Other Notable Developments
UK Clean Energy Funding: On August 1, 2024, the United Kingdom government announced a record-breaking budget of over £1.5 billion dedicated to the forthcoming renewable energy auction. The auction’s goal is to improve energy security while lowering costs for consumers and businesses. The funding is focused on renewable energy technology, such as wind turbines and solar panels.
Sustainability Reporting Hubs: The UN Development Programme (the “UNDP”) announced that it will establish Sustainability Disclosure and Management Hubs across 14 emerging economies in partnership with the Global Reporting Initiative, GCG Impact, the International Organization for Standardization and the IFRS Foundation. The hubs will be launched in collaboration with the UNDP’s Financial Centres for Sustainability. A UNDP representative called the move “a remarkable step forward in advancing global sustainability disclosure and management standards.”
U.S.: Fifth Circuit Remands ESG Rule for Determination without Chevron Deference
On July 18, 2024, the U.S. Court of Appeals for the Fifth Circuit vacated the decision by the U.S. District Court for the Northern District of Texas in State of Utah v. Su concerning the ESG rule promulgated in 2022 by the U.S. Department of Labor (the “DOL”). The rule allows fiduciaries to consider the “economic effects of . . . environmental, social and governance factors” when competing investment options “equally serve the financial interests of the plan.”
The DOL asserted before the District Court that the ESG rule was consistent with the plain language of the Employee Retirement Income Security Act (“ERISA”). The District Court afforded the DOL Chevron deference in its interpretation of ERISA and found that the rule was properly promulgated as it did not conflict with ERISA or the Administrative Procedure Act. The decision was appealed to the Fifth Circuit shortly thereafter.
The Fifth Circuit remanded the case in light of the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overturned Chevron. The Fifth Circuit did not determine whether the ESG rule was properly promulgated and will leave the analysis to the district court. The district court must now reconsider the case without deference to the DOL’s analysis and make a decision based upon ERISA’s plain language.
In the meantime, the DOL’s ESG rule remains in effect. Our Debevoise Update on the ESG rule is available here. For more information, see our ESG Weekly Updates from 2023, dated February 8, February 15, February 22, March 9 and March 22.
Links:
District Court Decision
Fifth Circuit Decision
ESG DOL Rule
Loper Bright Enterprises v. Raimondo Decision
EU: European Commission Releases FAQs on Corporate Sustainability Reporting Directive
On August 7, 2024, the European Commission published a set of frequently asked questions (the “FAQs”) to guide compliance with the Corporate Sustainability Reporting Directive (the “CSRD”).
The FAQs cover, among other things, the scope of the CSRD, which sets European Sustainability Reporting Standards (“ESRS”) companies should use, exemptions from the CSRD and formatting requirements for CSRD reporting. The FAQs helpfully clarify that, in terms of supervision and penalties, the “CSRD does not introduce any changes to the pre-existing EU supervisory regime.” CSRD reports will therefore be subject to the existing national regulatory regime in place for the management reports of in-scope companies.
The FAQs also cover the assurance requirement for CSRD reporting, providing guidance on the approval and training requirements for auditors and the accreditation requirements for independent assurance service providers.
Link:
CSRD FAQs
Asia: Singapore Introduces Bill to Enhance Energy Transition and Regulatory Framework
On August 6, 2024, the Singapore Ministry of Trade and Industry introduced the Energy Transition Measures and Other Amendments Bill (the “Bill”) to Parliament in an effort to decarbonize Singapore’s power sector. The bill seeks to amend the Energy Market Authority of Singapore (the “EMA”) Act, the Electricity Act and the Gas Act to bring Singapore closer to meeting its 2050 net-zero target.
Key provisions of the Bill include establishing a S$5 billion Future Energy Fund to support low-carbon investments and creating a Central Gas Entity to centralize gas procurement for power generation companies. These measures are intended to diversify energy sources, secure gas supplies and maintain energy security and cost competitiveness. The Bill also proposes several updates to strengthen the EMA’s capabilities. These include (i) allowing the EMA to recover costs for energy initiatives, (ii) authorizing the EMA to direct shared access to critical energy infrastructure, (iii) requiring EMA approval before owners of key electricity and gas assets can repurpose them and (iv) granting the EMA authority to ration power during emergencies.
According to the Bill’s proponents, these changes are designed to ensure a secure, sustainable and competitive energy future for Singapore by supporting various decarbonization pathways and enhancing regulatory oversight over critical energy infrastructure.
Link:
Press Release
Australia: Australia Fines Mercer Superannuation for Misleading ESG Investment Claims
On August 2, 2024, the Australian Federal Court (the “Court”) issued its decision in a greenwashing case brought by the Australian Securities and Investments Commission against Mercer Superannuation (Australia) Limited (“Mercer”). The Court found that Mercer had made misleading statements about the nature and characteristics of some of its ESG investment options and issued a fine of AU$11.3 million (approximately US$7.4 million) against the company.
In particular, the Court determined that Mercer had made misleading statements on its website about certain “Sustainable Plus” investment options. Those statements indicated that the “Sustainable Plus” options excluded investments in companies involved in the carbon-intensive fossil fuel, alcohol production and gambling industries, therefore presenting a suitable option for members who “are deeply committed to sustainability.” However, the Court found that the “Sustainable Plus” options in fact included investments in companies that Mercer had claimed were excluded.
In handing down the decision, the Court emphasized the importance of transparency in the financial services industry in order to preserve consumer confidence. In a press release, the Australian Securities and Investments Commission referred to the litigation as “a landmark case” that “demonstrates the importance of making accurate ESG claims to investors and potential investors.”
Link:
Press Release
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