The US Supreme Court’s reversal of the 40-year-old ‘Chevron deference’ rule
could put countless ESG regulations in jeopardy, but experts urge companies to
stick to strategies that ensure their long-term competitiveness and resilience.
Earlier this summer, the US Supreme Court ended a 40-year-old legal
precedent called "Chevron
deference”
— which stipulated that when Congress passes a law that lacks specificity,
courts must give wide leeway to decisions made by the federal agencies charged
with implementing that law. The reasoning was that scientists, economists and
other specialists at the agencies are more qualified than judges in determining
and implementing regulations and that the executive branch is also more
accountable to voters.
But conservatives argued for
years
that the doctrine gave unelected government officials too much power — and they
led a coordinated, multiyear campaign to overturn it.
Though the long-term impacts of the decision are yet to be seen, some
experts say
the Chevron reversal knocks out a core pillar of US administrative law and
creates a real risk of regulatory chaos across a range of policy domains —
including environmental protection, healthcare, labor standards,
land use and corporate reporting — making it easier for those who oppose
certain federal regulations to challenge them in court.
The bottom line, others assert, is that US regulators deprioritizing ESG
regulations could have a serious impact on US competitiveness globally — as
recent research found that companies with better ESG ratings outperformed their
peers
with lower ratings.
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Here, we examine a few potential implications of the ruling.
Corporate transparency and product standards
With “ESG” becoming a dirty
word
in conservative circles in recent years, industry players fear that US
regulations aimed at reining in and reporting on our environmental impacts (ex:
the SEC’s long-awaited climate-disclosure
rule
— whose final version was significantly watered
down,
thanks to conservative pressure) — will be among the first in the crosshairs.
Thankfully, recent EU laws including the Corporate Sustainability Reporting
Directive (CSRD) and Ecodesign for Sustainable Products Regulation
(ESPR)
— which have the heft to drive standards for a significant portion of the global
economy — remain unaffected by the new ruling.
Health and safety
Others say losing Chevron deference could introduce more legal complexity and
diminish the power of federal agencies to establish guardrails that aim to
protect public health — such as OSHA’s proposed
standard
for preventing heat-related injury and illness for workers or the EPA’s
efforts to address different types of industrial pollution, such as recent
hazardous-substance designation for certain "forever
chemicals"
and other pollutants contaminating
groundwater.
“Critical
regulations
to protect our water from emerging contaminants such as PFAS — which already
take far too long to pass and implement — are likely to be slowed even further
by a wave of litigation,”
said Shimon
Anisfeld, Senior Lecture
and Research Scientist for Water Resources and Environmental Chemistry at Yale
School of the Environment.
Supply chain management
Regardless of regulatory uncertainty domestically, experts urge US-based
companies to stay the course on their sustainability-related strategies to
ensure the stability and resilience of their operations and supply chains, and
their competitiveness in the market.
“In light of the recent Supreme Court decision to overturn the Chevron doctrine,
organizations looking to maintain responsible and competitive supply chains must
now refine their procurement strategies,” Dawn
Andre,
Chief Product Officer at global procurement-tech company
JAGGAER – told Sustainable Brands® (SB) via email. “Neglecting ESG
considerations and procurement compliance may result in reputational damage,
regulatory penalties and loss of market share — especially in international
markets. To effectively tackle ESG challenges, companies must enhance their
visibility into supplier risks, adopt sustainable procurement practices and
align their decisions with global sustainability standards. Knowing your
suppliers well is essential to mitigating risks and complying with evolving
regulations.
“In today’s interconnected world, political shifts, environmental disasters and
other global disruptions are inevitable,” she added. “Businesses must be
prepared to navigate these challenges with agility. Maintaining robust
procurement operations ensures continuity and supports enduring success, no
matter the disruption ahead.”
As Pete
Rau,
VP of Enablement & Solution Consulting at ESG-ratings provider
EcoVadis, points out, maintaining firm focus on
sustainability strategies — regardless of regulatory requirements — helps
companies drive improvements in critical areas such as carbon emissions and
human rights across the supply chain, all integral aspects of running a modern
business.
“Regardless of domestic regulatory shifts, the impact of laws such as the CSRD
in the European Union will be felt globally — so, US companies with global
supply chains must navigate a patchwork of differing global regulations. The
biggest opportunity for real business impact lies within the supply chain,” Rau
told SB. “Business leaders can drive resilience in their supply chains and new
strategies for value creation by developing systematic approaches for
identifying, mitigating and reporting on ESG issues throughout supply chains.
These approaches must also be scalable, repeatable and transferable across laws
in multiple jurisdictions.
“Our
research
shows that companies that prioritize ESG initiatives often see higher value
creation,” Rau added. “Those that prioritize ethical, environmental and labor
practices within their supply chains experience profit margins three to four
points higher than their counterparts … [so], it is increasingly important for
organizations to continue to prioritize ESG as part of their fundamental
business performance.”
Published Aug 14, 2024 8am EDT / 5am PDT / 1pm BST / 2pm CEST
Sustainable Brands Staff
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