SEC climate change rule is still on track, but in the end, it might not stick

The U.S. Securities and Exchange Commission (SEC) is on track to finalize a rule mandating publicly traded companies report direct and indirect greenhouse gas emissions. The rule is part of the Biden administration’s goal of making Environmental, Social and Governance (ESG) practices mandatory.

In addition, the Financial Accounting Standards Board (FASB) is considering putting out guidance for businesses seeking to earn or trade climate-related credits.

For the past few years, the financial sector bought in to ESG. For example, investments in so-called sustainable mutual funds and market-traded funds tripled since 2018 from $700 billion to $2.5 trillion, according to Morningstar.

Then a few months back, oil and gas prices began to surge as domestic manufacturing slowed. Gasoline prices are sky-high and a diesel shortage is on the horizon, largely due to Biden ending drilling on federal lands.

Suddenly a lot of folks are wondering if ESG – particularly the “E” part – is the financially smart way to go.

Republican attorneys general take aim at SEC rule

Whatever your view on ESG practices are, it’s looking like a good bet that the feds’ rulemaking powers are eventually going to be reined in, to some degree, by the courts.

West Virginia Attorney General Patrick Morrisey, fresh off a U.S. Supreme Court victory against EPA, is now taking aim at the SEC’s ESG rule.  

Morrisey and 23 other Republican state attorneys general argue the SEC’s mandate on companies to report direct and indirect greenhouse gas (GHG) emissions and related climate change data violates the “major questions doctrine.” In a nutshell, the major questions doctrine says federal agencies can’t impose significant and costly new requirements on businesses without an act from Congress.

Morrisey used the same argument in West Virginia v. EPA earlier this summer to strike down rules like the Clean Power Plan on fossil fuel producers and users. Keep in mind EPA and other federal agencies never received a mandate from Congress to crack down on GHGs like carbon dioxide – rather it was a ruling by the Supreme Court in 2007 (Massachusetts v. EPA).

The AGs sent the SEC a supplemental letter, the first step before litigation kicks off. Florida, Georgia and Louisiana signed on with Texas likely to join in.