EU: Corporate Sustainability Due Diligence Directive Overcomes Initial Delays

On March 15, 2024, a modified version of the EU Corporate Sustainability Due Diligence Directive (“CSDDD”) was approved by Member State ambassadors, paving the way to final approval by Member State ministers and the European Parliament. This follows a series of votes against a previous text of CSDDD that was rejected by Germany and Italy.

According to the revised text, the scope of CSDDD would be modified to EU companies with 1,000 employees (an increase from 500 employees in the earlier version) and EUR 450 million worldwide net turnover (an increase from EUR 150 million worldwide net turnover), as well as non-EU companies that generate EUR 450 million net turnover in the EU (an increase from EUR 150 million net turnover in the EU). This will significantly reduce the number of companies subject to the sustainability due diligence requirements as compared to those envisaged in the political deal reached in December 2023.

Moreover, the civil liability rules have been amended in the latest version of CSDDD. They now provide for a limitation period of five years for initiating claims (a change from ten years in the earlier version). The revised text also clarifies that CSDDD does not intend to award punitive damages. Member States now have the authority to provide for reasonable conditions under which any alleged injured party may authorize a trade union, non-governmental human rights or environmental organization, or other non-governmental organization to bring actions to enforce the rights of the alleged injured party, without prejudice to national rules of civil procedure. 

It is likely that the EU Council will vote in favor of the revised text. If approved by the European Parliament, CSDDD could come into force in May or June 2024.

Link:
CSDDD Revised Text

U.S.: First Wave of Legal Challenges to SEC Climate Disclosure Rule Emerges

On March 6, 2024, the Securities and Exchange Commission (“SEC”) adopted final rules to require registrants to disclose certain climate-related information in registration statements and annual reports (the “Rule”). To date, at least eight suits challenging the Rule have been filed, including one by state attorneys general in the Eleventh Circuit and three in the Fifth Circuit – one by state attorneys general, one by two energy companies, and another by oil industry groups – which have been consolidated, as well as suits in the Eighth, Sixth and DC Circuits. The SEC has indicated it will ask the Judicial Panel on Multidistrict Litigation to consolidate the challenges in a single circuit court, which will be chosen at random from among the circuits where suits have already been filed. For more information on the Rule, see our Debevoise In Depth here.

On March 6, 2024, the attorneys general of 10 states, led by West Virginia and Georgia, filed a suit in the Eleventh Circuit requesting a review of the Rule. The attorneys general argue that the Rule exceeds the SEC’s statutory authority and is otherwise arbitrary, capricious, an abuse of discretion, and not in accordance with law. West Virginia Attorney General Patrick Morrisey reportedly stated that the Biden Administration used the SEC instead of the U.S. Environmental Protection Agency in an effort to undermine the energy industry.

Also on March 6, 2024, Liberty Energy Inc. and Nomad Proppant Services LLC filed a suit in the Fifth Circuit requesting a review of the Rule by March 16, 2024. This suit was joined with one filed on March 7, 2024 by the attorneys general for Louisiana, Texas, and Mississippi and one filed on March 11, 2024 by the Texas Alliance of Energy Producers and the Domestic Energy Producers Alliance.

The Rule also faces lawsuits brought by, among others, the U.S. Chamber of Commerce and the Sierra Club, the latter of whom criticizes the SEC’s arbitrary removal of key provisions from the Rule. Parties opposing the Rule have 60 days from its publication in the Federal Register to petition for judicial review in federal courts.

For more information on the legal challenges to the Rule, see our Debevoise In Depth here.

Links:
Eleventh Circuit Petition
Fifth Circuit Petition (Liberty Energy Inc. and Nomad Proppant Services LLC)
Fifth Circuit Petition (AGs for Louisiana, Texas, and Mississippi)
Domestic Energy Producers Alliance Press Release

EU: Provisional Agreement Reached on Forced Labor Regulation

On March 5, 2024, negotiators from the European Parliament and Council reached a provisional agreement on a new regulation banning forced labor.

According to the finalized text, the Commission will be responsible for drafting a list of specific economic sectors in specific geographic areas where forced labor exists. On the basis of this list, both national authorities and the Commission will be given the power to investigate the suspected use of forced labor in company supply chains (both within and outside of the EU). If an investigation reveals the use of forced labor, the relevant goods can be withdrawn for sale in the EU and confiscated at the borders, and companies which fail to comply can be fined. To assist investigations, the regulation will also create a new “Forced Labour Single Portal” which will include guidelines, information on bans, a database of risk areas and sectors, and a whistleblower portal.

Once approved by the Parliament and Council, the regulation will be published in the Official Journal and entered into force on the following day. EU Member States will then have three years to set up the framework for applying the new rules.

Link:
Press Release

U.S.: Alabama Seeks to Prevent Pensions and State Entities from Considering ESG Factors

On February 28, 2024, the Alabama Senate Finance and Taxation Committee passed SB 151, a bill that would prohibit public entities from considering ESG factors in business transactions. The Committee’s endorsement allows the bill to advance to the full Alabama Senate.

Introduced by Republican Senator Arthur Orr, SB 151 prohibits public pensions from transacting with “any financial institutions that prioritize ESG criteria above or in concert with the traditional fiduciary duty to maximize financial benefit.” SB 151 also prohibits state entities from considering ESG factors in awarding contracts and requires entities to consider only “pecuniary factors,” a term that explicitly excludes “the furtherance of any ESG interests.”

SB 151 is introduced on the heels of SB 261, an anti-ESG bill that Alabama Governor Kay Ivey signed into law in June 2023. SB 261 prohibits state entities and local governments from transacting with companies that boycott other companies on ESG grounds.

Link:
Alabama Senate Bill 151

EU: Parliament and Council Propose New Standards for Reuse and Recycling

On March 4, 2024, the European Parliament and Council reached a provisional agreement on new rules to reduce, reuse, and recycle packaging. The agreement is part of an effort in the EU for packaging to become safer and more sustainable by requiring all packaging to be recyclable, minimizing the presence of harmful substances, reducing unnecessary packaging, boosting the uptake of recycled content, and improving collection and recycling.

In particular, the rules set progressively increasing packaging reduction targets, ban the use of “forever chemicals” in food packaging, set specific targets for reusable packaging for alcoholic and non-alcoholic beverages by 2030, and introduce a full ban on certain single-use plastic packaging formats from January 1, 2030. The agreement also requires EU Member States to reduce the amount of plastic packaging waste and incentivize restaurants, bars, and catering services to serve tap water in a reusable or refillable format.

The agreement is subject to formal approval from the European Parliament and Council before entering into force.

Link:
Press Release

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