Upcoming Events:
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Emily Holland, Sustainability and ESG Counsel, is presenting at the American Bar Association (ABA) Business Law Section’s Corporate Social Responsibility Law Committee meeting on Thursday, September 12, and at the ABA Business Law Section’s fall meeting in San Diego on Saturday, September 14 on evolving sustainability requirements and standards developments. For more information and to register, see here.
Practice News:
Americas
SEC Files Respondent Briefs in Climate Disclosure Rule Litigation
On August 6, the SEC responded to petitioners’ arguments set forth in their June opening briefs in the 8th Circuit climate disclosure rule litigation. The SEC argued that their goal in adopting the climate-related disclosure rule is to facilitate informed investment and voting decisions, not to promote particular environmental policies as petitioners alleged. Further, the SEC argued that the rule and its objectives are consistent with the SEC’s statutory authority and authority from Congress and therefore, the major questions doctrine does not apply; that it properly analyzed costs and reasonable alternatives during the rulemaking process; and that the rules are consistent with the First Amendment because they require factual disclosures, not opinion statements on controversial topics. Reply briefs are due September 3, 2024.
Oklahoma Permanently Enjoins Enforcement of Oklahoma’s Anti-ESG Law
On July 19, in a bench ruling, the Oklahoma County District Court issued a permanent injunction against enforcement of Oklahoma’s anti-ESG law. The law, which had previously been temporarily enjoined in May, prohibits state agencies from conducting business with organizations that boycott companies in the energy industry. The Oklahoma Attorney General plans to appeal the permanent injunction. For more information on this and other anti-ESG legislation, please see our ESG Battlegrounds, updated monthly.
Fifth Circuit Remands DOL 401(k) ESG Case in Light of Loper Bright Decision
In light of the Supreme Court’s Loper Bright decision overturning the Chevron doctrine, the 5th Circuit remanded a challenge to the U.S. Department of Labor’s 401(k) ESG rule back to a Texas district court on July 18. The original district court decision, from which plaintiffs appealed to the 5th Circuit, upheld the Department of Labor’s interpretation of ERISA on the basis of the Chevron doctrine. The challenge concerns a 2022 Department of Labor rule which allows pension fund managers to consider ESG factors when multiple investments “equally serve the financial interests of the plan over the appropriate time horizon.”
House Judiciary Committee Issues Demands to Climate Action 100+ Investor Signatories
On July 30, chairmen of the U.S. House of Representatives Judiciary Committee and Subcommittee on the Administrative State, Regulatory Reform, and Antitrust jointly issued demand letters from over 130 U.S.-based members of Climate Action 100+. The demand letters request that recipients provide and preserve information, documents and communications related to their plans to further Climate Action 100+’s plans towards achieving net zero. Climate Action 100+ is a multi-stakeholder initiative to address the material financial risks and opportunities of climate change, including by reducing GHG emissions and progressing towards net zero.
EU/U.K.
European Commission Publishes CSDDD Q&A
On July 25, as the Corporate Sustainability Due Diligence Directive (CSDDD) entered into force, the European Commission published initial guidance in the form of Frequently Asked Questions. Notably, the Commission stated that the CSDDD should be treated as lex generalis, and in case of conflict with sector-specific obligations such as Conflicts Minerals Regulation, Deforestation Regulation, Batteries Regulation and Forced Labour Ban Regulation, sector laws should prevail. They also stressed the indirect impact of CSDDD on otherwise out-of-scope business partners in the chains of activities of in-scope companies. The Commission also notes that it will issue general and sector-specific guidelines, that compliance with the CSDDD will be facilitated by the risk-based approach that allows companies to limit in-depth assessments of adverse impacts to high-risk areas and that safeguards are in place to ensure that during the data gathering and impact mitigation processes companies do not offload the compliance burden to business partners. Although initial implementation dates are not until 2027, companies should consider engaging with the Q&A now, in order to better understand the potential application of CSDDD to their business and to assess the extent of the exercise that they will need to undertake for compliance.
European Commission Publishes CSRD Q&A
On August 7, the European Commission published a draft notice containing Frequently Asked Questions on the implementation of CSRD and the implementation of the first set of the ESRS, seeking to clarify certain provisions including with respect to scope, application dates and exemptions. The Commission provided a helpful flowchart to identify which undertakings are in-scope of the Directive, and when. The Commission also provided guidance with respect to consolidation of EU and non-EU subsidiaries, reporting boundaries and assurance, among other topics.
EFRAG’s Publishes Preliminary Observations and Q&A on ESRS Implementation
On July 25, the European Financial Reporting Advisory Group (EFRAG) published its preliminary observations on the implementation of the European Sustainability Reporting Standards (ESRS) as of Q2 2024, as well as a Q&A on ESRS. The preliminary observations report includes a look at implementation of: (i) the double materiality assessment, (ii) sustainability-related data points, (iii) companies’ value chains, and (iv) organizational approaches to sustainability-related reporting. The study collected input from twenty-eight European-based large undertakings across eight industries, including both non-financial institutions (non-FIs) and financial institutions (FIs). EFRAG’s observations and Q&A offer helpful guidance for companies who are beginning to engage with ESRS reporting and serves as an example of the extent of the scoping analyses and materiality assessments that will need to be undertaken by companies in scope of CSRD.
Regulation on Nature Restoration Published in the EU’s Official Journal
On July 29, the EU’s Nature Restoration Law was published in the Official Journal. The Regulation applies at the level of the EU Member States, and sets legally binding targets and obligations for nature restoration ecosystems that aim to restore at least 20% of the EU’s land and sea areas by 2030, as well as all ecosystems in need of restoration by 2050. Member States are required to prepare national restoration plans and carry out preparatory monitoring and research to identify the restoration measures necessary. Although the Regulation applies to EU Member States, the national restoration plans set by Member States are expected to have a significant impact on sectors with nature-based dependencies or which have a significant impact on the natural environment. The Regulation notes the role of agriculture and that restoration measures will need to be put in place to enhance the biodiversity of agricultural ecosystems across the EU.
EU Regulation on the Reduction of Methane Emissions in the Energy Sector Published
On July 15, the EU’s Regulation on the reduction of methane emissions in the energy sector was published in the Official Journal. The Regulation is the first binding legislation to regulate methane emissions from imports and is part of the EU’s “Fit for 55” package, which aims to achieve a reduction in emissions by 2030 compared to 1990 levels. The new Regulation establishes an EU legal framework and introduces mitigating requirements for the energy sector, including leak detection and repair surveys, venting and flaring, measurement, reporting and verification, and transparency on methane emissions from imports of gas, coal and oil into the EU. The Regulation also establishes a penalties system that will be enforced by the EU Member States for infringements of the Regulation.
ESAs Publish New Consolidated Q&A on the Practical Application of the SFDR
On July 25, the European Supervisory Authorities (ESAs) published a new consolidated Q&A on the Sustainable Finance Disclosure Regulation (SFDR) and the SFDR Delegated Regulation. Most of the fifteen new FAQs are clarifications or provide illustrations, but managers in scope of the SFDR should consider the new guidance when seeking to comply with the SFDR framework for their in-scope financial products.
EU’s Ecodesign for Sustainable Products Regulation Enters Into Force
On July 18, the EU’s Ecodesign for Sustainable Products Regulation (ESPR) entered into force. ESPR is framework legislation which replaces and expands upon the former Ecodesign Directive by encompassing any physical goods placed into the market or put into service in the EU and establishing requirements for circularity, durability, reparability, and recyclability. Over the next 3-4 years, product-specific measures will be introduced. In Q3 2024, the Ecodesign Forum will be established as a consulting mechanism throughout ESPR rule development. Q2 2025 will see the first ESPR Working Plan and corresponding Delegated Act, while the ESPR measures on textiles, iron and steel are expected in 2026. Digital Product Passports and other product requirements will begin applying as soon as 2027.
AMEA
New Zealand Government Proposes Climate Disclosure Guidance Documents
New Zealand’s Financial Markets Authority is soliciting feedback on proposed guidance for climate reporting entities relating to the climate-related disclosures (CRD) regime. The guidance provides non-exhaustive examples of and recommendations for appropriate disclosures for: (i) Product Disclosure Statements (for offers of financial products); (ii) Disclose register “Other Material Information” disclosures; (iii) Statements of Investment Performance Objectives for Managed Investment Schemes and (iv) annual reports under the FMC Act and Aoteraroa New Zealand Climate Standards. The consultation is open until Friday, Aug. 30, 2024.
Korea Implements New Corporate Governance Rules for Financial Companies
On July 3, South Korea’s revised Act on Corporate Governance of Financial Companies came into effect, mandating financial companies to submit “responsibility maps.” These maps are designed to pre-assign accountability for major tasks within the companies, aiming to enhance transparency and prevent financial mishaps by clearly delineating the roles of directors and executives. Additionally, financial authorities released a commentary offering guidance on implementing these maps (available in Korean here), as well as draft guidelines for enforcing sanctions for breaches (available in Korean here). Financial companies must submit their responsibility maps by October 31, 2024, and implement necessary management measures by January 2, 2025; in the interim, sanctions for noncompliance will be waived. This initiative is part of a broader effort to strengthen corporate governance and accountability in South Korea’s financial sector.
Standards
SBTi Issues Technical Outputs Related to Corporate Net-Zero Standard Revisions
On July 30, the Science Based Targets initiative (SBTi) published four technical outputs in advance of a revised SBTi Corporate Net-Zero Standard. The technical outputs include (i) Scope 3 target setting discussion paper; (ii) evidence received on the effectiveness of Environmental Attribute Certificates; (iii) synthesis report of evidence on the effectiveness of Environmental Attribute Certificates in corporate climate targets–Part 1: Carbon credits and (iv) findings of independent systematic review on the effectiveness of carbon credits in corporate climate targets. Notably, SBTi indicated in its synthesis report that risks to corporate use of carbon credits for offsetting purposes may hinder progress towards net-zero or reduce climate finance, but stated that additional research in this area is needed.