The Law of the Corporation as Environmental Law.

• Author: Light, Sarah E.
• Position: Introduction through III. Corporate and Business Law as Environmental Law A. Mandates 1. Securities Disclosures, p. 137-171

Part 1 of 2

Table of Contents Introduction I. The Generations of Environmental Law A. The Traditional Generations B. Moving Beyond the Traditional Narrative C. A Heterogeneous Regulatory Toolkit D. What Is Missing II. The Forms of Interaction III. Corporate and Business Law as Environmental Law A. Mandates 1. Securities disclosures. 2. Antitrust law B. Prohibitions and Disincentives: The Antitrust Per Se Rule and the Rule of Reason C. Safe Harbors: The Business Judgment Rule D. Incentives: The Benefit Corporation E. Disincentives: Bankruptcy Law IV. A Holistic Approach A. The Environmental Priority Principle B. Integrating the Principle into Law C. Regulatory Pluralism in a Deregulatory Context Conclusion Introduction

The corporation is ascendant. Firms are not merely the objects of activist boycotts. (1) They are becoming activists themselves. Private firms are increasingly participating in public discourse (2) to pursue social or environmental values and goals. (3) For example, the outdoor retailer Patagonia recently filed suit to challenge the federal government's decision to shrink the Bears Ears and Grand Staircase-Escalante National Monuments in Utah. (4) Many private firms have adopted different forms of private environmental governance to improve their environmental footprints, going beyond mere compliance with rules of traditional environmental law. (5) To be sure, while such environmental or social action is arguably voluntary, the legal environment in which firms operate sets the boundaries of what firm managers may do, what they must do, what they have incentives to do, what they have incentives not to do, and what they are prohibited from doing. (6)

Traditionally, environmental law scholarship has focused on a set of canonical federal statutes adopted or amended by Congress between 1970 and 1990 (7) as the heart of the positive law (8) that shapes firm behavior by addressing environmental externalities. (9) This focus is consistent with the view that there is (and ought to be) a division of labor between firms and markets on the one hand, and public environmental law and regulation on the other. In other words, firms maximize their value within markets that are designed to promote efficient competition, while the government, through public environmental law, should address any negative externalities associated with market production. (10)

This Article questions this division of labor and argues that the field of environmental law should embrace a broader set of legal doctrines that are critical to its enterprise. In light of the significant impact that firms can have on the environment (often, though not always, when they are organized as publicly traded corporations), this Article argues that the law governing the corporation throughout its life cycle--corporate law, securities regulation, antitrust law, and bankruptcy law--should be understood as a fundamental part of environmental law. Firm managers make decisions with profound environmental consequences long before pollution comes out of a pipe or smokestack as an externality. (11) Corporate law governs how firms are created and the duties that managers owe to firms' different constituencies. (12) Securities law governs the information that firms must disclose to investors. (13) Antitrust law governs how firms behave in the marketplace with respect to their competitors and to consumers. (14) Bankruptcy law governs how firms wind down or reorganize when faced with financial trouble, as well as their ability to discharge their pre-petition legal obligations. (15) These fields of law have significant implications not only for whether firms comply in full with public environmental law, but also for whether they go beyond compliance to exhibit environmental leadership through private environmental governance. A broader and more pluralistic understanding of environmental law that includes these fields governing corporate decisionmaking and market architecture can yield solutions to enduring problems that traditional federal environmental law has been unable to solve on its own.

In focusing on fields of law governing the corporation throughout its life cycle, this Article builds on and extends beyond a body of work by scholars who have observed how environmental values and goals have permeated, or been embedded expressly within, areas of positive law outside of the traditional environmental law statutes, such as tax law, property law, administrative law, and civil rights law, among others. (16) It likewise builds on work by many scholars who have sought to expand our understanding of environmental law to incorporate a more nuanced view of the firm's role as a regulator or coparticipant in regulation with public institutions. (17) In my own prior work, I have argued that environmental regulatory programs can be fragmented across institutions beyond the Environmental Protection Agency (EPA). (18) Such institutions include federal agencies that have primary missions other than to promote environmental values; state and local governments; and private institutions like firms, nongovernmental organizations (NGOs), and industry associations. Yet to date, even this scholarship on environmentalism beyond environmental law has not offered an in-depth, holistic analysis of the positive law governing the corporation throughout its life cycle as a form of environmental law. (19)

To the extent that scholars have examined the connection between any one of these fields of corporate or business law (20) and the environment, they have tended to focus on each field in a siloed fashion--what Judge Frank Easterbrook would call a "law and" approach. (21) For example, many scholars of corporate law have examined the social responsibility of firms under principles of corporate law, including their environmental responsibility. (22) Several environmental law scholars have discussed the implications of specific U.S. Supreme Court cases or legal doctrines at the intersection of environmental law and individual fields such as bankruptcy law or corporate law. (23) A few scholars have examined the limiting implications of antitrust law for private industry collective action with respect to common pool resources. (24) Others have examined environmental disclosure requirements under securities regulations. (25) A robust discussion on the relationship between the firm and the environment has developed within management and business ethics scholarship about the duties that firm managers owe to different stakeholders to protect the environment, and the institutional differences that influence firms' environmental decisionmaking. (26)

This Article advances the discussion by viewing these fields of corporate and business law together as a single phenomenon with significant implications for firms' environmental decisionmaking. Unifying these otherwise disparate legal doctrines into a single constellation yields four insights.

First, a unified approach yields a comprehensive analytical framework for understanding how these disparate fields coalesce into five primary categories of influence on firms' environmental decisionmaking. Law governing the corporation can create mandates, incentives, safe harbors, disincentives, or prohibitions on environmentally positive firm behavior. A siloed approach can fail to appreciate the bigger-picture story about how these levers work in harmony with or in opposition to one another. Manipulating a single lever-for example, whether securities regulations require firms to disclose to investors those climate risks that are environmentally, but not financially, material to the firm--might be necessary, but not sufficient, to induce firm managers to prioritize environmental values and goals more explicitly in their decisionmaking. A failure to address simultaneously the tension between bankruptcy law's principle of giving debtors a "fresh start" and environmental law's "polluter pays" principle, or the antitrust implications of participating in private standard setting, may minimize or undermine the value of a single legal change. These fields should be considered holistically.

Second, this Article contends that the influence of these fields as a force for positive environmental change can and should be made stronger. Consistent with this approach, this Article proposes a normative environmental priority principle that should guide Congress, state legislatures, the executive branch, and the courts in adopting, amending, interpreting, and enforcing these nontraditional levers on firms' environmental decisionmaking. (27) In other words, this is not a descriptive account of "corporate law and the environment" or "antitrust law and the environment." (28) Rather than merely stating that the environment is one factor to be balanced with others, the priority principle prioritizes promoting environmental values and goals, acknowledging the maxim of sustainable development that requires providing present and future generations with basic environmental necessities like clean and sufficient water, food, and a habitable planet. (29)

Third, corporate and business law can collectively fill gaps in addressing problems that traditional environmental law has been ill-equipped to address alone. The most important of these is the issue of cumulative harms like climate change. (30) Traditional environmental laws--pollution control statutes like the Clean Air Act, (31) the Clean Water Act, (32) and others--have made significant progress in addressing many environmental concerns, including local air and water quality as well as the cleanup of hazardous waste sites in local communities. (33) Yet enormous challenges remain, including global climate change, deforestation, overfishing, agricultural runoff, and nonpoint source water pollution, to name just a few. (34) Many of these massive problems arise from the aggregation of thousands or even millions of small...