Other Notable Developments

Amazon Reforestation Bond: On August 13, 2024, the World Bank priced a nine-year $225 million bond linked to reforestation in the Amazon. The transaction supports Mombak, a Brazilian company, to acquire land or enter into agreements with landowners to reforest the land with tree species native to the Amazon.

U.S.: Federal Court Strikes Down Anti-ESG Rule in Missouri

On August 14, 2024, a federal judge in the U.S. District Court for the Western District of Missouri struck down anti-ESG rules initially promulgated by the Missouri Secretary of State and subsequently issued by the Missouri Securities Division. The rules, which became effective in July 2023, required investment advisers and broker-dealers to obtain written consent from their clients prior to incorporating a “social objective” or other “nonfinancial objective” into their securities recommendations or investment advice. Clients also were required to expressly acknowledge that the advice was not solely focused on maximizing financial return. Non-compliance with the rules constituted “dishonest or unethical business practices” under Missouri state law.

The Securities Industry and Financial Markets Association (“SIFMA”) filed a lawsuit in August 2023, challenging the rules on the grounds that they:

• failed to acknowledge that federal law, regulations, and applicable rules already require financial advisors to act in the best interest of their clients when providing personalized investment advice;

• were grossly overbroad by restricting any investment advice that was not “solely focused on maximizing a financial return”;

• treated common considerations routinely part of investment advice, such as relating to the clients’ appetite for risk and ability to bear losses, as achieving “nonfinancial” objectives; and

• violated the proscriptions of the National Securities Markets Improvement Act of 1996 (“NSMIA”), the Employee Retirement Income Security Act of 1974 (“ERISA”) and fundamental tenets of the United States Constitution.

The court, in summary judgment, struck down the rules on the basis that they: (i) were preempted by NSMIA and ERISA; (ii) violated free speech provisions of the First Amendment of the United States Constitution; and (iii) were unconstitutionally vague.

Links:
SIFMA Complaint
Order

U.S.: Challenge to Oklahoma ESG Boycott Law Supplemented by Additional Claims

On August 5, 2024, Don Keenan, the former president of the Oklahoma Public Employees Association, moved for summary judgment on three additional claims in his existing lawsuit challenging Oklahoma’s Energy Discrimination Elimination Act (“EDEA”).

The EDEA provides that contractors with Oklahoma municipalities and state agencies must provide a written verification that they do not “boycott” energy companies. The EDEA also requires the Oklahoma Treasurer to keep a list of “restricted companies” that are considered to boycott energy companies (for more on this, see our previous Weekly Updates here and here).

The additional claims argue that the EDEA unconstitutionally infringes freedom of speech and creates a barrier to accessing the courts. Keenan also alleges that the law unconstitutionally requires defendants to pay the government attorney’s fees in cases that end in a declaratory judgement.

The new filing follows a July 2024 court decision that blocked enforcement of the law due to a “substantial likelihood” of success on the merits of Keenan’s existing claims, which assert that the law is unconstitutionally vague and politically motivated (more on this here). The Oklahoma Attorney General’s Office has indicated that it intends to appeal the ruling.

Links:
Case Docket
Press Release on Appeal by Oklahoma AG

U.S.: SEC Defends Climate Disclosure Rule in the Eighth Circuit

On August 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) filed its defense in the U.S. Court of Appeals for the Eighth Circuit regarding the SEC’s climate disclosure rule. The SEC argued that the rule would provide “information directly relevant” to investment decisions, that climate-related risks can significantly impact a company’s financial performance, and current reporting on these risks is inconsistent, making it difficult for investors to make informed decisions.

The rule, adopted in March after two years of development in response to the extensive comments the SEC received on the rule proposal, requires public companies to disclose climate risks, strategies to address them, the financial impact of severe weather events, and, in some cases, greenhouse gas emissions. The rule faced immediate legal challenges, including lawsuits from 25 Republican state attorneys general and the U.S. Chamber of Commerce, who argued, among other things, that the requirements are overly burdensome and beyond the SEC’s delegated authority.

Links:
SEC Brief
Debevoise In Depth: An In-Depth Analysis of the SEC’s Climate-Related Disclosure Rules (Mar. 15, 2024)
Debevoise In Depth: SEC Stays Climate Disclosure Rule (Apr. 5, 2024)

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