U.S. SEC Deals With the Shadow of West Virginia v. EPA

The U.S. Securities and Exchange Commission (SEC) has missed its self-imposed October deadline for finalizing the proposed rule titled “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” The commission had to reopen the public comments period for this rulemaking in October following a technical glitch that kept a number of public comments from reaching it. Adding to the delay is the significant number of comments that the commission has received relating to the proposal that, if finalized, would require companies to delineate how climate change would put their operations at risk and, perhaps more importantly, would require disclosures regarding Scope 3 emissions — emissions generated by their supply chain and customers when using their products. As proposed, the rule would impose an increased reporting burden starting with data collection as early as January 2023. When asked about this increased burden in a recent Senate hearing, SEC Chair Gary Gensler said that the commission is “trying to balance … out” the need for standardizing the reporting with the burden imposed by it.

However, the SEC is also having to contend with the Supreme Court’s decision in West Virginia v. EPA, the now much-discussed case that has brought into focus the “major questions” doctrine. There, the Supreme Court said that the doctrine applies where the “history and the breadth of the authority” that the agency has invoked and the “economic and political significance” of that assertion provide a “reason to hesitate before concluding that Congress” granted that authority to the agency. According to the Court, in those circumstances, there must be clear authorization from Congress before the agency may exercise the claimed authority.

That the Supreme Court’s 6–3 decision in West Virginia v. EPA is among the factors front and center in the SEC’s calculus was acknowledged by Chair Gensler when he said a few days ago that the Court’s decision was “significant and meaningful.” Add to this that the congressional makeup may change soon, and the picture gets complicated even further.

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