Horizon - ESG Regulatory News and Trends

Welcome to Horizon, DLA Piper’s regular bulletin reporting on late-breaking legislative and policy developments in ESG. Our aim is to scan the litigation, enforcement, and regulatory horizon to help you strategize for what’s next.

DISCLOSURES

Parties exchange briefs in SEC Climate Disclosure Rule litigation. The SEC’s Climate Disclosure Rules, which are currently voluntarily stayed pending judicial review by the Eighth Circuit Court of Appeals, have been challenged by US states, individual public companies, and non-governmental organizations on several grounds, including that the Climate Disclosure Rules exceed the SEC’s statutory authority. For more information about the pending challenges to the Climate Disclosure Rules, see our alert. In June, the plaintiffs, intervenors, and amici curiae filed briefs with the court, and the SEC is expected to file its response in August. The plaintiffs’ reply briefs are due September 3. As we await a decision, which is anticipated in late 2024 or early 2025, the future of the Climate Disclosure Rules remains uncertain, and it is possible that the court may vacate the rules in whole or in part. Nevertheless, public companies are encouraged to continue understanding the Climate Rules in light of ongoing SEC scrutiny of climate-related disclosures.

California proposes postponing implementation of its two climate disclosure rules. On June 28, the California Department of Finance (DFS) released budget trailer bill language that would push the compliance deadline of the two California climate disclosure rules – the Climate Corporate Data Accountability Act and Climate Related Financial Risk Implementation – forward by two years. Should these changes be agreed on by the legislature, the California Air Resources Board would have additional time to develop implementing regulations. Find out more about the rules in our alert.

Switzerland proposes expanding sustainability reporting requirements. On June 27, the Swiss Federal Council announced new proposals aimed at aligning its sustainability-related corporate governance rules with international systems, most notably the EU’s CSRD. The move, the Council stated, was driven by Switzerland’s close economic ties with the EU, because “both large and small Swiss companies are affected by the new EU rules – directly or indirectly.” Under the proposed rules, reporting requirements overall would be expanded, so that the number of Swiss companies affected would rise from the current 500 to about 3,500.

The first Implementation Guidance documents supporting the European Sustainability Reporting Standards are published. The European Financial Reporting Advisory Group (EFRAG) has published the first three Implementation Guidance (IG) documents relating to the European Sustainability Reporting Standards (ESRS). The IG documents address the materiality assessment, value chain, and ESRS datapoints, which EFRAG considers the “most challenging aspects” of ESRS implementation. The ESRS sets out rules and requirements for companies to report on their sustainability-related impacts, opportunities, and risks under the EU’s Corporate Sustainable Reporting Directive (CSRD). Find out more about the CSRD in our alert. 

Improving sustainability reporting in emerging markets: new IFRS - IFC partnership. Aiming to strengthen capital markets by increasing transparency and improving standardization, the World Bank Group’s International Finance Corporation and the IFRS Foundation have announced a new partnership that is seeking to improve sustainability reporting in emerging markets and developing economies (EMDEs). The IFC has estimated that it would cost up to USD3 trillion a year for EMDEs to adapt to climate change by 2030. The partnership will focus on promoting and building capacity in EMDEs, through tailored technical support, to help jurisdictions consistently adopt and implement the IFRS Sustainability Disclosure Standards. 

Majority of S&P companies aren’t providing GHG disclosures in this year’s Form 10-Ks. While the SEC Climate Disclosure Rule is stayed pending the outcome of consolidated litigation, many S&P 500 companies are not providing GHG emissions disclosures in their annual reports to the SEC. Bloomberg Law reports that only 126 of the 410 companies listed on the S&P 500 stock index that filed their 10-K reports to the SEC through May this year discussed pollution from their direct operations and energy usage in those filings. Even those companies that did mention Scope 1 and 2 emissions in their 10-Ks often did not provide the detailed pollution figures that the rules would require. 

GREENWASHING

Canada’s greenwashing law is in effect. Bill C-59 , updating Canada’s Competition Act, is now law. The Act has been amended to treat unsupported claims about “a product’s benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change” as deceptive marketing. Notably, the amendments encompass not just claims about products, but claims about businesses and their activities. The Act includes significant penalties, starting with fines up to the greater of $10 million for a first offense, or $15 million for subsequent orders. Find out about greenwashing regulations in Canada in our alert.

CLIMATE CHANGE: REGULATORY

 Biden Administration releases Statement of Principles to support development of a high-integrity voluntary carbon market. The Biden Administration has unveiled a Joint Statement of Policy and new Principles for Responsible Participation in Voluntary Carbon Markets. The principles outline values for high-integrity voluntary carbon markets from the supply, demand, and market-level perspectives. See the convenient chart in our concise alert.

Iowa approves its section of massive carbon capture pipeline. On June 25, the Iowa Utilities Board (IUB) approved the Iowa portion of an $8 billion carbon capture pipeline. The Summit Carbon Solutions project, which ultimately would extend 688 miles across five US states, still needs approvals from Minnesota, North Dakota, and South Dakota before it can begin construction. Should the pipeline be built, it would become one of the world's largest carbon capture and storage projects, moving up to 12 million metric tons of carbon dioxide a year to storage. The company says it has already obtained voluntary easement agreements from 75 percent of the Iowa landowners along the route and is projecting a 2025 construction start date. An appeal of the IUB decision is expected.

Significant updates to EU Urban Wastewater Treatment Directive bring financial costs, legal risk to manufacturers. The European Union’s updated Urban Wastewater Treatment Directive is moving closer to adoption, with revisions formally accepted by the European Parliament this spring. Under the updated Directive, manufacturers that market their pharma or cosmetics products in the European Economic Area or the European Union will have to pay a large share – more than 80 percent – of the cost of removing micropollutants from their wastewater, and would also have to pay the ongoing costs of monitoring that wastewater. This – the requirement that companies must pay for having polluted the water they use – is an important legal development. The updated Directive also requires EU member states to set up Producer Responsibility Organizations; individual companies would report to these organizations annually. And, increasing manufacturers’ legal risk, the updated Directive also introduces provisions that would allow individuals to file claims about damages to their health arising from such wastewater. The updated Directive is expected to be adopted this year.

Denmark to tax livestock methane. Denmark’s center-right government and representatives of farming and agricultural trade groups and labor unions have reached an agreement to create the world’s first emissions tax on livestock. The tax, slated to go into effect in 2030, aims to drastically slash emissions of methane produced by cows, sheep, and pigs. Livestock is understood to be responsible for about 32 percent of human-caused emissions of the potent greenhouse gas methane, most of that emitted by cattle. Danish officials say the tax would cut the country’s GHG emissions by about 1.8 million metric tons of CO₂ equivalent in the first year alone. Tax proceeds will be returned to the agricultural sector to support its green transition. The agreement comes at a time when farmers across Europe have been protesting climate change measures for months, charging that the new rules are forcing them into bankruptcy. Denmark’s parliament is expected to approve the proposed tax.

CLIMATE CHANGE: LITIGATION

US environmental law post-Chevron: Changes ahead. Ruling on June 28 in Loper Bright, the Supreme Court has overturned the Chevron doctrine – substantially boosting the power of federal courts to set aside agency rules and actions across the federal government landscape. Loper Bright can be expected to have profound implications for federal agencies and those subject to federal regulation, which is to say nearly everyone in the US, and the effects of this watershed decision on environmental law will be particularly significant. Our alert looks ahead.

Hawaii settles with youth activists in Navahine v Hawaii Department of Transportation. The State of Hawaii has announced a “groundbreaking” settlement with a group of climate activists that will require the state’s Department of Transportation to move expeditiously toward a zero-emissions transportation system. The case, Navahine v Hawaii Department of Transportation, was brought in 2022 by 13 young Hawaiians, ages 9 to 18, who charged that the state’s transportation policies, by favoring fossil fuel, harm the climate and infringe on their right under the state constitution to a clean and healthy environment. The settlement is the first between a state government and youth plaintiffs to address constitutional issues arising from climate change. The settlement requires the state to achieve zero GHG through “immediate, ambitious investments in clean transportation infrastructure” across all transportation modes, including ground transportation and sea and air interisland transport, “no later than 2045.”

Oral arguments coming soon in appeal of a landmark Montana ruling. In July, the Montana Supreme Court will hear oral arguments in Held v. Montana, the appeal of a landmark climate ruling that said regulators must consider the effects of greenhouse gas emissions when issuing permits for fossil fuel development. That case was originally brought in 2020 by 16 young people, then between age 2 and 18, to challenge a provision under the Montana Environmental Policy Act that forbids state agencies from considering the impacts of GHGs or climate change in their environmental reviews.

Baltimore sues companies over plastic pollution. On June 20, the City of Baltimore filed a state-court lawsuit against PepsiCo and Coca-Cola, as well as six other companies, alleging that the companies used deceptive business practices and created a public nuisance by packaging their products in single-use plastic. The lawsuit, perhaps the first such case to be filed by a US city, centers on alleged harm to people’s health and to the environment from plastic packaging and wrapping. It claims that the companies knew discarded plastic would litter streets and contaminate waterways but instead left the cleanup responsibilities and costs, in the tens of millions of dollars annually, to local government. An editorial writer for Plastics Today stated, “Relying on overly simplistic research to devise an overly simplistic list of culprits is bad science and will make bad law.” 

SUPPLY CHAIN

Uyghur Forced Labor Prevention Act – annual update on enforcement. On July 9, the Department of Homeland Security’s Forced Labor Enforcement Task Force (FLETF) released its annual update on its strategy for enforcing the Uyghur Forced Labor Prevention Act (UFLPA). The UFLPA, enacted in 2021, creates a rebuttable presumption that goods manufactured wholly or in part in the Xinjiang Region of China, or by certain designated entities, were made with forced labor and are therefore prohibited from entering the US. FLETF reports that in the past year it has expanded its enforcement reach, adding more high-priority enforcement sectors (aluminum, polyvinyl chloride, and seafood, in addition to cotton, polysilicon, and tomatoes) and growing the UFLPA Entity List to encompass 68 entities across a broad range of industries. Customs and Border Protection has continued identifying and interdicting shipments into the US that it has reason to suspect are subject to the UFLPA presumption. Going forward, FLETF says it will continue expanding its enforcement, assisted by an array of new approaches such as supply chain tracing, research technologies, and origin testing. To learn more about the implications of the UFLPA for your business, please contact Christine Daya.

Report: Selling the World’s Forests. A new report from the National Resources Defense Council details the impact of US supermarkets and retailers when offering products that harm climate-critical forests. Selling the World’s Forests urges retailers to avoid intentionally or inadvertently contributing to deforestation and associated human rights abuses in both their direct supply chains and the products they sell. See our look at the report.

Loan will support EV battery component maker’s expansion. A conditional USD1.2 billion loan offered by the US Department of Energy’s Loan Programs Office (LPO) to Entek Lithium Separators will help the company erect a new manufacturing facility in Terre Haute, Indiana, to expand its production of EV battery separators – the membranes inside EV batteries that allow charging and discharging while helping to guard against electrical fires and shorts. In 2023, Entek opened a new plant in Nevada where it is building the equipment for the Indiana factory, which when complete will produce enough separators to supply about 1.4 million EVs a year. LPO Director Jigar Shah said the loan is part of the LPO’s larger goal of bolstering the US supply chain for EV batteries: “11 out of our 20 conditional commitments have been in the EV supply chain,” he said.

THE WORKPLACE

Proposed rule would establish first federal workplace protections against heat-related injury. On July 2, President Joe Biden announced a proposed rule that, if finalized, would establish the first federal safety standard for protecting workers from extreme heat on the job. Among other requirements, employers would have to provide workers with drinking water, rest breaks, and, for indoor workers, temperature control, and would need to develop emergency response plans and provide training on the signs of heat-related illnesses. The comment period will open when the proposed rule is published in the Federal Register.

GRI to update worker-related standards. The Global Reporting Initiative (GRI) has announced it will review all its labor-related standards, with the goal of helping companies improve their transparency on human rights and workplace labor. The first consultation, now in process, will aim to produce updated version of three standards - GRI 402: Labor/Management Relations; GRI 401: Employment; and “GRI 202: Market Presence.” In total, 11 GRI standards will be updated over the next year.

ESG INVESTMENT

Fidelity revises sustainability investing framework. Pointing to the evolving ESG regulatory landscape, on July 1 investment management firm Fidelity announced it is launching a new three-tiered sustainability investing framework which will categorize funds via their level of ESG integration. The changes, Fidelity stated, meet the requirements of such new regulatory regimes as the EUs’ Sustainability Finance Disclosure Regulation and the UK’s Sustainability Disclosure Requirements, while aligning with the European Securities and Markets Authority threshold.

ESG CALENDAR

A roundup of key business and human rights reporting timelines as well as coming events.

Deadlines

• US: California Transparency in Supply Chains Act – annually based on the company’s internal annual publication deadline
• Canada: Bill S-211, Fighting Against Forced Labor and Child Labor in Supply Chains Act – annually on May 31
• EU: Taxonomy Regulation
• NFRD obliged companies – financial years starting on or from January 1, 2024 (with reports due in 2025/2026)
• Large undertakings and parents of large groups – financial years starting on or from January 1, 2025 (with reports due in 2026)
• EU: Corporate Sustainability Reporting Directive (CSRD)
• Large EU Public Interest entities (NFRD obliged) – January 1, 2024 (with reports due in 2025) and then annually
• Large EU undertakings and parents of large EU groups – January 1, 2025 (with reports due in 2026) and then annually
• Non-EU parent companies – January 1, 2028 (with reports due in 2029) and then annually
• EU: Deforestation Regulation – the regulations will substantively apply from December 30, 2024 onwards.
• EU: Corporate Sustainability Due Diligence Directive (CSDDD)
• 2027 for companies with 5,000+ employees and €1.5 billion
• 2028 for companies with 3,000+ employees and €900 million net turnover and
• 2029 for all other companies that fall within the scope of the CSDDD.
• UK: Modern Slavery Act, Transparency in Supply Chains Act – annually. Companies should publish their statement as soon as possible after their financial year end, which is expected to be, at most, within six months of the organization’s financial year end. Companies may wish to publish these statements at the same time as they publish other annual accounts.
• Germany: Act on Corporate Due Diligence Obligations in Supply Chains
• Phase 1 – June 1, 2025
• Phase 2 – annually on January 1
• Switzerland: Due Diligence and Transparency in Relation to Minerals and Metals from Conflict-Affected Areas and Child Labor – annually on June 30
• Norway: Transparency Act – annually on June 30
• Australia: Modern Slavery Act
• If the business reporting date is based on calendar year (ie, January 1 to December 31), then the reporting deadline is annually on June 30
• If the business reporting date is based on Australian financial year (ie, July 1 to June 30), then the reporting deadline is annually on December 31
• If the business reporting date is based on Foreign Financial Year – including United Kingdom and Japan (ie, April 1 to March 31) – then the reporting deadline is annually on September 30

Coming events

• Houston Energy & Climate Week will be held September 9-13, 2024 in Houston.
• Climate Week NYC takes place September 22-29, 2024 in New York City.
• The 2024 United Nations Biodiversity Conference of the Parties (COP16) to the UN Convention on Biological Diversity (CBD) will be held from October 21 to November 1, 2024 in Cali, Colombia.
• The 2024 United Nations Climate Change Conference (COP 29) will be held November 11 – 22, 2024 in Baku, Azerbaijan.
• The 13th United Nations Forum on Business and Human Rights will be held November 25 – 27, 2024, both hybrid and in-person in Geneva, Switzerland.