| Regulatory and Reporting Developments |
United States
U.S. Securities and Exchange Commission (SEC) Adopts Climate Change Disclosure Rules
On March 6, 2024, the SEC adopted final rules that will require public companies to make climate-related disclosures in their annual reports and registration statements. The final rules will take effect 60 days after their publication in the Federal Register and compliance requirements will be implemented on a phase-in basis depending on a company’s filing status. The rules had been subject to intense scrutiny since their original publication in March 2022, garnering thousands of public comment letters and media speculation. As discussed on our public company blog, the final rules contain several differences from the proposed rules, notably eliminating the Scope 3 greenhouse gas (GHG) emissions reporting requirement and limiting the Scope 1 and Scope 2 GHG emissions reporting requirement to large, accelerated filers and certain accelerated filers. The final rules also narrow the required financial statement climate-risk disclosures to include only those risks related to extreme weather or other natural events. On March 15, 2024, the U.S. Court of Appeals for the Fifth Circuit imposed a temporary stay of the final rules, which was subsequently dissolved on March 22, 2024. The legal challenges to the rules have been consolidated at the U.S. Court of Appeals for the Eighth Circuit.
Please see our client alert for more information on the final climate-related disclosure rules.
U.S. Environmental Protection Agency (EPA) Proposes New Rules Under Resource Conservation and Recovery Act (RCRA)
On February 8, 2024, the EPA proposed new rules aimed at expanding the RCRA Corrective Action Regime to cover per- and polyfluoroalkyl substances (PFAS) and other chemicals of concern. Under the RCRA: 1) permits or any solid waste management unit at a treatment, storage, or disposal facility must require corrective action for releases of hazardous waste or constituents; and 2) corrective action must extend beyond the facility boundary where necessary to protect human health or the environment when such action is required at any facilities for the treatment, storage, or disposal of hazardous waste that is listed as hazardous waste or identified as such. The proposed rules would list certain PFAS as hazardous constituents, thereby requiring that PFAS be considered in any corrective action, corrective investigation, or cleanup under the first prong of the RCRA. Public comments on the proposed rule that would list specific PFAS as hazardous constituents are due on April 8, 2024.
Internal Revenue Service (IRS) and U.S. Department of Treasury (Treasury) Release Proposed Rule on Elective Pay
On March 5, 2024, the IRS and Treasury released a proposed rule that is intended to provide clarity and flexibility for applicable entities that co-own clean energy projects with for-profit partners to utilize elective payments of credits (Direct Pay). The Direct Pay election allows certain government entities and tax-exempt organizations (Applicable Entities) to receive the value of relevant tax credits directly to support renewable energy projects. Partnerships were initially considered ineligible for Direct Pay. Subject to certain requirements, these proposed rules would allow unincorporated organizations (such as for-profit partnerships) to join applicable entities and use Direct Pay to more effectively monetize renewable energy projects, so long as the partnership elects out of partnership tax treatment with respect to Direct Pay. The IRS and Treasury are soliciting public comments and will hold a public hearing on the proposed regulations on May 20, 2024.
California Public Utility Commission (CPUC) Issues Final Decision Affecting Generation Procurement Targets and System Planning
On February 15, 2024, the CPUC issued its final decision in an ongoing proceeding concerning the Integrated Resource Planning framework for Load-Serving Entities (LSEs) in California and the Resource Adequacy (RA) procurement targets set by the California legislature in Senate Bill 350 and Senate Bill 100. Among other things, the final decision: 1) adopts a new Preferred System Plan portfolio which would require the state to deploy approximately 57 gigawatts (GW) of new renewable resources between now and 2035, including 4.5 GW of offshore wind capacity; and 2) addresses RA procurement targets for the 2025 and 2028 reporting years. Notably, the CPUC denied a petition to extend the 2025 deadline for LSEs to procure RA capacity from generation resources with specific characteristics intended to replace a portion of the Diablo Canyon Power Plant’s contribution to system reliability, but accepted, with significant modification, a petition for LSEs to obtain individual extensions to the 2028 deadline for the procurement of long lead-time resource RA capacity upon making a good faith showing of progress towards the procurement target. These aspects of the Final Decision modify procurement targets in a manner that could affect resource procurement, transmission system planning, the application of interconnection rules, and bargaining dynamics between LSEs and developers/resource owners with respect to the negotiation of power purchase agreements.
Please see our client alert for more information on the CPUC final decision.
New Executive Order Restricts Certain Cross-Border Transactions Involving Sensitive Personal Data of U.S. Citizens
On February 28, 2024, President Biden signed Executive Order 14117 (the Order) aimed at protecting Americans’ sensitive personal data and U.S. government-related data from exploitation by “countries of concern,” or “covered persons.” The Order instructs the Attorney General to issue regulations that prohibit or restrict U.S. persons from transferring Americans’ personal data to “countries of concern” or “covered persons,” including engaging in any acquisition, holding, use, transfer, transportation, or exportation of, or dealing in, any property which a foreign country or national thereof has any interest where the transaction: a) involves bulk sensitive personal data or U.S. government-related data, as defined by the Attorney General; and b) is in a class of transactions that has been determined by the Attorney General to pose an unacceptable risk to national security because it may enable access by countries of concern or covered persons to Americans’ bulk sensitive personal data or U.S. government-related data.
On the same day that the Order was issued, the Department of Justice issued an Advance Notice of Proposed Rulemaking (ANPR) to preview and seek stakeholder input on the program that it proposes to establish to implement the Order. The ANPR proposes listing China, Russia, Iran, North Korea, Cuba, and Venezuela as countries of concern.
Please see our client alert for additional information about the Order.
EPA Publishes Rule on Standards of Performance and Emissions Guidelines for the Oil and Natural Gas Sector
On March 8, 2024, the EPA published a final rule in its effort to reduce air pollution emissions from crude oil and natural gas sources. The final rule contains provisions that revise the new source performance standards regulating GHGs and volatile organic compounds emissions from the crude oil and natural gas sector pursuant to the Clean Air Act. The final rule also contains emission guidelines for states to follow in developing plans to establish performance standards related to GHG emissions from existing sources in the crude oil and natural gas industry.
Europe
EU Adopts the Greenwashing Directive
On February 20, 2024, the proposal for a Directive on Empowering Consumers for the Green Transition (the Greenwashing Directive) was adopted by the Council of the EU (the Council), which was the last step in the decision-making procedure to formally adopt the Greenwashing Directive. The Greenwashing Directive will come into force on the 20th day after its publication in the Official Journal of the European Union and Member States will then have two years to implement it into national laws.
The Greenwashing Directive is intended to enhance consumers’ rights by amending the Unfair Commercial Practices Directive (UCPD) and the Consumer Rights Directive (CRD). The UCPD will be amended to add new misleading commercial practices that relate to environmental claims made by companies capable of deceiving consumers by causing them to engage in a transaction they would not have chosen otherwise. The CRD will be amended to add new information requirements that companies must provide to consumers in relation to the existence and duration of a commercial guarantee of durability and on the reparability of products (e.g., through a reparability score).
EU Strikes Political Agreement to Ban Products Made with Forced Labor
On March 5, 2024, the European Parliament and Council agreed on a provisional political deal on a regulation that would ban the placing of any product on the EU market that was made using forced labor. Under this regulation, a database containing regularly updated information about forced labor risks will be set up and products will only be prohibited following an investigation conducted by the competent authority in the member state in which the identified risks are present. Alleged risks or conduct occurring in a Member State will be investigated by the competent authority of that Member State, with the EC in charge of investigations outside of the EU. Any final decision taken, which may include ordering the destruction of products, will apply equally in all Member States. The proposed regulation still needs to be formally passed by both EU legislative bodies.
New EU Supply Chain Rules Survive Crucial Council Vote
On March 15, 2024, the Council agreed to a more limited version of the proposed Corporate Sustainability Due Diligence Directive (CSDDD). After weeks of negotiations and failed votes, the revised version secured enough support from EU member states to be approved by the Council. It must be confirmed by a final Parliament vote, expected in April, and then implemented into national law.
The draft CSDDD agreed to by the Council covers 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. This is a reduction in scope from the original 500 employees and €150 million turnover. Companies in the financial sector are generally exempt from the CSDDD. 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 annual turnover in the EU exceeding €1.5 billion.
In-scope companies will have to conduct due diligence on their own activities, those of their subsidiaries, and their direct and indirect business partners, within their “chains of activities” operations, to identify, assess, prevent, mitigate, and remediate adverse impacts to protected human rights. Adverse impacts and protected human rights will be set out in an annex to the CSDDD with reference to certain international treaties.
Asia
Chinese Stock Exchanges Publish Draft Sustainability Reporting Guidelines
On February 8, 2024, the Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange, and Beijing Stock Exchange published draft sustainability reporting guidelines. The SSE guidelines, for example, outline a “disclosure framework” requiring companies to publish sustainability reports on ESG topics such as climate change, technological ethics, and anti-corruption using both quantitative and qualitative disclosure. The SSE guidelines would apply to both domestically listed companies and those listed both on the SSE and overseas exchanges.
Singapore Releases Details for Mandatory Climate Reporting
On February 28, 2024, the Accounting and Corporate Regulatory Authority and Singapore Exchange Regulation released details of mandatory climate reporting for listed issuers and large non-listed companies. The mandatory disclosures will be introduced in a phased approach, with obligations for listed issuers beginning in Fiscal Year 2025 and obligations for large non-listed companies beginning in Fiscal Year 2027. The government of Singapore also announced that it will launch a Sustainability Reporting Grant to provide funding support for companies to cover a portion of their costs in producing their first sustainability report in Singapore.
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