As we have often seen in many other circumstances, what cannot be won in the legislative chamber can often be found in a court of law. So it is no surprise that the US Securities and Exchange Commission voted 3-2 at its January 26 2010 meeting to offer “interpretive guidance” on how US businesses should disclose information to shareholders and the public about the potential impacts of climate change on their business. Apparently, advocates of various sorts had complained that business was describing these impacts on their operations differently and not consistently.
We have not yet seen the formal written “guidance” since the SEC saw fit only to announce it ‘ex cathedra’ instead of publishing it in the Federal Register for all to see—how’s that for a good example of full disclosure? But reports from the meeting by Bracewell and Giuliani lawyers said that the guidance was essentially that an appropriate disclosure should contain the following:
- Impacts of existing as well as pending climate-change legislation and regulation.
- Impacts of international accords and treaties on climate change or emissions.
- Actual or potential indirect consequences of climate change regulation or business trends.
- Actual and potential impacts of the physical effects of climate change.
Based upon the discussion at the meeting among the commissioners, the guidance is not intended to require disclosure of carbon footprint or actions companies are taking to reduce greenhouse gas emissions. Apparently such a requirement would require the SEC to issue a formal notice of proposed rulemaking and then subject its proposed rules to due process. Issuing “guidance” avoids the messy requirements of rulemaking but still provides the trial bar and environmental groups eager to sue a road map for going to court.
The commission said the guidance is not intended to modify the existing disclosure law. This is a carefully worded admission that the Commission, while trying to respond to the demands for political correctness and more pressure on companies to ‘get with the program’ on climate change still recognizes that lawful climate disclosure requires a finding of materiality by the company based upon an assessment of reasonable shareholder expectations performed on a case by case basis.
This is the worst kind of political and legal game playing, and a key reason the public is so cynical about the actions of our Government.
The consequences of meltdown at Copenhagen, the inability of Congress to pass the cap and trade bill, and the recent election losses for Democrats are sending the climate change advocates to the legal trenches. And this action by the SEC is scoring political points rather than serving the public interest.
This road map to climate litigation will follow the same strategy that has worked so well on other environmental issues—-go to court alleging failures to disclose the “true impacts” of climate change on the company and shareholders from “pending” (not adopted) legislative proposals; international “accords” which might be agreed to by politicians (but not approved as legally binding treaties); and actual or “potential” impacts (PS: for a large fee Al Gore will be your expert witness at trial as long as he does not have to be cross-examined) about the effect of climate change.
The problem with this lawsuit strategy is the proponents want some affirmative action, and that will be much harder to achieve in court than merely using litigation to stop some action by business as EPA is beginning to find with the legal risks to a proposed endangerment finding.
The goal of reducing greenhouse gas emissions is one we should all ascribe to and it makes good business sense. But realizing that goal requires practical, sustainable solutions not gimmicks that appear to produce change but are not really workable in competitive markets. Driving up the cost of doing business with lawsuits or policy disputes that should be settled by the Congress or final regulations isn’t the answer for sustainable growth or sustainable environmental leadership.