In a previous article, we noted the increasing pressure on companies to bolster their proactive efforts on and disclosures relating to, Environmental, Social, & Governance (“ESG”) issues. We highlighted the United States Court of Appeals for the Ninth Circuit's decision in Juliana v. United States. The plaintiffs in Juliana were young Americans seeking relief from the federal government, which they contended had injured them by allowing and promoting the use of fossil fuels. The Ninth Circuit reversed the decision of a lower court, holding that the plaintiffs' claims should have been dismissed. The appellate court's order of dismissal resulted from its conclusions that the plaintiffs lacked a concrete injury sufficient to give them standing to pursue their claims and that ordering the federal government to adopt a "comprehensive scheme to decrease fossil fuel emissions and combat climate change" would exceed the remedial authority of a federal court.
The Juliana holdings pose a fundamental, initial hurdle for stakeholder plaintiffs to overcome in ESG litigation. That case joins a host of others generally helpful to businesses and public institutions not eager to face mandates as to the ESG efforts that they must undertake and the associated risks that they must disclose to interested parties. We noted in our previous article that those interested party stakeholders might seek non-judicial support for their initiatives and that, in particular, any efforts by the Securities and Exchange Commission (“SEC”) to spur additional ESG-related actions and disclosures by public companies would be worth monitoring. This article details recent signals from the SEC of a forthcoming shift in disclosure requirements for public companies.
New SEC Disclosure Requirements May Be on the Horizon
The lack of litigation success for plaintiffs bringing claims against companies and civic institutions for failing to adequately address and disclose the risks of climate change, in particular, has led stakeholders to attempt to expand the framework under which relief can be sought.
In response both to public petitions and its own subcommittees' recommendations, the SEC recently announced that it is accepting public input on potential mandated disclosures related to climate change. The SEC’s stated objective in seeking public comments is to assist its staff in “eval[uating] our disclosure rules with an eye toward facilitating the disclosure of consistent, comparable, and reliable information on climate change.” To facilitate constructive public input, the SEC released a list of 15 questions as to which it would like to receive feedback. Two examples of the questions the SEC is posing are:
- “How can the [SEC] best regulate, monitor, review, and guide climate change disclosures in order to provide more consistent, comparable, and reliable information for investors while also providing greater clarity to registrants as to what is expected of them? Where and how should such disclosures be provided? Should any such disclosures be included in annual reports, other periodic filings, or otherwise be furnished?”
- “What are the advantages and disadvantages of establishing different climate change reporting standards for different industries, such as the financial sector, oil and gas, transportation, etc.? How should any such industry-focused standards be developed and implemented?”
As context for the SEC’s solicitation of public feedback on these issues, SEC Commissioner Allison Herren Lee recently addressed the agency's evolving stance on ESG disclosures. The crux of Commissioner Lee’s comments was that the SEC views the existing legal framework as not requiring disclosure of ESG matters but is open to enacting additional requirements to capture these kinds of disclosures as long as those requirements are specific and well-reasoned.
The tide thus might be turning towards new disclosure requirements.
As the SEC ponders the kinds of information that might aid ESG-minded investors in choosing how to allocate their investment dollars, it’s becoming increasingly incumbent on public companies' counsel to review and assess their organizations' policies, practices and initiatives that may soon be the subject of disclosure requirements.