Game, Set, Disclose

This Week's Trend In Brief:

• Last week, the U.S. Securities and Exchange Commission (SEC) finalized new rules requiring publicly traded companies to report their greenhouse gas emissions and make other climate-related disclosures.
   

• While some in the Biden Administration have hailed the rules as an essential strategy to combat climate change, more than twenty Republican attorneys general immediately filed lawsuits challenging the rules as “illegal and unconstitutional.”
   

• At the same time, environmental activist groups are considering filing their own lawsuits challenging what they call the SEC’s “arbitrary removal of key provisions from the final rule,” which would have made the reporting requirements stricter.
   

• The legal challenges clouding the rules serve as a stark reminder that the energy industry is caught in a seemingly endless game of regulatory ping-pong in which rules and regulations remain unsettled and continuously litigated by whichever set of stakeholders or policymakers dislikes the most recent result.
   

• To avoid getting caught up in the perpetual whir of electoral, legislative, regulatory, and legal game play, public affairs professionals need a spin move that leverages a deep understanding of the stakeholders and policymakers shaping the debate to build their organization’s strategy for certainty.

Digging Deeper:
 

Last week, the U.S. Securities and Exchange Commission (SEC) finalized new rules requiring companies to report their greenhouse gas emissions and make other climate-related disclosures. The approval comes several months after California enacted an even more aggressive law requiring companies to report not just direct emissions, “like smoke from their factories, but also indirect or upstream emissions related to other business activities like commutes.” Proponents of the California law used it to pressure the SEC to enact the same, more stringent requirements as a part of its own rules, but the SEC ultimately approved rules with more limited scope, refusing to require companies to report indirect emissions. 
 
More than twenty Republican attorneys general have already filed lawsuits challenging the rules as “illegal and unconstitutional” and alleging the SEC overstepped its regulatory authority. One of the first lawsuits, led by West Virginia Attorney General Patrick Morrisey (R), asked an appeals court “to declare the rule ‘unlawful’ and vacate the commission’s finalization.” The lawsuit argues the SEC “exceeded its rulemaking authority” by requiring companies to disclose climate-related risks as a part of registrations and annual filings. Morrisey claimed the lawsuit will prove that “the final rule exceeds the agency’s statutory authority and otherwise is arbitrary, capricious, an abuse of discretion, and not in accordance with law.” The U.S. House Financial Services Committee has already scheduled two hearings on the rule, with Chairman Patrick McHenry (R-NC) declaring the SEC “is not a climate regulator.” McHenry accused SEC Chair Gary Gensler of advancing the rule as a part of “a partisan political agenda” that “outweighs the SEC’s statutory mission.” 
 
Instead of celebrating a climate win, however, major environmental groups are considering their own challenges to the rule, arguing the SEC’s decision to approve weaker rules was an arbitrary decision that fails to meaningfully help the climate.  The Sierra Club called the rule “an important step forward for investors seeking greater transparency on companies’ handling of climate risks” but argued it “is significantly weaker than the proposed version from March 2022” that would have required companies to report indirect emissions. Similarly, Earthjustice attorney Hana Vizcarra called the rule “an important and long overdue step to protect investors” but argued “the SEC is condoning misleading and incomplete disclosures that open investors to risk by dropping the Scope 3 emissions disclosure requirements.” Now, both groups are weighing filing a lawsuit “challenging the SEC’s arbitrary removal of key provisions from the final rule,” even as they prepare to defend the agency’s “authority to implement such a rule.” 
 
The ongoing challenges facing the rules from both directions serve as a stark reminder that industry is caught in a perpetual game of regulatory ping-pong, where rules and regulations remain unsettled and continuously litigated by supporters and opponents alike. President Biden’s recent decision to pause the LNG permitting process, for example, was challenged in court by seven trade organizations that called the pause “arbitrary” and “unlawful,” while climate activists who spent months calling for Biden to take action on LNG argued the permitting pause “doesn't go far enough.” Similarly, Biden’s EPA rule limiting emissions from power plants also faced stiff opposition from environmental groups who claimed the rule felt like “a betrayal” for including carbon capture technologies as part of the solution, while Republicans accused EPA of overstepping its congressional authority. The EPA ultimately left gas-fired power plants out of its rule that was released last week in an election year “concession to automakers and labor unions.” 
 
This regulatory ping-pong requires public affairs professionals to develop some spin moves to avoid uncertainty being the only constant. Indeed, as we noted last year, many of these rules “may feel like Groundhog Day to many public affairs professionals” who have seen various iterations challenged by “whichever side – industry, activists, or state officials – felt the rule did not meet their interests.” The recent SEC ruling on companies’ emissions reporting requirements underscores this ongoing tug-of-war between regulatory demands, political expectations, and legal wrangling. To avoid getting caught in a battle between competing pressures and interests, public affairs professionals and the companies they represent can leverage a proven playbook to build a strategic roadmap to certainty based on an in-depth understanding of the full range of stakeholders and policymakers shaping these debates. 
 

Trends in Energy is your weekly look at key trends affecting the energy industry, brought to you by the competitive intelligence experts at Delve. As the political and regulatory landscape continues to shift, reach out to learn how our insights can help you navigate these challenges.