didn’t give the SEC any authority for this mandate, nor is the Commission an environmental regulator,” Cramer said.
“Not only is this outside their legal bounds, forcing publicly traded companies to report their emissions data opens them up to new liabilities while giving a competitive edge to dirtier foreign producers who have no such burdensome requirements.”
The SEC under Gensler has not shied away from tussling with big businesses on issues ranging from climate disclosure to cryptocurrency.
Big businesses have not shied away from punching back.
“For the SEC, I’ve never seen an environment where so many different groups and individual firms are likely to sue the SEC. I just have never seen an environment like this,” Michael Piwowar, executive vice president of finance at the Milken Institute who served as a Republican SEC commissioner from 2013 to 2018, told The Hill.
The influential environmental groups Sierra Club and Earthjustice also announced they are weighing their own legal challenge to the SEC’s “arbitrary removal” of the so-called “Scope 3” provisions that would have required disclosure of emissions from a company’s supply chain and the use of its products.
“The SEC took an important and long overdue step to protect investors, the integrity of our markets, and the retirements of everyday Americans,” said Hana Vizcarra, senior attorney at Earthjustice. “But the SEC is condoning misleading and incomplete disclosures that open investors to risk by dropping the Scope 3 emissions disclosure requirements. Investors deserve better than where the SEC landed with its disclosure rule.”
By Taylor Giogno
March 6, 2024
