Other Notable Developments
Joint Statement on Biodiversity: On July 16, 2024, more than 130 businesses and financial institutions issued a joint statement urging countries around the world to adopt and implement the Kunming-Montreal Global Biodiversity Framework, which the statement called “the blueprint to reset our relationship with the natural world.” The call to action comes ahead of the United Nation’s Biodiversity COP16, which will be held from October 21 to November 1, 2024 in Cali, Colombia.
U.S.: California Proposes Legislation Delaying Climate Disclosure Laws
In recent weeks California has proposed legislation that would, among other things, delay the implementation of S.B. 253, S.B. 261 and A.B. 1305, the state’s climate disclosure laws. For additional background on the previous legislation, please see Debevoise’s prior ESG Weekly Updates coverage (from October 12, 2023, September 13, 2023 and February 8, 2023) as well as more extensive discussion in Debevoise Debrief, California Climate Disclosure Bills Signed into Law (Oct. 10, 2023) and Debevoise Update, California Climate Disclosure Bills Expected to Become Law (Oct. 5, 2023).
Signed last October, the climate disclosure laws seek to enhance transparency around greenhouse gas (GHG) emissions and climate-related financial risks for large companies. Senate Bill 253 directs the California Air Resources Board (CARB) to develop regulations that will require businesses with a presence in California and with over $1 billion in annual revenue to report direct GHG emissions (Scope 1), indirect GHG emissions associated with the company’s use of electricity, steam, heating and cooling (Scope 2), and their value-chain GHG emissions (Scope 3). Scopes 1 and 2 disclosures had been set to go into effect starting January 1, 2026, with Scope 3 disclosures starting January 1, 2027. Senate Bill 261, which requires companies with over $500 million in annual revenue to disclose climate-related financial risks biennially, was initially set to require disclosure starting January 1, 2026. Assembly Bill 1305, which amends the Health and Safety Code and requires firms that buy or sell carbon offsets to disclose certain information about those offsets (or credits) and requires substantiation of any “claims” related to the carbon neutrality or emissions reduction of an organization, product or service, did not initially contain an explicit effective date and so was effective as of January 1, 2024 by default.
The proposed legislation extends the compliance deadlines by two years for S.B. 253 and S.B. 261, with the first disclosures to take place starting in January 2028, and by one year for A.B. 1305, with initial disclosures required by January 1, 2025. The amendments would also offer a few substantive changes to the enacted laws. For S.B. 253, the currently proposed bill would allow entities to provide consolidated reporting at the parent company level of aggregate emissions data across a corporate group (which is consistent with the current language of S.B. 261), as opposed to requiring them to prepare separate, entity-by-entity emissions reports. The proposed amendment for A.B. 1305 would additionally carve out renewable energy certificates from the disclosure requirements related to carbon offsets, among other changes.
The proposed amendments for S.B. 253 and S.B. 261 have been met with mixed legislative reaction, particularly since the bills’ original sponsors have expressed their opposition. On the other hand, the proposed amendment for A.B. 1305 has been received with nearly unanimous approval in the legislature. The general deadline for the California legislature to pass laws this year is at the end of August 2024.
Links:
Proposed Amendment to S.B. 253 and S.B. 261
Proposed Amendment to A.B. 1305
U.S.: Judge Dismisses Anti-ESG Lawsuit against New York City Pension Funds for Lack of Standing
On July 2, 2024, the New York State Supreme Court dismissed a complaint filed by pensioners alleging that New York City’s pension fund investment decisions “elevated unrelated policy goals over financial goals.” Judge Andrea Masley found that the plaintiffs had not demonstrated “concrete or particularized harm” and granted the defendants’ motion to dismiss for lack of standing.
The plaintiffs argued that the pensions’ investment decisions constituted a breach of fiduciary duty due to the plans’ divestment from securities of certain fossil fuel companies. However, the court found this argument to be overly speculative and determined that the plaintiffs failed to show how or why they would lose any of those benefits as a result of the defendant’s decisions, concluding that plaintiffs did not demonstrate “sufficiently concrete or particularized harm.” Under the defined benefit plan at issue, pensioners are entitled to a fixed payment each month, which is unaffected regardless of the “plan fiduciaries’ good or bad investment decisions,” Judge Masley explained, adding that they “have not, and will not, suffer any monetary losses[.]”
The plaintiffs brought their case against three of New York City’s largest pension funds, which hold approximately $192 billion in assets, representing approximately 73% of the New York City Retirement Systems’ total assets. In 2018, these pension plans committed to divesting about $5 billion in fossil fuel reserve holdings and to develop a five-year strategy to undertake this goal. In 2021, the pension plans divested $4 billion from fossil fuel production companies.
Link:
Decision & Order on Motion
U.S.: Federal Banking Regulator Hints at Potential Challenge to State “Anti-discrimination” Laws
On July 17, 2024, Michael Hsu, the head of the Office of the Comptroller of the Currency (OCC), delivered a public address outlining major trends in banking and forecasting his office’s approach to dealing with new developments. The regulator, who leads the agency responsible for supervising national banks, specifically called attention to the “culture wars, identity politics, and weaponization of finance” that he asserted have become part of the U.S. financial system in recent years and suggested that the OCC would in the future seek to act more aggressively to prevent states from forcing financial institutions to “pick a side.”
Hsu indicated the OCC would evaluate its preemption powers, which provide for the federal government’s supremacy over state and local requirements in certain areas of banking regulation. Citing the OCC’s early efforts to unify and standardize the national banking system following the U.S. Civil War, Hsu argued that his office should focus its use of these powers in service of preventing local “overreach” and “splintering” in the banking system.
The remarks come following the passage of recent bills in Tennessee and Florida, which seek to give state authorities powers to investigate federally chartered banks for discrimination on the basis of their political or religious beliefs.
Link:
Remarks of Acting Comptroller Michael Hsu
Brazil: State of Paraná to Establish Country’s First Subnational Biodiversity Credit Program
This month, the Brazilian state of Paraná announced proposed legislation to create a biodiversity crediting scheme to address the impacts of the business community on biodiversity and the natural environment. The program will be piloted in 25 private reserves in the state and, if successful, will be expanded to other municipal, state and federal parks. The government is currently assessing the full scope of the private sector’s environmental impacts, ranging from exploitation of natural resources to pollution, in order to quantify the number of biodiversity credits needed.
Brazil’s proposed biodiversity credit scheme follows a number of voluntary markets that have emerged across Latin America ahead of COP16. Nature markets are increasingly considered a key policy tool for countries to fulfill their obligations under the Global Biodiversity Framework, which commits countries to conserve 30% of the planet by 2030 in order to halt and reverse nature loss by mid-century.
Paraná will present its full proposal at the COP16 UN biodiversity summit later this year in Colombia. The state plans to implement the legislation in 2025, following a pilot phase.
Link:
Paraná Press Release (Portuguese)
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