ESG Weekly Update – May 10, 2022

10 May 2022

U.S.: SEC Extends Deadline for Comment Period on Proposed Climate Disclosure Rule

This week, the U.S. Securities and Exchange Commission (SEC) announced that it would extend the deadline for comments to its proposed climate disclosure rule from May 20, 2022 to June 17, 2022. The extension comes in response to requests from a wide range of industry groups and other stakeholders who argued that the original comment period of 90 days was too short given the length and complexity of the proposed rule. We have produced a short briefing note on the SEC’s proposed rule, which can be linked to here; we have also produced a more detailed note on the proposal, which can be linked to here. It is anticipated that the SEC will receive many hundreds if not thousands of comments to its proposed rule and very possibly will face legal challenges to the proposed rule in court. Parties wishing to submit a comment to the SEC on its proposed climate disclosure rule now must do so by the new deadline of June 17, 2022.

SEC Deadline Extension
Debevoise Short Briefing
Debevoise In Depth Briefing

U.S.: SEC Charges Mining Company with Misleading Investors in ESG Disclosures

On April 28, 2022, the SEC announced charges against Vale S.A., the Brazil-based mining company, alleging violations under a number of federal antifraud and reporting provisions, including under sections 10(b)(5) and 13(a) of the Securities Exchange Act of 1934 and 17(a) of the Securities Act of 1933. In a press release announcing the charges, the SEC alleges that Vale “ma[de] false and misleading claims about the safety of its dams prior to the January 2019 collapse of its Brumadinho dam,” which resulted in the deaths of 270 people, has caused significant adverse environmental impacts and negatively affected Vale’s market capitalization.

Notably, the charges against Vale are the first confirmed enforcement action by the SEC’s Climate and ESG Task Force, which was formed in March 2021 with the objective of identifying material gaps and misstatements in issuer ESG disclosures.

The SEC complaint alleges that “beginning in 2016, Vale manipulated multiple dam safety audits; obtained numerous fraudulent stability certificates; and regularly misled local governments, communities, and investors about the safety of the Brumadinho dam through its environmental, social, and governance (ESG) disclosures,” noting that “for years, Vale knew that the Brumadinho dam, which was built to contain potentially toxic byproducts from mining operations, did not meet internationally-recognized standards for dam safety.” However, the complaint alleges, Vale’s public Sustainability Reports and other public filings “fraudulently assured investors that the company adhered to the ‘strictest international practices’ in evaluating dam safety and that 100 percent of its dams were certified to be in stable condition,” in violation of U.S. securities laws.

SEC – Press Release
SEC – Complaint
SEC – ESG Task Force

UK: UK High Court Approves Charities’ Paris-aligned Investment Strategies

The High Court in the UK, in a case involving charities whose declared purposes included protection of the environment, ruled that trustees of charities, in the exercise of their fiduciary duties, may shape their investment policies to prioritize the purposes of the trust. The judge in the case stated that while trustees must be mindful of the financial impacts of making or excluding certain investments, trustees are obligated to reasonably balance all relevant factors when making investment decisions rather than focus exclusively on maximizing returns. The judge noted that further consideration must be given to balancing these factors when reviewing investments which conflict with the charitable purposes promoted by the organization—in such a case, the financial implications of the investment must be balanced against the reputational risk and potential damage caused to the various beneficiaries of the charity. In coming to his conclusion, the judge in the case, captioned Butler-Sloss and Others v Charity Commission for England and Wales and Another, reasoned that: “The Claimants have decided, reasonably in my view, that there needs to be a dramatic shift in investment policies in order to have any appreciable effect on greenhouse gas emissions and for there to be any chance of ensuring that there is no more than a 1.5°C rise in pre-industrial temperature. The only question is whether they have sufficiently balanced that objective with any financial detriment that may be suffered as a result. In my view they have and the performance of the portfolio will be tested regularly against recognised benchmarks and will seek to provide the financial return specified in the Proposed Investment Policy.”

Butler-Sloss and others v Charity Commission for England and Wales and another [2022] EWHC 974

Global: ISSB Forms Working Group with EU, U.S. and China on the Compatibility of ESG Standards

The International Sustainability Standards Board (ISSB) announced a new working group aimed at ironing out discrepancies across jurisdictions between climate- and sustainability-related disclosure requirements. To further this goal, a new advisory body will be created, the Sustainability Standards Advisory Forum, whose focus will be to facilitate regular dialogue between governments. The working group will consist of members of the Chinese Ministry of Finance, the European Commission, the European Financial Reporting Advisory Group, the Japanese Financial Services Authority, the Sustainability Standards Board of Japan Preparation Committee, the United Kingdom Financial Conduct Authority and the U.S. Securities and Exchange Commission. The working group will meet in May and July, with meeting summaries being published online. Input from the working group will be considered by the ISSB during public meetings later in the summer and will feed into the further development of the ISSB’s draft standards, which are currently open for comments.

Press Release
ISSB Draft Standards

Global: TPG Closes Climate Fund at $7.3 Billion

TPG has announced the close of a new climate investment fund, TPG Rise Climate, at $7.3 billion. The Rise Climate fund is part of the $14 billion TPG Rise global impact investing platform. Since launching in 2021, the fund has deployed over $2 billion in capital into the climate sector, including investments in solar tracking company Nextracker and partnering with Tata Motors on transportation electrification in India. The fund focuses on five climate subsectors: clean energy and storage, enabling solutions, decarbonized transport, greening industrials and agriculture and natural solutions. TPG Rise Climate uses Y Analytics, TPG’s public benefit LLC, to value and manage the social and environmental impacts of its investments. Part of the research conducted by the fund focuses on a company’s potential carbon yield, and the fund management team estimates the tons of carbon dioxide-equivalent emissions avoided per dollar it invests.

Investors in TPG Rise Climate include Washington State Investment Board, Michigan Retirement Systems, New Jersey Pension Fund and Los Angeles City Employees’ Retirement System. In announcing the close, Jim Coulter, managing partner of TPG Rise Climate, noted: “We continue to be inspired by the climate innovation we are seeing across sectors and around the world. The climate crisis is accelerating and we are proud to be confronting it with substantial capital and action.” Debevoise represented an investor in the fund.

TPG Press Release