Impact Investing | July 11, 2024

Free markets and impact investing in the aftermath of the Supreme Court’s rulings

Fran Seegull

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Guest Author

Fran Seegull

Impact investing is at a crossroads and in the crosshairs. That is a dichotomy we continue to revisit in our work to grow the practice of impact investing for a more sustainable, equitable economy.

Our field has grown exponentially and entered the mainstream, with the flourishing of funds incorporating ESG, sustainability and impact. There is growing recognition that issues like climate risk are synonymous with financial risk.

At the same time – or perhaps, as a result – these investment strategies are being attacked and falsely painted as politically motivated. Our actions now, as investors, field builders, policymakers, funders, businesses and other market actors, will determine the ability of the field to continue to scale with impact integrity.

At this time, we call for vigilance. Let us ensure that these attacks playing out in the courts do not lead to harmful chilling effects across the public and private sectors. Let’s be vigilant against the chilling of regulators’ responsiveness to public needs and the chilling of investors and businesses in pursuing prudent investment strategies to maximize opportunities and minimize risks.

This piece updates my April post on the rise of litigation against investor rights and other mechanisms that facilitate  transparent, accountable markets. Follow the U.S. Impact Investing Alliance to keep up on the public policy landscape and opportunities for investors to advocate for transparency and accountability in the public and private sector.

Courting regulatory chaos

One of the most seismic shifts in the way that government and the private sector interoperate was spurred by a highly anticipated Supreme Court ruling on the so-called “Chevron deference.” The recent decision in “Loper Bright” overturned the 40-year-old rule which had granted federal agencies the authority to interpret ambiguous statutes.

The unwinding of this decades-old precedent is a major victory for those seeking to undermine corporate accountability. It is a significant loss for American consumers and communities who benefit from stable, consistent and efficient regulations. As I wrote just after the decision, the agencies likely to be implicated are those responsible for keeping our food safe, our water and air clean, and our roads and bridges open. 

I cannot overstate the consequences of this new world order for our communities and for our democratic institutions.

From a practical standpoint, this ruling will create chaos in the courts and regulatory uncertainty for businesses and investors. The original Chevron ruling has been cited more than 18,000 times by lower courts in the last 40 years. As matters that were previously considered settled law are relitigated and as new challenges emerge, inconsistent rulings are all but guaranteed. Markets will be forced to contend with years of divergent and unreliable guidance as the courts grind through the morass.

This Supreme Court ruling only one among many that has left advocates concerned for the future of our democratic institutions. Two lesser-known cases – SEC v. Jarkesy and Corner Post v. The Federal Reserve – open the door for still more challenges to regulatory enforcement and even the most long-standing federal regulations.

Investors must prepare for challenges of critical agency guidance from regulators at the Securities and Exchange Commission, Department of Labor and Environmental Protection Agency. These agencies have been unfairly placed under a microscope for their efforts to respond to public needs and market gaps. 

The SEC has voluntarily stayed its corporate climate disclosure rule to allow for an efficient legal process after several business groups and attorneys general from a number of red states sued the agency. The overturning of Chevron only emboldens those seeking to politicize the actions of subject-matter experts and the preferences of investors.

Continuing attack on DEI

Alongside this power shift from the agencies to the courts, impact investors should also pay mind to the attacks against their strategies

The latest ruling in the case against the Fearless Fund – a venture capital firm focused on supporting Black women-led businesses – struck down a grantmaking program intended to provide modest support for Black women business owners. This outcome is particularly frustrating, when Black women founders receive less than 1% of venture capital funding.

Similarly, the Minority Development Business Administration, or MBDA, the Small Business Administration, or SBA, and LiftFund, a private community development financial institution in Texas that was administering a federal grant program, were all challenged for programs focused on support for socially disadvantaged businesses and entrepreneurs of color.

The two federal agencies mentioned – the MBDA and SBA – have not appealed the cases and are complying by placing the onus back on the applicants to prove their disadvantaged status.

Fortunately, the case against LiftFund was dismissed for lack of standing by the plaintiff, but the challenge put pressure on similar institutions and their grant application processes.

Investors themselves are facing scrutiny. ExxonMobil’s lawsuit against Arjuna Capital and Follow This has been dismissed, but only after Arjuna withdrew their shareholder resolution on climate issues and pledged not to refile similar motions in the future.

Legal experts are still parsing the full import of this term’s Supreme Court rulings. We will continue to discover new implications of decisions like the end of the Chevron deference for years to come.

Fran Seegull is President of the U.S. Impact Investing Alliance and Executive Director of the Tipping Point Fund on Impact Investing, two organizations committed to scaling the field with integrity for a more sustainable, equitable economy.

Disclosure: The Impact Investing Alliance supports ImpactAlpha’s Policy Corner.