Regulation & Public Policy

Resilient Companies Remain Committed to Improvement, Regardless of Regulations

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.

Published 4 months ago | About a 5 minute read

Image: Pierre Blaché

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.

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.”