Other Notable Developments

Sustainability Disclosure Standards: The Science-Based Targets initiative (“SBTi”) invited global financial institutions to pilot its new draft Financial Institutions Net-Zero Standard; the SBTi also released its terms of reference that informed the development of the new Standard.

CSRD Reporting: The Global Reporting Initiative (“GRI”) launched a new service to help companies already reporting under GRI to comply with the EU Corporate Sustainability Reporting Directive requirements.

U.S.: The Forced Labor Enforcement Task Force Expands Enforcement of Uyghur Forced Labor Prevention Act to Include Aluminum, PVC, and Seafood

On July 9, 2024, the Department of Homeland Security, which leads the U.S. government’s Forced Labor Enforcement Task Force, updated its Uyghur Forced Labor Prevention Act (“UFLPA”) Strategy to strengthen efforts against forced labor in Chinese supply chains. The new strategy identifies aluminum, PVC, and seafood as high-priority sectors due to their elevated risk of forced labor or state labor transfers of Uyghurs and other ethnic minorities from the Xinjiang Uyghur Autonomous Region. This expansion builds on two years of UFLPA enforcement, which has previously prioritized—and will continue to prioritize—apparel, cotton products, silica-based products, and tomatoes.

The updated strategy is part of a multipronged effort by the Biden Administration to enforce the UFLPA, including by increasing the role of the U.S. Customs and Border Protection at ports of entry, expanding the UFLPA Entity List to include 68 companies based in China, and increasing collaboration with stakeholders. Entities in the newly designated high-priority sectors will face greater scrutiny and enforcement actions, such as inclusion on the UFLPA Entity List, export limitations, economic sanctions, and visa restrictions. These measures aim to deter human rights abuses and ensure that goods made with forced labor are kept out of U.S. markets.

For more information on UFLPA Enforcement, see our recent Debevoise Debriefs on the topic here and here.

Links:
Press Release
Fact Sheet

U.S.: Fifth Circuit Hears Challenge to Department of Labor’s ESG Investing Rule

On July 9, 2024, the U.S. Court of Appeals for the Fifth Circuit heard oral arguments in an appeal brought by 26 state attorneys general asserting that the U.S. Department of Labor’s ESG investing rule violates the Employment Retirement Income Security Act of 1974. The “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” rule took effect in January 2023 and allows, but does not require, retirement plan fiduciaries to consider ESG factors when selecting investments for retirement plans. The appeal focuses largely on the rule’s tiebreaker provision, which permits fiduciaries to look to collateral benefits, such as ESG factors, when selecting an investment if the options are economically equivalent.

U.S. District Court Judge Matthew Kacsmaryk of the Northern District of Texas initially upheld the Department of Labor’s rule in September 2023 (more on that decision can be found here). In finding that the agency acted within its authority when issuing the ESG investing rule, Judge Kacsmaryk applied Chevron deference, a 40-year-old doctrine directing courts to defer to an agency’s reasonable interpretation of a statute when the language of the statute is ambiguous or unclear. Now that the Supreme Court has struck down the Chevron decision (see last week’s ESG Weekly Update), this appeal will provide an early indicator of how courts review challenges to federal agency regulations moving forward.

Links:
Department of Labor rule
District Court Judgment

EU: ESMA Issues Public Statement on ESRS and Final Report on the Guidelines on Enforcement of Sustainability Information

On July 5, 2024, the European Securities and Markets Authority (“ESMA”) published a Public Statement on the first application of the European Sustainability Reporting Standards (“ESRS”) and a Final Report on the Guidelines on Enforcement of Sustainability Information. Both documents aim to foster consistent application and supervision of the new sustainability reporting requirements under the EU Corporate Sustainability Reporting Directive (“CSRD”). Under the CRSD, over 50,000 companies will be required to provide sustainability disclosures. Reports will be required in 2025 from large public-interest companies with over 500 employees. The rules will begin applying to other companies on a staggered basis through 2028.

The Public Statement focuses on several important areas for companies to consider as they prepare to issue their first CSRD reports: (i) establishing governance arrangements and internal controls that promote high-quality sustainability reporting; (ii) designing and conducting the so called “double materiality” assessment in a transparent manner; (iii) transparency around the use of transitional relief; (iv) preparation for the digitization of the sustainability statement; and (v) creating connectivity between financial and sustainability information. A main concern highlighted in the Public Statement is the development of internal controls and data collection systems by companies that are robust and capable of supporting detailed sustainability reporting. Adequate data collection is imperative to complying with the ESRS’s reporting requirements and conducting transparent double materiality assessments.

The Final Report provides additional guidance for supervisory authorities on enforcement.

Links:
Public Statement on the first application of the European Sustainability Reporting Standards (ESRS)
Final Report on the Guidelines on Enforcement of Sustainability Information (GLESI)

UK: Labour’s First Week in Office

Following elections in the United Kingdom on July 4, 2024, which brought a new Labour party government into power, the government has taken a number of steps to deliver on a promise to decarbonize the UK power system by 2030. These steps include the government lifting a de facto ban on onshore wind farms, removing support from a new coal mine in Cumbria, and a review of whether to block existing and future applications for North Sea oil drilling licenses.

During the election campaign, the Labour party set out details of its ‘Green Prosperity Plan’ (“GPP”), which aims to use public investment of around £15 billion per year to bolster private sector involvement in the green economy.

The two key pillars of the GPP are the proposed National Wealth Fund (“NWF”) and Great British Energy (“GBE”). Work has now started on setting up the NWF, which will be funded initially with £7.3bn to invest in green steel, gigafactories, and carbon capture technologies, among others. The NWF will seek to attract £3 in private investment for every pound of public money invested.

GBE, the proposed state-owned energy company, will be funded by an initial £8.3bn to invest in clean energy technologies and projects. Labour expects GBE to play a central role in doubling onshore wind, tripling solar power and quadrupling offshore wind in the UK by 2030.

Links:
UK Government Press Release on NWF
Great British Energy
UK Government Policy Paper on Onshore Wind

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