Supreme Court takes up cases challenging Chevron

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In Washington, D.C., and around the world

Supreme Court takes up cases challenging Chevron

The United States Supreme Court has announced that it will hear two cases challenging Chevron deference on January 17, 2024. The cases—Relentless, Inc v. Dept. of Commerce and Loper Bright Enterprises v. Raimondo—could change the federal administrative law landscape, with implications for ESG rules:

The cases center on a $710 fishing fee, but could affect a wide range of American life, from the environment to healthcare and the economy.

At issue is the landmark administrative principle known as the Chevron doctrine, which says that federal courts should defer to agency interpretation of an ambiguous law. While the justices have weakened the doctrine, those opposing the fishing fee urge the court to do away with it.

Conservatives have long criticized the Chevron doctrine as putting too much power in the hands of unelected bureaucrats. Liberals have defended it, saying it allows experts, not generalist judges, to make difficult and often technical determinations.

The Chevron doctrine’s fate could affect the Securities and Exchange Commission’s (SEC) plans to require corporate reporting of emissions data. Stephen Soukup, an ESG opponent and the author of The Dictatorship of Woke Capital, argued in an August commentary that some House Republicans are, in his view, already planning for Chevron’s reversal and preparing for a larger congressional role in SEC oversight:

Among other things, Chevron Deference has enabled Congressional apathy and passivity, encouraging legislators to write laws broadly and vaguely, so as to force administrators to set specific regulatory parameters.  In so doing, Congress has delegated its constitutional authority to unelected bureaucrats, sanctioning the vast expansion of the federal government’s purview while also allowing Members to evade responsibility for policies that are deemed ineffective, counterproductive, or burdensome.

The specificity with which the House Financial Services Committee approached the use of regulatory authority in its ESG (and other) legislation this past month suggests that these Members at least are anticipating a world in which all of this will be reversed, in which the administrative state will lose some of its bite, while Congress will be empowered (and required) to reassert a greater role in the management of the regulatory apparatus.

Particularly with the SEC still contemplating a new rule requiring publicly traded corporations to disclose and report environmental data, it is nearly impossible to overstate how significant such developments would be.  

House Republicans struggle to schedule ESG votes

House Republicans are struggling to schedule floor votes on standalone legislation opposing ESG that advanced out of the House Financial Services Committee in July, according to Bloomberg Law:

A key House Republican voice for the anti-environment, social and governance movement said he still sees multiple ways to advance at least a few ESG-related measures that have languished since clearing his committee over the summer, but the window to act is narrowing.

Rep. Patrick McHenry (R-N.C.), chairman of the House Financial Services Committee, acknowledged he has no definitive strategy on securing a floor vote for three anti-ESG bills reported out of his panel in July—dubbed as “ESG month.” Yet lawmakers have a “a waterfall of options” to get the legislation across the finish line, McHenry said. “It’s been the goal of all my legislative packages to give us a variety of optionality.” …

Progress on the committee’s bills came to a standstill for months, as Congress brought the government to the brink of a shutdown and Republicans wrangled over electing a new House speaker.

But Republican leaders are still pursuing alternative options to oppose recently enacted ESG rules:

Republicans in the U.S. House of Representatives have proposed a budget for the Department of Labor that would block the DOL’s final rule on environmental, social and governance considerations in retirement plans and a proposed rule that would modify the definition of independent contractor. The House also approved amendments to the bill—H.R. 5894, the Labor, Health and Human Services, Education, and Related Agencies Appropriations Act of 2024—which would block proposed changes to the definition of a fiduciary. …

The base text of the DOL funding bill would prevent the DOL from implementing the ESG fiduciary final rule, which permits plans to consider ESG factors in qualified retirement plan investment selection, and from finalizing an October 2022 proposal which would modify the definition of independent contractor. The latter would make it easier for a worker to be classified as an employee and make workers less likely to be classified as independent contractors.

The White House explicitly opposed both measures and announced that President Joe Biden would veto the bill if it reached his desk; on March 20, Biden vetoed a prior Congressional attempt to overturn the ESG fiduciary rule via the Congressional Review Act.

Spain proposes exempting financial firms from due diligence rule

Spain proposed on November 9 exempting financial institutions from the E.U.’s new Corporate Sustainability Due Diligence Directive (CSDDD), which will require corporations to ensure they have no connections to human rights abuses, certain types of environmental pollution, or other businesses with ties to such activity:

Spain, which holds the European Union’s rotating presidency, has proposed that financial firms be excluded from the initial roll-out of the Corporate Sustainability Due Diligence Directive, according to a Nov. 9 draft proposal seen by Bloomberg. The proposal still requires the approval of member states and lawmakers.

CSDDD, which the EU plans to use as a tool to force all industries to pay more attention to the value chains connected to their operations, has the potential to expose firms to unprecedented legal risk. If a single link in a firm’s value chain is tied to human rights abuses, environmental destruction or similar acts, Brussels wants to hold the EU-based business accountable.

The finance industry has lobbied hard against being included in the scope of the directive, arguing that such a wide-reaching rule is reasonable to consider for manufacturers, but not for banks, asset managers and insurers. The negative fallout would be “huge,” Philippe Angelis, senior policy adviser for corporate reporting and sustainable finance at Insurance Europe, said earlier this year.

European companies may not be the only ones affected under the CSDDD, according to U.S. Treasury Secretary Janet Yellen, who over the summer “warned of the potential ‘negative, unintended consequences’ facing US firms because of CSDDD.”

In the states

Oklahoma pension system pushes back against treasurer’s ESG opposition

The Oklahoma Public Employees’ Retirement System (OPERS) recently voted to continue contracting with BlackRock and State Street—the managers of most of the state’s pension assets. Oklahoma Treasurer Todd Russ (R) published a letter arguing against the decision and saying it could violate state laws opposing ESG. OPERS last week responded to Russ’ letter with a letter of its own:

In the l6-page letter sent to Russ and other members of the Oklahoma State Pension Commission on Nov. 15, the OPERs board argued that its decision in August to exercise a fiduciary exemption from having to terminate contracts with BlackRock and State Street was “legally consistent and in compliance with the Energy Discrimination Elimination Act,” a law implemented in 2022 to punish firms for factoring environmental, social and governance issues into their investment decision-making.

The board voted 9 to 1 in favor of the exemption, with Russ — who serves on the board — casting the only vote against the exemption. …

The letter comes after the Oklahoma Public Employees Association, a group created in 1975 to protect the interests of state employees, published a blistering op-ed piece in Oklahoma newspaper Pawhusksa Journal-Capital, criticizing Russ for choosing to “undermine the will and fiduciary duty of Oklahoma’s pensions.”

On Wall Street and in the private sector

J.P. Morgan announces plans to close two ESG funds

J.P. Morgan announced last week that it will close two ESG funds at the end of the year amid general outflows from ESG financial products:

An unprecedented $7.7 billion has left do-good ETFs this year following ten straight years of inflows, Bloomberg Intelligence data show. Issuers have shut down a record 14 ESG funds so far in 2023 amid the outflows, with the JPMorgan Sustainable Consumption ETF (ticker CIRC) and JPMorgan Social Advancement ETF (UPWD) set to be liquidated by year-end, according to a press release Thursday.

The conversation around principles-based investing is increasingly intertwined with politics. After positioning his firm as a leader in the space, BlackRock Inc. Chief Executive Officer Larry Fink famously said this year that he’s retiring what has become a “weaponized” label after facing outcry from Republican politicians who pulled billions in state funds from his company.

In its analysis, Bloomberg said the funds experienced one day of net inflows since their creation:

Both CIRC and UPWD are being shuttered after just over a year in existence. In that time, both funds have only seen a single day of inflows — just over a million dollars a piece more than a year ago, according to data compiled by Bloomberg.