This update includes the most significant developments regarding ESG-related laws, regulations, litigation and initiatives during the past 30 days. For more information on any item listed here, please contact us.
Practice News:
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Simpson Thacher and Leah Malone, Head of Sustainability and ESG Practice, were recognized by The Legal 500 in the third edition of their United States Green Guide, which highlights key firms engaging with sustainability in the U.S. market.
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Sustainability and ESG Counsel, Emily Holland, presented to the Business and Human Rights Lawyers Association on post-U.S. election impacts on ESG & Sustainability issues on November 21, 2024.
Upcoming Reporting Deadlines:
Americas
California Air Resources Board Issues Enforcement Notice on SB 253
On December 5, the California Air Resources Board (CARB) issued an Enforcement Notice with respect to the Climate Corporate Data Accountability Act (SB 253), announcing that it would not pursue enforcement against covered entities for incomplete reporting of their Scope 1 and 2 greenhouse gas (GHG) emissions for the 2026 reporting cycle, provided that certain conditions are met. Specifically, the Notice states that CARB will exercise enforcement discretion for entities that demonstrate good faith efforts to comply with the law. It also states that entities may submit Scope 1 and 2 emissions in their initial reports based on information the reporting entity already possesses or is collecting as of the date of the December 5 notice.
SB 253 and SB 261 (on Climate-Related Financial Risk) remain subject to ongoing litigation in the U.S. District Court for the Central District of California. For additional information on scoping and reporting requirements for California’s climate disclosure laws, please see our client alert.
U.S. State AGs File Antitrust Suit Against Large Institutional Investors
On November 27, 11 Republican U.S. State Attorneys General (led by Texas) filed an antitrust lawsuit against three of the country’s largest institutional investors in the U.S. District Court for the Eastern District of Texas, alleging anticompetitive activity relating to their stock ownership in publicly-traded domestic coal producers, deceptive trade practices, and an antitrust conspiracy to reduce coal production, with reference to the asset managers’ ESG activities and current or prior membership in Climate Action 100+ and the Net Zero Asset Managers Initiative. The states seek declaratory and injunctive relief, including divestitures and civil fines.
Canada Releases Updated Guidance on Fighting Against Forced Labor Act
On November 15, Public Safety Canada (PSC) released updated guidance with respect to Canada’s Fighting Against Forced Labor and Child Labor in Supply Chains Act, following the tabling in Parliament of PSC’s first 2024 annual report on the first year of reporting under Canada’s statute on October 23. PSC’s guidance includes updates and clarifications on the statute’s two-part scoping test, reporting requirements and questionnaire for in-scope entities. For entities with a December 31 fiscal year-end, reports covering FY 2024 activities are due on May 31, 2025.
California Social Compliance Audit Reporting Statute to Take Effect
On January 1, 2025, California’s AB 3234 takes effect, requiring employers that have voluntarily subjected themselves to a social compliance audit to determine whether there is child labor in the employer’s operations or practices to post a link to a report on their website containing specified information on the child labor-related findings. The law, a direct response to the rollback of child labor protections in several US states, includes no revenue or employee threshold, or information on when reports must be posted, the length of time reports must be posted, or penalties for noncompliance.
Governor Newsom Convenes California State Legislature Special Session to Protect California Values
On December 2, following a proclamation by Governor Newsom, the California state legislature convened a special session to address “safeguard[ing] California values and fundamental rights,” including civil rights, reproductive freedom, climate action and in regards to immigrant families. During the special session, Gov. Newsom asked state legislators to establish a litigation fund of up to $25 million for California’s Department of Justice and other state entities to pursue affirmative litigation against the incoming administration.
EU/U.K.
EU Adopts Forced Labor Regulation
On November 19, the European Council adopted a regulation banning economic operators from placing or making available products made using forced labor, at any stage, on the EU market (see press release available here). The prohibition covers the import, export, sale (including online) and distribution of products, and applies to products across geographic origin and industry. The EU Commission is expected to play a large role in investigations with competent member state authorities and is authorized to develop a database of relevant information and tools regarding forced labor to assist law enforcement efforts. Penalties for noncompliance may include fines. The Regulation will take effect one day after publication in the EU Official Journal (expected this month) and start to apply three years from that date.
U.K. SDR Naming and Marketing Rules Enter Into Force
On December 2, the naming and marketing rules under the U.K.’s Sustainability Disclosure Requirements (SDR) entered into force. U.K. firms that use terms, either in a product’s name or in financial promotions, that imply that a sustainability product has sustainability characteristics will be required to comply with specific disclosure requirements. ESG 4.3.2R of the FCA Handbook sets out a non-exhaustive list of such sustainability-related terms. The naming and marketing rule is relevant to U.K. asset managers with respect to U.K. funds marketed to U.K. retail clients.
EU Council Adopts the EU ESG Ratings Regulation
On November 19, the EU Council adopted the ESG Ratings Regulation, which aims to streamline and enhance transparency and comparability with respect to ESG-related rating activities in the EU. Pursuant to the Regulation, EU-established ESG rating providers must be authorized and supervised by the European Securities and Markets Authority and comply with specified transparency requirements, including in regards to their methodologies and information sources. Those established outside the EU must obtain an endorsement of their ESG ratings by an authorized ESG ratings provider to operate in the EU. The Regulation will take effect 20 days after publication in the EU’s Official Journal and start to apply 18 months later.
EU Commission Publishes Draft Taxonomy Regulation FAQs
On November 29, the EU Commission published a set of draft FAQs on the EU Taxonomy Regulation, in particular regarding the technical screening criteria set out in the Taxonomy Climate Delegated Act and the Taxonomy Environmental Delegated Act. The FAQs address, among other things, the “do no significant harm” criteria for climate change adaptation, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems. Broadly speaking, the FAQs aim to simplify and facilitate the application of the above acts in a cost-effective manner and ensure disclosures are comparable and transparent. The FAQs will be formally adopted once they have been translated into all official EU languages.
U.K. Government Publishes U.K. ESG Ratings Draft Statutory Instrument
On November 14, the U.K. Government published a draft statutory instrument (SI) that will expand the Financial Conduct Authority (FCA)’s regulatory perimeter and make the provision of ESG ratings a regulated activity within the meaning of the Financial Services and Markets Act 2000 (FSMA). Once introduced, and in line with the broader FSMA regime, the regulation will require entities that produce and make ESG ratings available to be authorized, unless subject to an exclusion. The scope of the proposed SI extends to U.K. firms providing ESG ratings and ESG ratings made available to U.K. users, including by ESG rating providers based overseas. The U.K. Government intends to present the legislation to Parliament in early 2025.
EFRAG Updates its CSRD ESRS Q&A Platform
On December 6, the European Financial Reporting Advisory Group (EFRAG) updated its European Sustainability Reporting Standards (ESRS) Q&A platform to add 64 additional explanations to its Compilation of Technical Explanations. The non-authoritative Compilation now contains 157 questions, aimed at providing responses to technical questions and to support preparers of EU Corporate Sustainability Reporting Directive (CSRD) reports. The explanations are grouped by topical area and include (a) ESRS General Requirements and General Disclosures; (b) Environmental ESRS; (c) Social ESRS; (d) Governance ESRS; and (e) XBRL and data points. Further Q&As are due to be released in Spring 2025.
EU Considers Omnibus Simplification Package to Reduce Sustainability Reporting Burden
On November 8, the President of the European Commission indicated during a press conference after an informal meeting of Council leadership that the Commission is considering edits to three key pieces of sustainability legislation with the intention of simplifying and compiling into one streamlined “Omnibus Simplification Package.” The package, which may be published in February 2025, would seek to amend the EU Taxonomy Regulation, CSRD, and the Corporate Sustainability Due Diligence Directive (CSDDD). The stated intention is to maintain the content of the laws while reducing any redundancies and overlapping data point requirements to minimize the bureaucratic burden posed on reporting companies.
Switzerland Proposes Requirement for 2050-Aligned Net Zero Roadmap Disclosure
On December 6, the Federal Council of Switzerland launched a consultation on amending Switzerland’s Ordinance on Climate Disclosures. The proposed amendments would align reporting requirements with an internationally-recognized standard (such as the International Sustainability Standards Board) or the EU’s ESRS, and would establish minimum requirements for 2050-aligned net zero roadmaps, including particular obligations for financial institutions.
EU Deforestation Regulation Delayed by One Year
On December 3, the EU Parliament (press release) and Council (press release) reached a political agreement on a proposal to delay the implementation of the EU Deforestation Regulation by one year, postponing the application date to December 30, 2025 (from 2024). The purpose of the delay is to give third countries, EU member states, operators and traders additional time to prepare to comply with the regulation’s due diligence obligations. The political agreement will now need to be formally endorsed by the EU Parliament and Council before being published in the EU’s Official Journal.
AMEA
SSE Issues Three-Year Action Plan on Improving ESG Disclosure Quality
On November 6, the Shanghai Stock Exchange (SSE) issued a three-year action plan (2024-2026) to enhance the quality of ESG information disclosure by SSE-listed companies. The plan, which is intended to align with China’s commitment to sustainable development, focusing on environmental protection, rural revitalization and supply chain security, aims to improve ESG disclosure capabilities, increase funding for decarbonization, and enhance international ESG communication and cooperation, among others. The SSE has previously drafted guides for listed companies clarifying disclosure requirements, providing practical explanations to facilitate the compilation of sustainability reports.
China Enacts its First National Energy Law
On November 8, China introduced the Energy Law of the People’s Republic of China (available in Chinese here), the country’s first comprehensive national statute for the energy sector. The law, which is scheduled to take effect on January 1, 2025, provides a high-level framework to guide regulatory development in China’s energy industry. It specifies supervisory and inspection responsibilities of the energy regulatory authorities and corresponding measures, including the establishment of the energy industry’s credit system and credit record system, and provides penalties for noncompliance, among others.
New Zealand’s External Reporting Board Extends Scope 3 Emissions Implementation
New Zealand’s External Reporting Board (XRB Board) provided a one-year extension for implementing scope 3 emissions and expected financial impact disclosures under the Aotearoa New Zealand Climate Standards. This move acknowledges current data challenges and provides time for systems improvement from data providers. The changes impact accounting reporting periods beginning on January 1, 2024. While the XRB Board did not provide an extension for transition planning, additional guidance on reporting and assurance of GHG disclosures and transition planning is forthcoming in December 2024