EU: Commission Proposes Package of Measures for EU Sustainable Finance Framework

On June 13, 2023, the European Commission put forward a new package of measures building on the foundations of the EU sustainable finance framework.

The package includes, notably:

• a new set of EU Taxonomy criteria, approved in principle, regarding economic activities with a substantial contribution to one or more non-climate environmental objectives. The criteria cover (i) the sustainable use and protection of water and marine resources; (ii) the transition to a circular economy; (iii) pollution prevention and control; and (iv) the protection and restoration of biodiversity and ecosystems. To help navigate the increasingly complex web of regulation, the Commission also published an EU Taxonomy User Guide;
• targeted amendments to the EU Taxonomy Climate Delegated Act focusing on the manufacturing and transport sectors. The amendments will be transmitted to the European Parliament and the Council for review and are expected to apply from January 2024; and
• the proposal for a regulation of ESG ratings providers (the “Regulation”) by the European Securities and Markets Authority (“ESMA”). If adopted, the Regulation would require ESG ratings providers to be authorized and supervised by ESMA. Under the proposed Regulation, ESG ratings providers will be prohibited from providing services related to activities including the issuance and sale of credit ratings, the development of benchmarks, investment activities, or audit activities. ESMA’s aim is to prevent conflicts of interest. Ratings providers would also be required to disclose methodologies, models, and key rating assumptions used in ESG ratings.

Links:
Press release
Text of Regulations

U.S.: First Constitutional Climate Change Trial Begins in Montana

On June 12, 2023, the trial in Held v. State of Montana—the United States’ first constitutional climate change lawsuit going to trial—began in Helena, Montana. The claim was brought in March 2020 by Our Children’s Trust, a nonprofit public interest law firm, who sued on behalf of 16 young plaintiffs claiming that Montana’s support of fossil fuels violates the government’s obligation to maintain a “clean and healthful environment,” as mandated in the state constitution.

Specifically, the plaintiffs seek a declaratory judgment that the State Energy Policy and Climate Change Exception to the Montana Environmental Policy Act are unconstitutional. The plaintiffs dropped their plea for injunctive relief after the court held that such a remedial plan or policy would violate the political question doctrine. The doctrine provides that courts cannot decide matters that are better left to the executive or legislative branches.

In opposition to the suit, Montana has argued that climate change should be addressed through political processes rather than through the courts. Montana further argued that climate change cannot be attributed directly to the state’s policies on fossil fuels.

Links:
Case Tracker
Our Children’s Trust Press Release

U.S.: Congress Ramps Up Activities Related to ESG

On June 14, 2023, the Chair of the House Judiciary Committee, Jim Jordan, issued a subpoena against Ceres, a sustainability nonprofit, calling for Ceres’ CEO Mindy Lubber to appear before the Committee on July 7. The subpoena follows a letter sent by Mr. Jordan in May, in which he alleged that Ceres appears to ‘facilitate collusion” in potential violation of antitrust laws, through its sponsoring of Climate Action 100+. Representative Jordan asserts that Ceres failed to adequately respond to the request for information. Ceres denies the allegations, on the basis that Climate Action 100+ acts as an open hub in which investors can freely engage on ESG issues. Other companies working with the investor coalition have also been served with requests for information by Republican officials, to which they provided a similar response (more on this here).

On June 9, 2023, Democratic members of the Senate Budget Committee launched an investigation into how fossil fuel expansion projects are assessed, underwritten, and priced in the U.S. insurance industry. Insurers, including AIG, Berkshire Hathaway, and Liberty Mutual, were asked to disclose how and why they continue to invest in such projects, how they evaluate climate-related risks, and whether they have any divestiture plans. The senators also requested information regarding the insurers’ specific plans on obtaining “Free, Prior and Informed Consent,” the principle allowing indigenous people to give or withhold consent for policies affecting their land or rights. The investigation follows a series of Committee hearings to assess the economic risks of climate change.

On June 5, 2023, two Republican congressmen sent letters to the U.S. Securities and Exchange Commission (the “SEC”) and the Department of Treasury regarding the Biden administration’s response to the EU’s ESG measures. The letters were authored by Tim Scott, Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, and James Comer, Chairman of the House Committee on Oversight and Accountability. The letters express concern about the lack of support for U.S. companies because of the impact of the EU’s ESG agenda. The letters request information about the scope of U.S. coordination with the EU on sustainability-related disclosures and whether the agencies have carried out any cost-benefit analyses. Specifically, the authors refer to the Sustainable Finance Disclosure Regulation and the Corporate Sustainability Reporting Directive, related to which the congressmen assert that the U.S. agencies have ceded responsibility to the EU.

Links:
House Judiciary Subpoena
Senate Budget Committee Investigation
SEC Letter
Treasury Letter

Global: OECD Publishes Updated Guidelines for Multinational Enterprises on Responsible Business Conduct

On June 8, 2023, the Organization for Economic Cooperation and Development (the “OECD”) published updated Guidelines for Multinational Enterprises on Responsible Business Conduct. The guidelines consist of voluntary recommendations for multinational enterprises to enhance their business contribution to sustainable development and address impacts of business on people, planet, and society.

Notable updates include recommendations for conducting risk-based due diligence to assess and address adverse impacts related to human rights violations, the environment, corruption, and science, technology, and innovation (including gathering and using data). With respect to adverse environmental impacts, the guidelines now advise that businesses “should ensure that their greenhouse gas emissions and impact on carbon sinks are consistent with internationally agreed global temperature goals” and “should avoid activities [that] undermine climate adaptation for, and resilience of, communities, workers and ecosystems”. The updated guidelines also include new recommendations related to the disclosure of material information and emphasize that sustainability-related claims should be based on adequate evidence and verification.

Governments adhering to the guidelines are required to set up national contact points (“NCPs”) for responsible business conduct to facilitate implementation. The updated guidelines clarify the mandate and authority of NCPs and include additional recommendations for NCP procedures.

Links:
Press Release
Guidelines