The Many Lawsuits Challenging Woke SEC’s Climate Disclosure Reg
A few hours after the Biden SEC issued its authoritarian edict, ten Republican-led states sued to challenge it. Another lawsuit was quickly launched by two companies in the O&G industry
The Many Lawsuits Challenging Woke SEC’s Climate Disclosure Reg
ESG | INDUSTRYWIDE ISSUES | LITIGATION | REGULATION
March 28, 2024
Earlier this month, the U.S. Securities and Exchange Commission (SEC), corrupted by the Bidenistas, voted 3-2 (three Democrats vs. two Republicans) to issue a final regulation that will force all publicly traded companies to disclose their so-called greenhouse gas (GHG) emissions and the imaginary climate risks their businesses face (see Woke SEC Adopts Modified Version of Climate Disclosure Reg). The end result of the Biden SEC’s new regulations will be to “kneecap” oil and gas companies (see SEC Reg Requiring Disclosure of Climate Change Risk “Kneecaps” O&G). And that’s the purpose. The Bidenistas and the left are looking to close down fossil fuel companies by using regulatory agencies like the SEC. Not so fast. A plethora (too many to count) of companies, organizations, and states are suing the SEC in an attempt to overturn the new reg.
A few hours after the Biden SEC issued its authoritarian edict, ten Republican-led states sued to challenge it. Another lawsuit was quickly launched by two companies in the O&G industry: Liberty Energy and Nomad Proppant Services.
The following article by Pensions & Investments magazine does a great job of summarizing the lawsuits filed against the new reg and how they are all now consolidated together in the 8th U.S. Circuit Court of Appeals in St. Louis:
The many lawsuits challenging the Securities and Exchange Commission’s new public company climate disclosure rule will be heard on a consolidated basis in the 8th U.S. Circuit Court of Appeals in St. Louis.
Under federal law, when an agency rule is challenged in multiple federal courts, a lottery is held comprising each circuit in which a lawsuit was filed to determine at random which one will hear the challenges on a consolidated basis.
Since the SEC finalized its rule March 6, nine lawsuits were filed in six different circuits. The lottery determined that the 8th Circuit will hear all the cases as one, according to a March 21 order from the United States Judicial Panel on Multidistrict Litigation.
Robert A. Skinner, a partner in Ropes & Gray’s securities litigation group, explained that challenges on the right are typically filed in more conservative-leaning jurisdictions, while challenges from the left are filed in the jurisdictions that lean the other way.
Of the 8th Circuit’s 11 judges, 10 were appointed by Republican presidents.
The rule in question will require public companies to disclose a host of climate-related information in their periodic reports and registration statements. That information includes material climate-related risks; activities to mitigate or adapt to such risks; information about the company’s board of directors’ oversight of climate-related risks; and information on any climate-related targets or goals that are material to the company’s business, results of operations or financial condition.
The final rule didn’t go as far as the March 2022 proposal on which it was based, but still drew sharp pushback.
A bulk of the lawsuits, like those from energy companies, business groups and Republican attorneys general, make similar arguments, claiming that the SEC doesn’t have the authority to issue such a rule, that the rule is arbitrary and capricious under the Administrative Procedure Act, and also violates the First Amendment by effectively mandating discussions about climate change.
But the SEC also received a challenge from the Sierra Club, claiming the rule falls short of the agency’s statutory mandate to protect investors; maintain fair, orderly and efficient markets; and promote capital formation.
In light of the consolidated case getting transferred to the 8th Circuit, on March 22, a three-judge panel on the 5th Circuit U.S. Circuit Court of Appeals in New Orleans dissolved an administrative stay it had originally granted March 15 to block the rule while a lawsuit brought by energy companies Liberty Energy and Nomad Proppant Services was considered. That lawsuit is one of the nine now consolidated before the 8th Circuit. (1)
In addition to the groups mentioned in the article above, the Oil & Gas Workers Association, a nonprofit trade association that represents workers in the oil and gas industry, filed a lawsuit on Tuesday against the SEC to block the new reg:
The Liberty Justice Center and the Pelican Institute for Public Policy have jointly filed a lawsuit against the U.S. Securities and Exchange Commission to challenge recent regulations that force public companies to make extensive disclosures related to climate change. The legal organizations represent the National Legal and Policy Center, a nonprofit organization that advocates for shareholder interests and opposed the rule in public comments, and the Oil & Gas Workers Association, a nonprofit trade association that represents workers in the oil and gas industry, whose livelihoods are threatened by the SEC’s rules.
On March 6, the U.S. Securities and Exchange Commission (SEC) issued a climate “disclosure rule” that requires all companies registered with the SEC to provide a broad swath of information related to climate change in their annual reports.
These requirements include a company’s “climate-related target or goal” and any progress towards meeting it; greenhouse gas emissions; the impact of severe weather events; carbon offsets or renewable energy credits; and processes of identifying, assessing, and managing climate-relate risks.
The Liberty Justice Center and the Pelican Institute argue that the rule should be set aside because the federal laws creating and empowering the SEC do not authorize it to require such detailed disclosures on environmental matters, which will burden companies and alter their behavior far more than ordinary financial disclosures. The lawsuit also argues that the rules unconstitutionally compel speech in violation of the First Amendment—requiring companies by law to implicitly endorse viewpoints on climate change that are the subject of intense public debate.
“The SEC didn’t enact these rules to protect investors’ financial interests—it enacted them to pursue an ideological agenda and influence companies’ decisions to favor that agenda. Worse yet, the rules force companies to file reports that implicitly endorse the SEC’s views on climate change in violation of the First Amendment. We look forward to seeing these rules struck down,” said Jacob Huebert, President of the Liberty Justice Center.
“These rules aim to place a scarlet letter on those who work in the oil and gas industries. Issuing this rule is not just beyond the SEC’s scope of authority, but also a slap in the face to hundreds of thousands of hardworking blue-collar Americans,” said Sarah Harbison, General Counsel at the Pelican Institute’s Center for Justice.
“This disclosure rule not only exceeds the SEC’s statutory authority, but is also marred by a host of additional issues,” said Paul Kamenar, Counsel to the National Legal and Policy Center, which filed a public comment opposing the rule with the SEC. “The rule is unnecessary and unworkable, relies on questionable science, duplicates EPA requirements, does not protect investors’ interests, and will harm businesses and the American economy.”
“By challenging this rule, we are defending the livelihoods of the hardworking men and women who power the nation and fuel the world,” said Matt Coday, President of the Oil & Gas Workers Association. “American oil and gas workers deserve our praise—not unconstitutional, jobs-killing regulations drafted to eliminate the country’s energy.” (2)
Aside from the plethora of lawsuits filed against the SEC reg, a number of groups are pressuring Congress to pass a law rescinding the SEC reg:
Dozens of conservative-leaning groups are calling on Congress to strike down a controversial new Securities and Exchange Commission rule that would require large corporations to issue disclosures about their carbon emissions.
The SEC voted to adopt the rule, which requires companies to issue reports to investors on the effects of their operations on climate change, earlier this month in a 3-2 vote. The groups in the letter call for Congress to “use all of the legislative powers at your disposal” to overturn the rule.
The signatories branded the rule as a “radical climate agenda” regulation that “stifles American innovation through mountains of paperwork and endless red tape.”
“The SEC is tasked with regulating securities — stocks and bonds — not maneuvering a destructive climate agenda behind the backs of Americans’ duly elected representatives in Washington,” the letter reads. “This rule is a vast overreach beyond the modest powers granted to the SEC under federal law.”
The letter was organized by Advancing American Freedom and includes some 60 other groups associated with the Right, including Americans for Tax Reform, Americans for Prosperity, and Consumers’ Research.
The SEC climate disclosure rule in question is part of President Joe Biden’s broader climate agenda, which envisions cutting greenhouse gas emissions by more than half when compared to 2005 levels by the end of the decade.
The rule creates guidelines for how and what companies must report to investors about how their operations affect the climate. It requires large- and mid-sized companies to report greenhouse gas emissions — reports that would be audited by an outside party.
The rule is significantly pared back from a proposed version by omitting a requirement that corporations disclose emissions generated by suppliers and customers. Still, it has already faced a legal challenge from several Republican-led states.
Senate Republicans also initiated an effort to strike down the rule within minutes of it being announced.
SEC Chairman Gary Gensler is a major proponent of the rule and has spoken out in support of it.
“These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings,” Gensler said about the time the climate disclosure rule was approved. “The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements.” (3)
The momentum is clearly in our favor to overturn this onerous new regulation.
(1) Pensions & Investments/Brian Croce (Mar 22, 2024) – 8th Circuit to hear consolidated lawsuits challenging SEC climate rule
(2) Liberty Justice Center (Mar 26, 2024) – Liberty Justice Center and Pelican Institute Sue Securities and Exchange Commission, Challenging Constitutionality of Climate “Disclosure Rule”
(3) Washington (DC) Examiner/Zachary Halaschak (Mar 25, 2024) – Dozens of conservative groups call on Congress to strike down controversial SEC climate rule