| Regulatory and Reporting Developments |
United States
A Note Regarding the 2024 U.S. Presidential Election
President-elect Donald J. Trump will take office in January of 2025. We anticipate changes in the regulatory landscape under the new administration, and we will monitor those changes and provide updates as they develop.
Compliance with California’s Mandatory Disclosure Law for Voluntary Child Labor Audits Begins January 1, 2025
In September 2024, California Governor Gavin Newsom signed A.B. 3234 into law. Under A.B. 3234, employers that choose to audit their compliance with child labor laws must publicly report the results of that audit on their website. Pursuant to the new law, the reports must include certain information, including but not limited to, the date and time of the audit, whether children were exposed to unsafe workplaces, whether the children worked during school or night hours, and provide a copy of the employer’s written policies on child labor. The law will go into effect on January 1, 2025.
Section 45X Advanced Manufacturing Credit Regulations
On October 24, 2024, the U.S. Department of Treasury (Treasury) and the Internal Revenue Service (IRS) issued final regulations regarding the advanced manufacturing production tax credit under Section 45X of the Internal Revenue Code of 1986, as amended (the Code). The final regulations provide important clarifications for manufacturers of key clean energy supply chain products, such as solar panels, inverters, battery energy storage components, wind energy components, and critical minerals.
For more information about the regulations, please see our client alert.
Treasury Issues New National Security Rules for Investing U.S. Capital
On October 28, 2024, the Treasury issued final rules (the Outbound Rules) implementing President Biden’s Executive Order 14105 on "outbound" U.S. investment. The Outbound Rules will take effect on January 2, 2025, and will add a new layer of diligence to most U.S. parties’ investment activities, including those in the sustainability space. On their face, the rules are comparatively narrow, restricting U.S. persons from engaging in certain technology investment and other capital-allocating activities when the target entity has ties to the People’s Republic of China (PRC) and operates in certain specific technologies. However, in practice, the Outbound Rules will create incentives for U.S. investors—and many non-U.S. funds—to engage in diligence and obtain representations from any business that cannot otherwise clearly rule out connection to those technology areas or to the PRC.
Companies and investors should understand when transactions are prohibited, when they require filing a notice, and the nature of the diligence requirements that will likely arise as a result. The bottom line is that any time a U.S. person, U.S. entity, or foreign investor backed in significant part by a U.S. person makes an investment in a privately held business going forward, they will likely need to consider the applicability of these new Outbound Rules.
For more information about the Outbound Rules, please see our client advisory, and relevant client alerts.
Europe
European Council Agrees to Defer Deforestation Regulation Compliance by One Year
On October 16, 2024, the European Council agreed to the European Commission’s (EC) proposal to defer the regulations addressing the risks of deforestation and forest degradation brought about by the placement or exportation of certain products from the EU market (the Deforestation Regulation) by one year. The EC’s proposal involves granting in-scope entities additional time to achieve compliance with the Deforestation Regulation. Large companies would have until December 30, 2025, and small or medium-sized enterprises (SMEs) (including corporations with staff headcount in less of 250 and total annualized revenue in less of €50 million and/or annual balance sheet total in less of €43 million), would have until June 30, 2026, to comply with their obligations under the Deforestation Regulation, compared with the previous respective compliance dates of December 30, 2024, and June 30, 2025. A committee of the European Parliament agreed to fast-track the amendment and a formal vote by the European Parliament is expected on November 14, 2024.
The Deforestation Regulation covers commodities such as cattle, cocoa, coffee, oil palm, rubber, soy, and timber, and products derived from these commodities. It requires companies trading in these goods to conduct extensive supply chain due diligence efforts to ensure that these goods do not result from recent (post-December 31, 2020) deforestation, forest degradation, or breaches of local environmental and social laws.
German Watchdog Publishes Annual Report on German Supply Chain Act and Enforcement News
Germany’s Federal Office for Economic Affairs and Export Control (BAFA), which is charged with enforcing Germany’s Supply Chain Act, recently published its accountability report for 2023, covering the first year of effectiveness for the Supply Chain Act. BAFA reported that its audits followed a risk-based approach focusing on key industries under general risk considerations, and that it had not imposed any sanctions, preferring preventative action and cooperation. It noted a low volume of third-party complaints.
On October 25, 2024, BAFA issued a statement that it would only check whether in-scope companies had submitted their annual report to BAFA under the Supply Chain Act on January 1, 2026. If in-scope companies submit their reports by December 31, 2025, BAFA stated it would not sanction these companies even if they should have submitted them at an earlier date.
European Financial Reporting Advisory Group (EFRAG) Publishes First Draft of Transition Plan Implementation Guidance
On November 4, 2024, EFRAG held the first public meeting of the Sustainability Reporting Technical Expert Group to discuss the draft Implementation Guidance on Transition Plan for Climate Change Mitigation (TP IG). This non-authoritative guidance accompanies the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD) but does not form part of them. EFRAG plans to have the draft TP IG approved internally before the end of 2024, release it for public consultation in the first quarter of 2025, and publish the final document in the second quarter of 2025.
The guidance includes five sections, covering the European framework, disclosure requirements for climate transition plans, connections to other European regulatory frameworks and international standards, and Frequently Asked Questions. The TP IG refers to sector-agnostic ESRS, which apply to all undertakings, regardless of which sector or sectors they operate in. It does not address sector-specific challenges related to reporting on climate mitigation transition plans, stating that further clarifications on transition plans for financial institutions will be provided in the sector standards.
Separately, EFRAG organized three online workshops covering different time zones on November 19 and 20, 2024, for stakeholders interested in the development of the upcoming ESRS for non-EU groups. Under Article 40a of the CSRD, non-EU companies that generate over €150 million (approximately $162 million) per year in the EU and that have in the EU either a branch with a turnover exceeding €40 million (approximately $43 million) or a subsidiary that is a large company or a listed SME will have to report on the sustainability impacts at the group level of that non-EU company as from financial year 2028, with first sustainability reports published in 2029.
International
United Nations (UN) Negotiates Approval of Governing Standards for Carbon Emissions Credit Trading
The UN held its 29th annual Climate Change Conference (COP29) from November 11 through November 22, 2024, in Baku, Azerbaijan. COP29 saw the approval of Article 6.2 and Article 6.4 of the Paris Agreement, which permit countries to directly trade emission reduction credits and create a centralized carbon marketplace—the Paris Agreement Crediting Mechanism (PACM)—for regulating the international trade of emissions credits, respectively. PACM would implement standards developed by the Article 6.4 Supervisory Body, which would assess and supervise carbon removal projects under the PACM framework.
COP29 Ends with $300 Billion Pledge for Climate Finance
COP29 climate summit concluded with an agreement on a new climate finance goal. Developed nations pledged a minimum of $300 billion annually by 2035 to assist developing countries in coping with climate change and transitioning away from fossil fuels. This pledge triples the previous annual goal of $100 billion but is a fraction of what many developing countries were calling for. The agreement, known as the New Collective Quantified Goal on Climate Finance, also calls for public and private sources to scale up finance to $1.3 trillion per year by 2035.
UN Convenes Summit to Reduce Plastic Pollution
The Intergovernmental Negotiating Committee is holding its fifth session to develop an international legally binding instrument on plastic pollution from November 25, 2024, to December 1, 2024.
| Litigation and Enforcement Action |
United States
California Climate Disclosure Law Litigation Remains Ongoing
On November 5, 2024, the U.S. District Court for the Central District of California (the District Court) denied a motion for summary judgment seeking to overturn California’s climate disclosure laws on First Amendment grounds. The plaintiffs argue SB 253 and SB 261 are invalid on their face as compelling political speech under the First Amendment. The District Court’s decision allows SB 253 and SB 261 to proceed while the District Court continues to evaluate the plaintiffs’ claims.
For more information about SB 253 and SB 261, please see our client alert.
The U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) Holds That the White House Council on Environmental Quality (CEQ) Lacks Rulemaking Authority
On November 12, 2024, the D.C. Circuit found, in its decision in Marin Audubon Society v. Federal Aviation Administration (FAA) which vacated a plan managing national park air tours promulgated by the National Park Service and FAA, that the CEQ lacked authority to issue binding regulations under the National Environmental Policy Act (NEPA). The CEQ has historically issued regulations providing a framework for reviewing actions taken by federal agencies in compliance with NEPA, which requires such agencies to evaluate the potential environmental effects of a proposed action. The D.C. Circuit held that, because the CEQ rules on which the agencies’ NEPA analysis was based were invalid due to the CEQ’s lack of rulemaking authority, the agencies would need to restart the NEPA review for the plan.
Europe
The Hague Court of Appeal Dismisses Emissions Case Against Shell Corporation
On November 12, 2024, the Hague Court of Appeal (the Appeals Court) dismissed a 2021 ruling in an emissions-reduction case, brought by Milieudefensie/Friends of the Earth Netherlands (Milieudefensie) against Shell Corporation (Shell), which ordered Shell to reduce its carbon dioxide emissions by 45 percent by 2030 as compared to 2019. The Appeals Court reiterated the finding that Shell is required to reduce its carbon dioxide emissions but concluded that it could not obligate Shell to reduce its emissions by a particular percentage. In the original case, filed in the Hague District Court in 2019, Milieudefensie claimed that the duty of care owed under Dutch law required companies like Shell to take affirmative steps to reduce greenhouse gas emissions.
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