Special Committee on Ethics and the Profession Report

Like all practitioners, those who practice environmental law are subject to rules of professional responsibility, including those involving competence, communication, consultation and candor, direct and imputed responsibility, and misconduct. The American Bar Association’s (ABA) Standing Committee on Ethics and Model Rules of Professional Responsibility (ABA Standing Committee) is the principal drafter of the Model Rules of Professional Conduct (Model Rules) and also issues ethics opinions. The highest court from each state adopts ethical rules that apply to lawyers licensed in that state for conduct in that state or anywhere else. While many state ethics codes are based on the Model Rules, each state may alter the rules in any way that it chooses. For example, the ethics codes in California, the District of Columbia, and New York diverge markedly from the Model Rules. There are also special rules that apply to attorneys representing the federal government and to judges.

The highest court in a state typically has primary responsibility for the regulation of lawyers licensed in that state regardless of where or in what jurisdiction the lawyer is practicing, virtually or otherwise. Independent disciplinary boards within each state, whose decisions enjoy Full Faith and Credit under the U.S. Constitution, typically enforce ethics rules. Direct or imputed misconduct can lead to disbarment, suspension from practice, censure, fine, or other penalties, all of which is public record. Moreover, proof of violation of a rule may be a factor for civil liability for failure to maintain the prevailing standard of care.

This chapter starts with a brief review of ABA Opinions and professional developments that may be related to the practice of Environmental, Energy, and Resources Law. The rest of the chapter focuses on increasing discussions regarding attorney review of client ESG and related regulatory disclosures, including expected new regulatory disclosure rules for clients (particularly in the greenhouse gas context), as well as the continued debates on ethics surrounding the representation of clients engaged in activities that may be socially disliked such as greenhouse gas emissions, rogue political movements, or representation connected with unfriendly regimes. This chapter will also discuss potential new duties of candor before FERC.

ABA Ethics Opinions

The ABA Standing Committee continued debate on amendments to model rules regarding attorney diligence, but only released three ethics opinions in 2022. The ethics opinions are general but could be of interest to environmental law practitioners.

A. Opinion Regarding Scope of Prohibition Against Solicitation (April 13, 2022)

Formal Opinion 501 clarifies that an unrelated third party’s recommendations do not constitute solicitation for purposes of Model Rule 5.3(b) and 7.3(b). Model Rules 7.3(a) and 7.3(b) specify that lawyers’ solicitations are prohibited and clarify the parameters of solicitation. Model Rule 5.3(b) is concerned with attorney responsibilities for the actions of those that the attorney supervises. Recognizing that it is common for consumers to obtain information from friends and acquaintances, this interpretation clarifies that unrelated third parties, which the attorney does not direct or control or employ, may recommend attorneys for business without running afoul of the solicitation prohibition.

B. Communication with a Represented Person from a Pro Se lawyer (September 28, 2022)

Formal Opinion 502 clarifies that when a lawyer is participating in a matter pro se (i.e., lawyer is self-representing), Rule 4.2 prohibitions against direct communication with other litigants apply. Model Rule 4.2.1 specifies that for persons represented in a legal matter, other parties should only communicate through the legal representative. Many pro se lawyers may not be aware of this or assume they are communicating with other parties simply as party to party. Before communicating with another party, pro se lawyers should seek permission from the attorney representative.

C. Consent to “reply all” in electronic communications (November 2, 2022)

Formal Opinion 503 states that any attorney who initiates group electronic communication to another attorney and copies their client impliedly consents to a “reply all” on the message, which can include their client. This means represented clients may be getting emails directly from other attorneys involved in a matter if the “reply all” feature is used after an email included the client originally. ABA Model Rule 4.2 specifies that an attorney should not directly communicate with another party represented by counsel without consent of that party’s attorney. An email to another counsel with attorney-client copied amounts to consent. California and New York have adopted this new rule specifically.

Client Disclosure and Information Regarding Environmental And Climate Risks; Impact of New SEC Rules

2022 saw much debate about the accuracy of climate and other material environmental disclosures, as well as the claims made by ESG rating agencies and investment firms. In particular, there was increased scrutiny as to the accuracy of information companies have disclosed. This year saw more attention paid to the attorney’s responsibility in representing those companies to ensure that the reports are accurate. Given increased pressure from shareholders and consumers for more detailed information, this has increased the attorney’s need for diligence in ensuring these reports are accurate and not misleading. Thus, this chapter reports on the potential changes in an attorney’s practice and responsibilities for the accuracy of information provided by clients, including in regulatory disclosure documents, particularly on disclosures related to climate change and greenhouse gas emissions.

Near the end of 2021, the Securities and Exchange Commission (SEC) signaled (by releasing a model enforcement letter) that it was paying greater attention to a company’s climate disclosures, and particularly whether a company’s SEC disclosures on financial risk were consistent with the company’s Corporate Social Responsibility (CSR) statements. This suggests that the SEC will be analyzing any discrepancies or even amount of information difference between a company’s financial disclosure and the company’s public facing reports. This could have a disproportionate impact on attorneys in the environmental and energy fields. Attorneys will need to advise companies to ensure that their CSR and other public statements are scientifically (or mathematically) defensible, and this also puts the attorney on alert about potential falsehoods which the attorney may not promulgate under ethical rules.

The details required in disclosures and thus attorney oversight are expected to increase in the coming year. As of year-end 2022, the SEC seems committed to pursuing its more specific proposed disclosure of climate financial risk information from publicly traded companies. The SEC’s proposed rule was closed for comment in the summer of 2022 (though technical problems required a temporary reopening in the fall), and despite some strenuous objections from various quarters, it is likely that the final rule will be little changed from the proposed rule. Despite significant criticism from businesses and some sections of the bar, prompting proposed legislation to preempt the SEC’s proposal, all signs appear to indicate that Republicans do not have the political power to block the new regulation and that the Biden Administration and the SEC are strongly supportive.

In pertinent part, the new SEC rule would “require all companies to report scope 1 and scope 2 greenhouse gas emissions in addition to other financially material climate risks, such as to infrastructure or from regulation.” Additionally, companies are also to report scope 3 GHG Emissions if these are expected to be financially material. “Almost by definition, major energy companies would meet [that] Scope 3 materiality threshold.”

In addition to the SEC rule, the Biden Administration has also proposed a federal procurement rule that would similarly apply to federal contractors with more than $7.5 million in federal contracts. The Procurement Rule is also justified by climate financial risks, but unlike the SEC’s rule would also include emissions reduction targets.

Interestingly, “the gist of the objections [to the SEC’s proposed rule] involves clarifying that only “material” risks need to be reported, yet [it is certainly arguable that] under prior [] precedent, the SEC’s proposed greenhouse gas emissions” disclosure rule meets that definition “Something is “material” if a reasonable investor would want that information in order to make investment decisions. This is an objective test and isn’t related to whether any particular individual believes that greenhouse gas emissions are significant or important or may affect a company’s bottom line.”

“How [a client] views the importance of environmental issues also relates to another SEC disclosure rule which may take effect in 2023,” information relating to ESG investment practices. “At this point, how a company’s ESG policies are scored is primarily up to private rating companies.” Clients that meet private rating criteria can currently report that. However, if standardization comes, this will likely mean more attention to particular metrics, which may or may not be favorable to a company.

“Though ESG investment practices most directly concern investment funds and brokerages, it will indirectly affect how energy companies are valued. Expect energy companies in every sector to begin to tailor their public information and reporting to fit whatever demands are made.”

Even though the SEC is likely to move forward with both of these rules, there is increased speculation about whether the Supreme Court could attempt to block them under its newly embraced “major questions doctrine.” Certainly, litigation along those lines should be expected.

Both climate and ESG disclosure rules are also undergoing changes internationally and making sure that a client’s reports are consistent across jurisdictions will continue to be important.

Proposed FERC Rule on Candor

In addition to SEC proposals, the Federal Energy Regulatory Commission (FERC) is proposing more stringent guarantees of accurate information in its proceedings. This proposal, which would apparently increase responsibility for false statements made by others, has been met with controversy and concern and was flagged for consideration by SEER’s executive committee. Many critics argue that the FERC proposal is unnecessary, particularly with relation to attorney candor (and parties represented by attorneys), as that is already governed by state ethical rules. FERC acknowledges this overlap but has concerns over relying on state ethical rules for purposes of its own candor needs. Look for some certainty on what will happen in the coming year.

Ethics of Client Representation of “Socially Undesirable” Activities

For several years now, there has been increasing debate about attorneys’ ethical responsibilities for client actions that may be societally damaging, with particular attention to attorneys representing clients who emit large amounts of greenhouse gases. These debates have ranged from whether greenhouse gas emissions can be considered as causing death or substantial bodily harm and thus triggering attorney disclosure responsibilities under relevant ethical rules, to the ABA’s own actions with regard to attorney responsibilities for addressing the climate crisis, to general debates over truthfulness and candor about climate impacts from attorneys in government.

In October 2022, the International Conference of Legal Regulators (ICLR) featured a panel discussing changing attorney ethical responsibilities, which compared U.S. and International approaches to hot button issues such as climate change, political disagreements, and geo-political crises. It was noted that the public demand for accountability puts pressure on legal regulators to reexamine many of these so-called “societally bad” behaviors and that public pressure will attempt to use attorney regulatory systems to gain advantage in the issue debate.

In the U.S., this can be seen in the many high-profile legal ethics charges brought against legal representatives associated with the Trump Administration’s attempt to retain power after it lost the 2020 election, and in climate it is seen indirectly in law student attempts to boycott firms that represent greenhouse gas emitters.

The ICLR panel also demonstrated the important distinction between solicitor ethics regulation in the UK (which requires an analysis of substantive impact on justice and the profession) and the more rules-based U.S. systems, which have fewer shades of gray.

Geo-political concerns continue to grow over the Russian invasion of Ukraine. For energy attorneys in particular, there is a chilling effect on the representation of energy extraction and transport, which could run afoul of multiple sanctions schemes put in place around the world against Russia and Russian companies and resources. Many of the sanctions imposed on Russia may impact an attorney's clients’ dealings and implicate ethical responsibilities as well.

SEER Ethics Activities

In addition to SEER webinars, which can be accessed here, some of which have ethics content, the ABA continues to support education on issues of legal ethics related to SEER topics. Of particular note is the SEER co-sponsored webinar, entitled “The Growing Storm: The Ethics of Representing Clients In Matters Impacting Climate Change,” presented in February 2022. This webinar examined the conflict between the rule that even though lawyers and their representations under Model Rule of Professional Conduct 1.2 are not to constitute an endorsement of the client’s political, economic, social, or moral views or activities, lawyers may find themselves characterized as enablers of climate change because of whom they represent or the subject matter of their representation. The webinar, featuring Professor Victor Flatt and attorneys Shawn Harpen and Margaret Elizabeth Peloso, examined Model Rule 1.1 (Competence), Model Rule 1.6 (Confidentiality), and the interplay between the permissive exceptions to those Model Rules and Model Rules 1.13 (Organization as Client), 3.3 (Candor Toward the Tribunal), and 4.1 (Truthfulness in Statements to Others), as well as Model Rule 1.16 (Declining or Terminating Representation). This presentation is available for on-demand viewing.