Chris Gasche

Associate Editor

Loyola University Chicago School of Law, JD 2027

Corporations and other firms maximize profits. Without profits, the corporation or the firm fails. Thus, regulations imposed by regulatory agencies become a hindrance. Businesses dealing in fossil fuels and other natural resources especially feel the impacts of these regulations. Specifically, environmental regulation that requires detailed reporting and measurement can become awfully cumbersome for these companies. Not surprisingly, these companies tend to take different paths to avoid abiding by these regulations.

Corporate trends in environmental regulation

Oil companies often mislead the public regarding climate change risks and realities to turn a profit. According to a Harvard Gazette article, oil companies such as ExxonMobil have used tactics to avoid declaring the dangers of climate change to the general public. This article notes that there are clear discrepancies between what companies like ExxonMobil say publicly and what they say privately. For instance, Exxon employs techniques straight from Big Tobacco. These techniques involve using language about climate change just strong enough to be able to say they warned the pubic but just weak enough to say that they were unaware of the dangers. By swaying public opinion, they can garner more votes for candidates who support these big corporations and are more willing to give them aid. Additionally, the oil and gas industry has also implemented obstruction tactics such as climate washing in order to avoid their obligations. When these techniques are employed, they obfuscate corporate promises and render them unintelligible. When using this tactic, corporations will often try to exaggerate their contributions while their actual actions fall short.

What is the problem?

Addressing the root of the problem involves analyzing the current framework in place in the United States. The United States federal government has long adopted a stance of emissions inaction, meaning they have not taken any  affirmative steps to reduce greenhouse gas (GHG) emissions. This means that to reduce emissions, the public has to rely on state laws and policies. According to Michael Pappas, the author of a Maryland Law Review article on U.S. climate policy, environmental policies can be divided into four subcategories. The first category is direct emissions regulation – the federal government adopts a stance of emissions inaction and relegates this regulation to the states. This involves carbon taxation, cap and trade systems and other regulatory programs. The second category is emission reduction subsidies. These are directly provided by the federal government through the Inflation Reduction Act. The other two categories are active adaptation and liability policies. These two are less relevant in the realm of corporate environmental regulation avoidance.

When analyzing the tactics used by corporations, it is important to consider how a corporation will respond to risk. In an Iowa Law Review article, the authors discuss the impact of corporate incentives, and the importance of limiting corporate evasion strategies. The authors describe a key difference which perpetuates corporate non-compliance: the perception of internal versus external compliance risks. Internal compliance risks are different from external risks because internal compliance risks are more controllable whereas external compliance risks are often outside the corporation’s sphere of control. Environmental regulation is inherently external which means corporations do not have to worry about compliance unless the regulations are directly imposed on them through state law. To achieve lasting change, the corporate perspective must be shifted towards a more external compliance risk analysis.

Possible solutions

As previously discussed, the United States follows an emissions inaction approach. This means that states are the ones implementing direct evironmental regulation. However, because states don’t standardize their regulations, a non-compliant corporation could simply move from one state to another. Given that the United States has no plans to shift its approach, a good solution is to hold corporations accountable by exposing their non-compliance to the public.

In a Yale article on climate regulation, author Sharon Yadin labels this approach “regulatory shaming.” Regulatory climate shaming consists of publicly declaring non-compliance and calling out corporations for misleading the public. Although not commonly used, Yadin believes that it could be an incredibly useful practice. Some countries in the European Union (EU) use this method by disclosing the names of companies that have breached their climate obligations. These countries include Germany, France, and the United Kingdom. Another example mentioned by Sharon Yardin is the Swedish Energy Agency, which mandates companies to provide clear indications of the impacts of their products on the environment.

In conclusion, regulatory bodies, and other environmental agencies such as the Environmental Protection Agency (EPA), need to be more vigilant when imposing corporate regulations. Ideally, this comes in the form of a complete paradigm shift in the way environmental regulation is viewed in the United States. Unfortunately, this avenue is unlikely. Alternatively, the approach promoted by Sharon Yadin appears to be a more tenable solution. This would require taking the perspective of a corporate compliance agent and imaging what incentives would be sufficient to draw companies away from non-compliance. Corporate non-compliance is inevitable, but it is not impossible to mitigate.