IV. THE ENVIRONMENTAL ASPECTS OF THE COMMISSION'S RULEMAKING PROCEEDING
At the time of the rulemaking proceeding, the SEC's existing disclosure rules required registrants to disclose three "categories" of environmental information. First, the general requirement of disclosure of "material" information, information "which an average prudent investor ought reasonably to be informed" about,
required the disclosure of the "material" effects that compliance with federal, state, and local environmental laws may have on capital expenditures, earnings, and competitive position.
Second, a specific rule required the disclosure of all litigation, commenced or known to be contemplated, against a registrant by a governmental authority pursuant to federal, state, or local environmental laws.
Finally, the existing rules required the disclosure of all additional "material" information necessary to make the registrant's statements in required filings neither false nor misleading.
Despite its consideration of various additional disclosure requirements for environmental information, the Commission decided not to adopt any new disclosure requirements.
It stated its belief that the existing disclosure requirements "will elicit the type of environmental information in which investors appear to be interested and are more than sufficient to discharge the Commission's NEPA obligations."
Plaintiffs challenge the Commission's decision not to compel additional corporate disclosures of environmental information on two grounds.
First, they assert that "NEPA imposes on the Commission a mandatory obligation to develop a substantial program of corporate disclosure that will advance the act's objectives":
Plaintiffs take the position that NEPA requires the SEC to compel substantial corporate disclosures which will (1) deter corporate activities that adversely affect the environment, and (2) provide investors with necessary information to make "environmentally responsible" investment and voting decisions.
Second, plaintiffs argue that even if NEPA does not mandate substantial additional disclosures, the Commission's decision not to exercise its authority to compel such disclosures "in the public interest or for the protection of investors" was arbitrary and capricious.
A. NEPA Does Not Mandate That The Commission Require Additional Corporate Disclosure Of Environmental Information.
It is necessary for the Court to consider first plaintiffs' argument that NEPA mandates that the Commission promulgate broad environmental disclosure regulations, for if plaintiffs' reading of NEPA is correct, the existing environmental disclosure regulations are certainly "not in accordance with law." 5 U.S.C. § 706(2)(A). Plaintiffs base their "mandatory" argument on two grounds. First, they assert that an SEC requirement that corporations disclose substantial information concerning their activities that have an adverse impact on the environment would have a significant deterrent effect on such activities with the result that the quality of the environment would ultimately be improved.
Plaintiffs premise this argument primarily on sections 101(b)(3) and 102(1) of NEPA, 42 U.S.C. §§ 4331(b)(3), 4332(1), which they contend establish a substantive mandate of environmental protection for all federal agencies. Second, plaintiffs assert that corporate disclosure would provide significant environmental information to investors and the public that is not presently available in any meaningful form. Therefore, they argue, section 102(2)(F), 42 U.S.C. § 4332(2)(F), requires the Commission to exercise its authority to generate and make available such information.
The Court has reviewed the language of the three NEPA provisions relied on by plaintiffs, the pertinent legislative history, and the relatively few cases that have discussed the "substantive mandate" of these provisions, and the Court concludes that none of these provisions mandates that the Commission must impose substantial environmental disclosure requirements on registrants as plaintiffs contend. As the Court of Appeals for the District of Columbia Circuit said in the seminal NEPA case of Calvert Cliffs' Coordinating Committee, Inc. v. United States Atomic Energy Commission, (hereinafter, Calvert Cliffs'), 146 U.S. App. D.C. 33, 449 F.2d 1109, 1112 (D.C. Cir. 1971): "Congress did not establish environmental protection as an exclusive goal . . . . [The] general substantive policy of the Act is a flexible one. It leaves room for a responsible exercise of discretion and may not require particular substantive results in particular problematic instances." The Court of Appeals for this Circuit recently reiterated this conclusion: ". . . NEPA does not guarantee a particular outcome on the merits; rather, the statute mandates only a 'careful and informed decisionmaking process' to enlighten the decisionmaker and the public." Natural Resources Defense Council, Inc. v. United States Nuclear Regulatory Commission, 178 U.S. App. D.C. 336, 547 F.2d 633, 654 (D.C. Cir. 1976), cert. granted, 429 U.S. 1090, 97 S. Ct. 1098, 51 L. Ed. 2d 535 (1977), rev'd, 435 U.S. 519, 98 S. Ct. 1197, 55 L. Ed. 2d 460 (1978). Thus, it appears well settled that the decision to take or not to take particular action is "broadly committed" to the agency's discretion. Environmental Defense Fund, Inc. v. Corps of Engineers (Tennessee-Tombigbee), 492 F.2d 1123, 1139 n.33 (5th Cir. 1974).
B. NEPA Does Mandate That The Commission, "To The Fullest Extent Possible," Consider Seriously "Alternatives To Its Actions Which Would Reduce Environmental Damage," And NEPA Further Mandates That The Commission Not Strike An Arbitrary Balance Of Costs And Benefits Nor Give Clearly Insufficient Weight To Environmental Values.
While neither section 101(b)(3), section 102(1), nor section 102(2)(F) of NEPA requires the Commission to impose additional environmental disclosure requirements on registrants, section 102(2)(1) does require the Commission "to give full consideration to environmental protection": It "requires that an agency must -- to the fullest extent possible under its statutory obligations -- consider alternatives to its actions which would reduce environmental damage." Calvert Cliffs', 449 F.2d at 1128. As the Supreme Court recently stated in Flint Ridge Development Co. v. Scenic Rivers Association, 426 U.S. 776, 787, 49 L. Ed. 2d 205, 96 S. Ct. 2430 (1976), the section 102 phrase "to the fullest extent possible" is
neither accidental nor hyperbolic. Rather, [it] is a deliberate command that the duty NEPA imposes upon the agencies to consider environmental factors not be shunted aside in the bureaucratic shuffle.
Moreover, it is clear that while, as indicated above, an agency's decision to take or not to take particular action is "broadly committed" to the agency's discretion, the agency's decision should not be sustained by a reviewing court if that decision was based on an arbitrary balance of costs and benefits or if the agency "clearly gave insufficient weight to environmental values." Calvert Cliffs ', 449 F.2d at 1115; Sierra Club v. Morton, 169 U.S. App. D.C. 20, 514 F.2d 856, 874 & n.25 (D.C. Cir. 1975), rev'd on other grounds sub nom., Kleppe v. Sierra Club, 427 U.S. 390, 49 L. Ed. 2d 576, 96 S. Ct. 2718 (1976); Environmental Defense Fund, Inc. v. Corps of Engineers (Gillham Dam), 470 F.2d 289, 300 (8th Cir. 1972), cert. denied, 412 U.S. 931, 37 L. Ed. 2d 160, 93 S. Ct. 2749 (1973).
C. The Commission's Decision To Reject Various Environmental Disclosure Alternatives Was Not Based On A Consideration Of Relevant Factors, Was Not Rational, And Was In Violation Of NEPA's Procedural Mandate, And Therefore Its Decision Was "Arbitrary And Capricious."
(1) The "Arbitrary and Capricious" Standard of Review.
With the above-articulated considerations in mind, it is necessary to consider plaintiffs' argument that the Commission's decision not to require corporations to make additional disclosures was arbitrary and capricious. Before engaging in actual review of the Commission's rulemaking proceeding and the basis for its final determination, however, it is important, as the Court of Appeals for this Circuit recently said in its en banc decision in Ethyl Corp. v. EPA, 176 U.S. App. D.C. 373, 541 F.2d 1, 37 (D.C. Cir.), cert. denied, 426 U.S. 941, 96 S. Ct. 2662, 49 L. Ed. 2d 394 (1976), to keep the "'arbitrary and capricious' standard firmly in mind."
[The arbitrary and capricious] standard of review is a highly deferential one. It presumes agency action to be valid. Moreover, it forbids the court's substituting its judgment for that of the agency, and requires affirmance if a rational basis exists for the agency's decision.