U.S.: House Republicans Launch Investigation into “Climate Cartel”

On December 6, 2022, Republican members of Congress sent a letter to executives of the Steering Committee for Climate Action 100+, noting the role the organization plays in efforts to advance firms’ ESG policies. Climate Action 100+ is an investor-led initiative that aims to ensure that the world’s largest corporate greenhouse gas emitters act on climate change.

The letter requests information about ESG-related conduct or agreements that, the authors of the letter state, could be unlawful under U.S. antitrust laws. The letter requests numerous documents by December 20, 2022.

The letter also includes a formal request to preserve all existing and future records and materials relating to facilitating and coordinating companies’ efforts to achieve ESG-related goals.

Debevoise is monitoring the congressional investigative efforts, and will be launching a resource in the coming weeks that will track the latest developments in this space.

Link:
Letter

Global: Investors Press Companies on Human Rights, Social Issues

On December 1, 2022, the UN Principles for Responsible Investment (“PRI”) launched Advance, a collaborative investor stewardship initiative on social issues and human rights. Advance has 220 signatories so far, representing $30 trillion in assets under management.

Each member of the group has signed a public statement acknowledging both the urgency of human rights issues and the need to meet their responsibilities under international standards. More than half of the investors currently signed up will engage directly with an initial group of 40 companies in the mining, metals, and renewable sectors. Currently, Morgan Stanley Investment Management has been paired with Schroders to engage Anglo American. Though the form of this engagement has not been defined specifically, it includes engagement with affected stakeholders and collaboration with other investor initiatives such as the Investor Alliance for Human Rights.

Over the next five years, the coalition will expand its initiatives to companies and policymakers in other sectors.

Link:
PRI Press Release

Europe: Switzerland Adopts Law Requiring Mandatory Climate Reporting for Public Companies and Banks

On November 23, 2022, the Federal Council of Switzerland adopted the “Ordinance on Climate Disclosures”, requiring public companies, banks, and insurance companies to comply with the reporting requirements of the Task Force on Climate-Related Financial Disclosures. The Federal Council emphasized the importance of transparency by large companies on their climate impacts as “a key aspect for the markets to function well and for climate sustainability in the financial sector.”

The ordinance will affect Swiss companies with more than 500 employees and at least CHF 20 million (approx. $21.3 million) in total assets or more than CHF 40 million (approx. $42.5 million) in turnover. The ordinance requires the following to be reported:

• financial risks as a result of climate-related activities;
• the impact of the company’s business on the climate;
• the reduction targets of the company for direct and indirect greenhouse gas emissions (“GHG”); and
• how GHG-reduction targets will be implemented.

The rules will come into force on January 1, 2024, with reporting obligations beginning in 2025.

Link:
Federal Council Press Release

Europe: First Large-Scale Climate Litigation Filed in Finland

On November 28, 2022, Greenpeace and the Finnish Foundation for Nature Protection (the “Appellants”) filed a lawsuit in Finland’s Administrative Court, alleging that the Finnish government breached the Finnish Climate Act (the “Act”). Specifically, the Appellants argue that the Annual Climate Report provided by the Ministry of the Environment to the Finnish Parliament breaches section 16 of the Act, which requires the government to determine whether climate targets will be met and, if necessary, “decide on the additional measures required to achieve the targets.” The relevant climate target is Finland’s goal to be carbon-neutral by 2035. The Appellants argue that consideration of mitigation measures is necessary because a recent study showed that Finland currently has substantially fewer carbon sinks than in the past.

The Appellants face procedural hurdles, including on grounds of admissibility and standing. Regarding admissibility, the Appellants argue that even though inaction by the government normally does not constitute grounds for a lawsuit under Finnish law, a wider interpretation is necessary here. The decision not to investigate or decide on additional measures can be considered a decision itself. The Appellants argue that they have standing as environmental organizations because they have an interest directly affected by the decision; if they are not granted standing, the Act’s goals may not be reached.

It remains to be seen how the Finnish government will respond.

Links:
Press Release and Appeal (in Finnish)
Finnish Climate Act (English translation)
Annual Climate Report

U.S.: Federal Reserve Board Invites Public Comment on Draft Principles for Climate Risk Management

On December 2, 2022, the Federal Reserve Board invited public comment on a proposed high-level framework for banking organizations with over $100 billion in total assets to safely and soundly manage their exposure to climate-related financial risks, including both physical risks and transition risks. Specifically, these principles would cover six topics: governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis.

The Office of the Comptroller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the “FDIC”) have previously issued similar proposed guidance, and the Board plans to work with the OCC and FDIC going forward to promote consistency in supervision.

For more information, please see our upcoming Debevoise Update on this topic, which will be made available in due course here.

Links:
Press Release
Proposed Principles

Global: Seventeen Countries Author Draft UN Resolution Seeking ICJ Opinion on State Responsibility and Climate Change

On November 29, 2022, Vanuatu published a draft UN resolution on behalf of 17 UN member states, including several fellow small island nations, as well as Angola, Bangladesh, Germany, Mozambique, New Zealand, Portugal, and Vietnam. The draft resolution seeks an opinion from the International Court of Justice (the “ICJ”) on states’ legal duties with regard to climate action and repercussions for causing climate harm. Vanuatu, which is made up of 80 islands in the South Pacific, faces severe consequences to sea level rises and extreme weather events due to climate change.

The draft resolution presents two questions to the ICJ, which cannot issue legally binding decisions but is nonetheless influential in the formation of legal norms. First, the draft resolution requests an opinion from the ICJ with regard to “the obligations of states under . . . international law to ensure the protection of the climate system and other parts of the environment for present and future generations.” The draft resolution invokes several specific bodies of international law, including the UN Charter and core UN human rights treaties, such as the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, the UN Climate Convention; the Paris Agreement; and the UN Convention on the Law of the Sea.

Second, the draft resolution requests an opinion on “the legal consequences for states . . . which, by their acts and omissions, have caused significant harm to the climate system and other parts of the environment.” Specifically, the draft resolution asks the ICJ for an opinion regarding consequences for states causing climate harm to both fellow states, particularly small island nations and states vulnerable to climate change due to their geographic features and level of development, and “individuals of the present and future generations affected by the adverse impacts of climate change.” Notably, the draft resolution does not request an opinion on the calculation of damages for harms perpetrated by states, leaving this issue open for the ICJ to consider.

Representatives of Vanuatu are optimistic about the resolution’s passage, indicating that many more than the simple majority of member states needed to vote in its favor have expressed support, and expect the vote to take place in early 2023.

Link:
Draft Resolution

Global: ESG Increasingly Impacts Corporate Credit Ratings, Report Shows

In November 2022, Moody’s Investors Service published a report highlighting the role ESG plays in credit ratings determinations. According to the service, which measures ESG performance for roughly 5,700 corporate, institutional, and sovereign entities, 20% of issuers are impacted negatively by current ESG performance. By contrast, 4% of all issuers are impacted positively. The report also projects these numbers to increase in the future, claiming that 30% of all issuers face a potential future negative impact due to their ESG performance. ESG impact is also expected to be boosted by growing regulation and more widespread adoption of ESG metrics in both the United States and Europe.

Notably, the effect of ESG is most pronounced among corporate issuers. The report claims that over 40% face a “material impact” (positive, highly negative, or very highly negative) from their existing ESG ratings. In addition, it emphasizes that low credit ratings are generally correlated with low ESG scores. This is because the riskiest “speculative-grade” entities are often characterized by governance shortcomings.

Link:
Moody’s

Europe: CSSF Publishes FAQs on SFDR

On December 2, 2022, the Luxembourg financial regulator Commission de Surveillance du Secteur Financier (“CSSF”) published an FAQ to provide guidance on the interpretation of the Sustainable Finance Disclosure Regulation (“SFDR”). The FAQ addresses questions on pre-contractual disclosures, Alternative Investment Fund Managers’ disclosure responsibility in the context of the delegation of portfolio management, eligible strategies for funds disclosing under Articles 8 or 9 SFDR, and disclosures in periodic reports. CSSF plans to update the questions and answers on a regular basis.

For more information, please see our upcoming Debevoise Update on this topic, which will be made available in due course here.

Link:
CSSF FAQ

U.S.: Debevoise Launches State-Level ESG Investment Developments Tracker

In recent months, there has been a significant increase in the pace of individual states passing what are being viewed as “pro-ESG” and “anti-ESG” laws and regulations. Several states and cities have sought to embed ESG considerations in law and regulation, while others are implementing laws limiting the ability of financial institutions and state funds to follow an ESG investment strategy.

This new tracker from the team at Debevoise maps and summarizes the key developments in each state in an easily navigable way.

The tracker will continue to be updated with new developments, and is accessible via Debevoise’s ESG Resource Center.

Links:
Debevoise ESG Resource Center
State-Level ESG Investment Developments Tracker