A group of House Republicans on Aug. 5, 2022, urged the SEC to scuttle its climate risk disclosure proposal in light of the Supreme Court’s late June decision in West Virginia v. EPA.
The decision, which curbed the ability of the Environmental Protection Agency (EPA) to limit power plant emissions under a provision of the Clean Air Act, “casts serious doubt on the SEC’s authority to finalize and implement its broad-sweeping climate disclosure rulemaking because the SEC’s exercise of regulatory authority to conduct climate policy would require a ‘clear delegation’ of authority from Congress,” wrote the lawmakers, who include Reps. John Rose of Tennessee and Patrick McHenry of North Carolina, the ranking member of the House Financial Services Committee.
The SEC issued the proposal in March in Release No. 33-11042, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which would require public companies to make detailed disclosures on climate risk and greenhouse gas (GHG) emissions, including, in some cases, so-called “Scope 3” indirect emissions.
Among other requirements under Release No. 33-11042, registrants would need to disclose separately Scope 1 direct emissions and Scope 2 emissions, those that stem from energy consumed by the company. A registrant would need to disclose its Scope 3 emissions – all those indirect emissions that fall outside of Scope 2 – if that information is material, or if it has set emissions goals that include Scope 3 emissions.
The decision in West Virginia v. EPA has emboldened critics of the SEC proposal, who hope courts will extend the same reasoning to find the agency’s statutory authority lacking, while some environmental and securities law experts see the commission’s basis for its rule on much stronger footing than the EPA’s. (See In Wake of Supreme Court Emissions Decision, SEC Climate Disclosures Seen on Firmer Ground than EPA Plan in the July 5, 2022, edition of Accounting & Compliance Alert.)
In the 6-3 decision, Chief Justice John Roberts, writing for the majority, portrayed the EPA as discovering new authority under Section 111(d) of the Clean Air Act – a rarely-used “ancillary provision” of the law designed as a gap filler – to “substantially restructure the American energy market.”
“And the agency’s discovery allowed it to adopt a regulatory program that Congress had conspicuously and repeatedly declined to enact itself,” Roberts wrote, declaring West Virginia v. EPA a “major questions case.”
Under the major questions doctrine, administrative agencies need clear authorization from Congress in order to implement regulations with major economic or political significance.
The Republicans, in their letter, said the SEC rulemaking “involves major questions related to climate policy that we believe, and a court would likely find, should be left to Congress.”
“We again respectfully ask that you rescind this rulemaking and spare the public unnecessary litigation costs,” they wrote. “If you plan to move forward with this rulemaking, we request that you cite to an authority that expressly grants the SEC the authority to engage in climate policy” by Aug. 19.
This article originally appeared in the August 9, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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