Regulatory and Reporting Developments |
United States
U.S. Securities and Exchange Commission (SEC) Announces Release of Spring 2024 Regulatory Agenda
On July 8, 2024, SEC Chair Gary Gensler announced the release of the SEC’s Spring 2024 Regulatory Agenda (Regulatory Agenda), which outlines the SEC’s planned regulatory actions over the next 12 months. In this latest Regulatory Agenda, the SEC has pushed out the target dates for a number of rulemakings that were included in the previous agenda (i.e., the Fall 2023 Regulatory Agenda), including proposing rules for Corporate Board Diversity and Human Capital Management Disclosure. The following table reflects the latest anticipated timing for finalizing or proposing these rules, as applicable.
Rule |
Rulemaking Stage |
Anticipated Timing |
Human Capital Management Disclosure |
Proposed |
October 2024 |
Corporate Board Diversity |
Proposed |
April 2025 |
While the Regulatory Agenda provides insights into Chair Gensler’s priorities (compiled as of May 1, 2024) and the anticipated timing of proposed and final rules, actual rule adoption or proposal timing may vary significantly, and could come before or after the listed dates.
For more information, see our post on Known Trends, Wilson Sonsini’s public company blog.
U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) Release Long Awaited Guidance on Technology-Neutral Production and Investment Tax Credits Under the Inflation Reduction Act
On May 29, 2024, the Treasury and the IRS released a long-anticipated notice of proposed rulemaking (the Proposed Regulations) regarding clean electricity production tax credits and clean electricity investment tax credits under Sections 45Y (Tech-Neutral PTC) and 48E (the Tech-Neutral ITC and collectively, the Tech-Neutral Credits) of the Internal Revenue Code of 1986, as amended (the Code) for qualified facilities and projects that are placed in service after December 31, 2024. The Tech-Neutral Credits represent the centerpiece of the Biden Administration’s energy incentives in the Inflation Reduction Act of 2022 and will be critical to the continued development of clean renewable energy resources in the United States over the next decade.
The Proposed Regulations allow taxpayers to transition from the existing clean electricity production tax credits (PTC) and clean electricity investment tax credits (ITC) under Sections 45 and 48 of the Code. While the Tech-Neutral Credits provide comparable rules to the existing PTC and ITC requirements, the Proposed Regulations contain several important distinctions, including a requirement (as provided in Sections 45Y and 48E) that energy generating facilities and energy storage technologies have zero greenhouse gas emission rates and the absence of an express principle for aggregating related energy properties into a single energy project. Otherwise, the Tech-Neutral Credits are substantially similar to the existing PTC and ITC, and projects eligible for the Tech-Neutral Credits will be eligible for the existing bonus credit amounts for i) meeting prevailing wage and apprenticeship (PWA) requirements, ii) meeting "domestic content" requirements; iii) placing a qualified facility or energy property in service in an "energy community"; and iv) placing certain solar and wind facilities in service in a "low-income community" and receiving an allocation of environmental justice solar and wind capacity limitation (for ITC and Tech-Neutral ITC projects only).
For more information on the Tech-Neutral Credits, please see our recent white paper.
California Proposes Two-Year Delay for Climate Rules
In June 2024, the California Department of Finance introduced a bill proposing a two-year delay of the implementation of Senate Bill 253 (SB253), the Climate Corporate Data Accountability Act, and Senate Bill 261 (SB261). If the bill passes, covered entities will be required to disclose Scope 1 and 2 GHG emissions by January 2028, and Scope 3 GHG emissions by January 2029, and applicable entities will be required to file a climate-related financial risk report by January 2028, and biennially thereafter.
For more information on SB253 and SB261, please see our recent client alert.
Illinois Governor Signs Safety and Aid for the Environment in Carbon Capture and Sequestration Act into Law
On July 18, 2024, Illinois Governor JB Pritzker signed the Safety and Aid for the Environment in Carbon Capture and Sequestration Act (SAFE CCS Act) into law. The SAFE CCS Act establishes standards for safety and environmental protection for carbon capture, transport, and sequestration projects in Illinois. It will require new carbon sequestration facilities to, among other things, obtain a state permit for carbon sequestration monitoring. The SAFE CCS Act will also require all new carbon dioxide projects to achieve a net reduction in greenhouse gas emissions, conduct water, air, and soil monitoring to prevent leaks, and complete an assessment process overseen by the Illinois Commerce Commission.
Treasury and IRS Finalize PWA Requirements Under the Inflation Reduction Act (IRA)
On June 25, 2024, Treasury and the IRS issued final Treasury Regulations (the Final Regulations) for PWA requirements that taxpayers must satisfy to receive bonus credit amounts for certain renewable energy projects under the IRA. The Final Regulations clarify several PWA provisions, including: i) the applicable prevailing wage rate used in the construction, alteration, or repair of a qualified facility; ii) how taxpayers may correct failures to satisfy prevailing wage requirements; iii) how taxpayers may cure a failure to meet apprenticeship requirements; and iv) recordkeeping and reporting requirements for compliance with the IRS. The Final Regulations generally apply to facilities placed in service in tax years ending after June 25, 2024, and the construction of which begins after June 25, 2024.
For more information on the Final Regulations, please see our client alert.
Treasury Issues Proposed “Outbound Investment” Regulations Targeting Transactions Involving Semiconductor, Quantum, and Artificial Intelligence (AI) Businesses with Significant Ties to the People’s Republic of China
On June 21, 2024, the Treasury issued a Notice of Proposed Rulemaking (NPRM) to implement the “Outbound Investment” Security Program. The NPRM will be followed by final rules that bind U.S. persons with potentially significant civil penalties and criminal penalties of up to 20 years imprisonment. These new rules will restrict certain U.S. persons from engaging in equity, debt, and other transactions that provide resources to businesses active in the semiconductor/microelectronics, quantum information technology, and AI areas. The restrictions only apply if the businesses also have certain significant ties to the People’s Republic of China (including Hong Kong and Macau). Interested parties have until August 4, 2024, to submit comments on the NPRM.
For more information about the NPRM, please see our client alert.
Final Rules for Federal Contractor Emissions Reporting Expected by Late September
On July 19, 2024, the U.S. Department of Defense released a list of open regulatory matters related to the Federal Acquisition Regulation. The list includes a due date of September 25, 2024, for a draft final rule to implement Section 5(b)(i) of Executive Order 14030, which is an extension from the previous mid-July due date discussed in our June 2024 update. Section 5(b)(i) of Executive Order 14030 directed the Federal Acquisition Regulatory Council to consider requiring “major Federal suppliers to publicly disclose greenhouse gas emissions and climate-related financial risk and to set science-based reduction targets.”
Europe
International Capital Markets Association (ICMA) Announces Guidance for Green Enabling Projects and Guidelines for Sustainability-Linked Loan Financing Bonds (SLLBs)
On June 25, 2024, the ICMA, an association of private and public actors in the financial sector, announced voluntary guidance for Green Enabling Projects, and voluntary guidelines for SLLBs. Green Enabling Projects do not qualify as “Green Projects” according to the ICMA but are still considered key to transitioning to a low-carbon economy. The guidance defines necessary criteria for Green Enabling Projects, including: i) no lock-in of activities with high greenhouse gas emissions; ii) clear, quantifiable, and attributable environmental benefits; and iii) mitigated adverse social or environmental impacts.
SLLBs are linked to Sustainability-Linked Loans (SLLs), which are defined as a type of loan “for which the economic characteristics can vary depending on whether the borrower achieves ambitious, material and quantifiable predetermined sustainability performance objectives.” The guidelines define SLLBs as a type of bond instrument where i) “the proceeds or an equivalent amount will be exclusively applied to finance or refinance, in part or in full, a portfolio of new and/or existing eligible SLLs” and ii) which conform with the guidelines’ principles on use of proceeds, evaluation processes, management of proceeds, and reporting.
French Competition Authority (FCA) Greenlights First Sustainability Agreement
On July 2, 2024, the FCA published its first informal guidance on a sustainability agreement. Two trade organizations of companies in the animal nutrition sector had asked for guidance on providing a standardized methodology for calculating the carbon footprint of animal nutrition products. The FCA emphasized the public, voluntary, and nonexclusive nature of the planned methodology, and that such standardization should not lead to companies agreeing not to exceed standards nor share more information than necessary to implement it. This guidance follows on the heels of the FCA’s notice setting out its general willingness to provide informal guidance on sustainability agreements and their compatibility with competition law and procedural considerations, which was published on May 27, 2024.
Other European antitrust agencies have made similar efforts to provide more clarity on the application of antitrust laws to sustainability focused collaborations between competitors. On June 1, 2023, the European Commission published its revised Horizontal Guidelines with a new chapter on sustainability agreements. Among national antitrust agencies, on October 4, 2023, the Dutch antitrust agency ACM similarly established a policy of providing guidance on sustainability agreements and has since published several informal guidance papers on proposed sustainability collaborations. On October 12, 2023, the UK’s Competition and Markets Authority (CMA) published guidance on sustainability agreements. The CMA’s guidance seeks to inform companies how they may cooperate with other companies on environmental sustainability initiatives and established an open-door policy for companies wishing to consult with the CMA.
German Government to Reduce Scope of German Supply Chain Act
On July 5, 2024, the German government made an announcement declaring its intention to reduce the scope of the German Supply Chain Act (SCA) in the context of implementing the European Union’s (EU) Corporate Sustainability Due Diligence Directive (CSDDD) into national law. The SCA entered into force on January 1, 2023, and mandates far-reaching supply chain due diligence and reporting obligations for companies with at least 1,000 employees in Germany.
The EU’s recently enacted CSDDD must be implemented into national law by 2026, and will cover companies with more than 1,000 employees and global annual turnover of €450 million (approx. US$490 million) for EU companies or EU annual turnover of at least €450 million for non-EU companies. Companies in the financial sector are generally exempted. The CSDDD will start to apply in stages, beginning in three years’ time after entry into force for EU companies with more than 5,000 employees and net global annual turnover of more than €1.5 billion (approx. US$1.6 billion), and non-EU companies with group-wide consolidated turnover in the EU exceeding €1.5 billion.
The German government notably intends to: i) reduce the number of companies subject to the SCA by two thirds (possibly by increasing the number of employees a company must have in Germany for it to become subject to the SCA, or by introducing a turnover threshold as under the CSDDD); ii) not sanction companies for not fulfilling their reporting duties under the SCA until the EU’s Corporate Sustainability Reporting Directive enters into force on January 1, 2025; and iii) set binding standards for how companies may request information from small and medium enterprises within their supply chain. Some of these proposals may need to be formally passed as a law by German legislative bodies.
On June 10, 2024, the German government published a list of proposals for discussion on how the administrative burden of complying with the SCA could be reduced in practice even without formally changing the law.
Asia
China’s Ministry of Finance (MOF) Publishes Draft Corporate Sustainability Disclosure Standards
China’s MOF published a draft of the Corporate Sustainability Disclosure Standards (Draft Standards) along with an explanatory document. The Draft Standards aim to create a standardized approach to sustainability disclosures for Chinese companies, facilitating the comparison of environmental, social, and governance reporting and improving information available to regulators, investors, creditors, employees, and other stakeholders. The Draft Standards draw from the international sustainability disclosure requirements issued by the International Sustainability Standards Board and utilize a phased-in approach to mandate that Chinese companies disclose material sustainability risks, opportunities, and impacts associated with their operations and value chains. By 2027, the MOF expects to have introduced basic corporate sustainability disclosure standards and climate-related disclosure standards. By 2030, the MOF aims to have established a mandatory nationwide disclosure standard.
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