This summer, the Supreme Court could dismantle modern government as we know it, with profound implications for shareholders.

Let’s take a step back.

In 1984, the Supreme Court decided Chevron USA, Inc. v. Natural Resources Defense Council, Inc. At issue in Chevron was whether the Environmental Protection Agency had properly interpreted a provision of the Clean Air Act. The Court unanimously held that, if a statute is ambiguous, courts should defer to the implementing agency’s interpretation of that statute if that interpretation was “based on a permissible construction of the statute.” This rule has come to be called “Chevron deference.”

The decision in Chevron was initially met with relatively little controversy. As one commentator has observed, the idea “that courts should accept reasonable agency interpretations of statutes they are charged with administering” was not “revolutionary.” Nonetheless, the decision has grown in prominence to the point that it now is among the most cited cases in American law. Along with that prominence has come animosity, making Chevron the principal target of the conservative legal movement behind only Roe v. Wade.

On the one hand, this is something of a surprise. Chevron upheld a Reagan administration regulation that weakened the EPA’s enforcement of the Clean Air Act, overturning a lower court decision by then-Circuit Judge Ruth Bader Ginsburg. Many of its early defenders were legal conservatives seeking to limit environmental enforcement—Justice Antonin Scalia chief among them—by relying on deference to agencies generally inclined to support the status quo rather than wading into new protections.

The Supreme Court had, until recently, rejected requests to reconsider Chevron. But, in May 2023, the Court agreed to hear a pair of cases—Loper Bright and Relentless—in which the challengers explicitly asked to overrule Chevron deference. The Court held oral arguments on both in January. Most observers agree that “[a] majority of the justices seemed ready to jettison the doctrine [of Chevron deference] or at the very least significantly limit it.” A decision can be expected by late June.

It is unclear how the Court will replace Chevron. It may simply weaken the doctrine by constraining the circumstances under which agency interpretations are owed deference, or by limiting the extent of the deference to which agencies are entitled. Or it may conclude that courts must judge the legality of regulations on a clean slate.

In any event, deference is a zero-sum game. Dialing back deference to agency interpretations undeniably means increasing the power of a federal judiciary increasingly hostile to government regulation and increasingly willing to accept radical new attacks on established law. Combining this with recent cases imposing the “major questions doctrine,” an invention of the Roberts Court that presumes that Congress does not delegate to executive agencies any issues of real significance, every regulation by an administrative agency can be put in question and overturned.

The modern administrative system was set up in recognition of the needs of a technologically developed society where the lives of citizens are affected by dozens and dozens of complex areas. From air pollution, to drugs, the internet, transportation, education, chemicals, railroads, airwaves, consumer protection, and health, agencies set the rules of the road for some of the most important areas of our lives

While Congress decides when laws need to be created and the broad outlines of federal policy, it lacks the ability and the will to write detailed and effective laws addressing complicated issues, let alone to keep up with and update those laws as new technologies develop and new problems emerge.

Overturning Chevron will have significant implications for sustainable investing. At the most literal level, many of the Securities and Exchange Commission’s protections for shareholders, including Rule 14a-8 (the shareholder proposal rule), are based on relatively broad language. Already, those rules are under legal attack. They will be significantly more vulnerable in a post-Chevron world.

But, more broadly, a world in which agencies are significantly more restrained—by law, by an omnipresent litigation threat funded by powerful special interests, and by a hostile judiciary—is one in which social justice and sustainability will rely even more heavily on voluntary corporate action. That means that shareholders will have an even more important role to play in building a just and sustainable future.

Luke Morgan
Staff Attorney, As You Sow