Other Notable Developments

Switzerland Rejects Climate Ruling: On May 21, 2024, a Swiss parliamentary committee voted against implementing the European Court of Human Rights’ climate ruling in KlimaSeniorinnen v. Switzerland, noting that, in its view, Switzerland was taking sufficient action to address climate change.

Global: Law of the Sea Tribunal Issues Advisory Opinion on Countries’ Obligations to Combat Climate Change

On May 21, 2024, the International Tribunal for the Law of the Sea (“ITLOS”) delivered an advisory opinion finding that the 169 countries that are parties to the United Nations Convention on the Law of the Sea (“UNCLOS”) have an obligation to take steps to prevent, reduce and control pollution of the marine environment by greenhouse gas emissions and to protect and preserve the marine environment from climate change.

The opinion, delivered unanimously, follows written and oral proceedings and eight months of deliberation. The opinion concludes that “States Parties to the Convention have the specific obligations to take all necessary measures to prevent, reduce and control marine pollution from anthropogenic GHG emissions and to endeavor to harmonize their policies in this connection. Such measures should be determined objectively, taking into account, inter alia, the best available science and relevant international rules and standards contained in climate change treaties such as the [United Nations Framework Convention on Climate Change] and the Paris Agreement, in particular the global temperature goal of limiting the temperature increase to 1.5°C above pre-industrial levels and the timeline for emission pathways to achieve that goal.”

The advisory opinion was delivered in response to a request, submitted in December 2022, from the Commission of Small-Island States on Climate Change and International Law (“COSIS”). COSIS is an intergovernmental organization comprised of small island states spanning the Pacific and Caribbean with a mandate “to promote and contribute to the definition, implementation, and progressive development of rules and principles of international law concerning climate change.”

ITLOS is one of the three international or regional courts considering climate change-related advisory requests. The International Court of Justice and Inter-American Court of Human Rights are currently considering requests for advisory opinions on countries’ obligations under general international law and human rights law, respectively, to address climate change.

Link:
ITLOS Advisory Opinion

U.S.: CFTC Commissioner Announces Investigations into Greenwashing

On May 20, 2024, the U.S. Commodity Futures Trading Commission (the “CFTC”) publicly announced that the agency was conducting investigations into potential fraud within the voluntary carbon credit (the “VCC”) market. Commissioner Christy Goldsmith Romero, an appointee of President Joe Biden, said that a number of VCC-related practices were under “active investigation” by the CFTC’s Environmental Task Force, which was established in June 2023 to “combat environmental fraud and misconduct in derivatives and relevant spot markets.”

The details of the investigations are not public. However, it is expected that the agency will target market participants who engage in or help facilitate “greenwashing” by misrepresenting the environmental benefits of certain financial products.

The CFTC continues to review public comments in response to its proposed guidance for the trading of VCC derivative contracts. The proposed standards set out guidance for designated contract markets to promote high-quality VCCs, in line with wider efforts to clamp down on greenwashing. The public comment period for the proposed guidelines closed on February 16. The CFTC intends to publish and implement the final guidelines by the end of this year.

Links:
Press article
Press release on Proposed CFTC Guidance
Public comments on Proposed CFTC Guidance

UK: Government Postpones Decision on ISSB Standards

On May 16, 2024, the UK government’s Department for Business and Trade (the “Department”) announced that it is postponing its decision on whether to adopt the International Sustainability Standards Board’s sustainability and climate reporting standards (the “ISSB standards”) until March 2025. It had previously intended to make its decision by July this year.

If the Department endorses the ISSB standards, the UK Financial Conduct Authority (the “FCA”) will undertake a consultation to determine whether to make ISSB reporting mandatory for companies listed in the United Kingdom.

The Department’s decision will be informed by a recommendation from the UK Sustainability Disclosure Technical Advisory Committee (the “TAC”), a newly created 14-member panel. The TAC will meet monthly to review technical analysis of the standards and discuss whether implementing the ISSB standards is beneficial to the United Kingdom. It is expected that the TAC will publish its assessment in the fourth quarter of 2024.

Links:
Government Update
Committee Announcement

U.S.: Government Blocks Imports from 26 Chinese Companies over Forced Labor Concerns

On May 16, 2024, the U.S. Department of Homeland Security updated the Uyghur Forced Labor Prevention Act Entity List by adding 26 companies that it views as being involved in exploiting forced labor from China’s Xinjiang region. Listed companies are effectively banned from importing their merchandise into the United States.

The newly added companies operate in China’s textile industry and are alleged to have sourced cotton from Xinjiang. The United States has expanded its crackdown on imports it sees as being tied to forced labor and continued to urge companies to vet their supply chains. China has repeatedly denied allegations of forced labor in the Xinjiang region, which is home to the Uyghur people and other minority groups. The additions could put pressure on supply chains. The total number of banned companies on the list is now 65.

For more details on this story, check out our Debevoise National Security Update: UFLPA Entity List Expansion.

Link:
Federal Register Notice

U.S.: Federal Judge Allows Exxon’s Lawsuit against Activist Investor to Proceed

On May 22, 2024, the U.S. District Court for the Northern District of Texas allowed Exxon Mobil’s (“Exxon”) lawsuit against Arjuna Capital, LLC (“Arjuna”) to proceed. As reported previously (see here), Exxon sued two of its investors, Arjuna and Follow This, to block their shareholder proposal on climate change.

The shareholder proposal sought to accelerate Exxon’s emissions reductions. Exxon argues that the proposal represents an undue intrusion into its business operations. An amicus brief filed by the U.S. Chamber of Commerce and Business Roundtable asserts that the proposal prioritizes political and social objectives over Exxon's core business interests. Arjuna and Follow This moved to dismiss the case, arguing that Exxon is using the lawsuit to challenge the U.S. Securities and Exchange Commission’s Rule 14a-8, a proxy rule that allows shareholders to submit proposals.

Judge Mark T. Pittman ruled that the lawsuit may proceed despite Arjuna withdrawing the proposal and promising not to refile it. The claim against Follow This, an Amsterdam-based nongovernmental organization, was dismissed from the suit due to lack of personal jurisdiction. The judge’s decision to allow the lawsuit to proceed against Arjuna was based on the possibility that Arjuna might refile the proposal at a later date, considering its promise not to do so as “toothless.” Judge Pittman further critiqued Rule 14a-8, suggesting it enables activist shareholders with minimal shares to push their agendas without considering other shareholders’ interests.

Link:
Decision

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