ESG Weekly Update – July 13, 2022

13 July 2022

U.S.: Uyghur Forced Labor Prevention Act Goes into Effect

On June 21, 2022, U.S. Customs and Border Protection (CBP) began enforcing the Uyghur Forced Labor Prevention Act (UFLPA). The UFLPA broadly prohibits the importation into the United States of any “goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China,” or from listed entities working with the region’s government. The UFLPA creates a rebuttable presumption that all goods from the region were produced using forced labor and places the burden of proof on the importing entity to establish the contrary through clear and convincing evidence. Additionally, the UFLPA requires the CBP to periodically notify Congress and issue a public report listing all cases in which it declined to apply the presumption.

Given that goods imported from the region are subject to detention and possible seizure, many companies are now assessing their supply chains. To aid the diligence process, CBP published guidance setting out the process for requesting an exception to the presumption, identifying the type of information CBP may require and providing specific guidance for supply chain documentation that could be required for certain goods.

In a June 21, 2022 statement on the UFLPA’s implementation, Secretary of State Antony Blinken commented: “We have taken concrete measures to promote accountability in Xinjiang, including visa restrictions, financial sanctions under Global Magnitsky, export controls, Withhold Release Orders and import restrictions, as well as the release of a multi-agency business advisory on Xinjiang to help U.S. companies avoid commerce that facilitates or benefits from human rights abuses, including forced labor.”

U.S. Department of State Press Release
The Uyghur Forced Labor Prevention Act
Homeland Security overview of the UFLPA

EU: The European Parliament Adds Nuclear and Natural Gas to the EU Taxonomy

The Parliament of the European Union, in a narrow vote, approved amendments that reclassify production of nuclear and natural gas energy as transitional activities under the EU Taxonomy. Under the new version of the EU Taxonomy, nuclear energy is considered sustainable if it is produced, and nuclear waste disposed of, without causing any significant harm. Natural gas facilities must meet certain emissions criteria. Both amendments are limited in time: the EU Taxonomy covers only installations for which a construction permit has been approved by 2045 for nuclear energy and by 2030 for gas (unless more stringent criteria in relation to nuclear waste or emissions are met).

The European Commission welcomed the vote, which settled a year-long impasse that included lobbying from governments, NGOs and industries. Critics of the amendment see these changes as a political compromise inconsistent with the key purpose of the green taxonomy to incentivise a transition away from polluting fuels. Supporters of the amendment argue that the addition of nuclear and gas will increase the environmental scrutiny over companies in these sectors—yet the amendments only require nuclear and gas providers to make their processes less polluting by 2035 and 2050, respectively.

Although it is unlikely that a Member State will veto the amendments, legal challenges from a number of Member States and environmental NGOs may extend the implementation of the new rules, currently expected to start in January 2023.

Press Release
Q&A on EU Taxonomy Delegated Act

U.S.: New Report Assesses U.S. Financial Regulator Action on Climate-Related Financial Risk

The 2022 Climate Risk Scorecard, produced by the non-profit Ceres Accelerator for Sustainable Capital Markets, found that nine federal financial regulators—including the Federal Reserve Bank, the U.S. Department of the Treasury, and the U.S. Securities and Exchange Commission (SEC)—collectively have taken 230 public actions since 2020 that seek to address climate-related financial risk. The agencies were scored on six categories to evaluate how they have deployed their existing authority to guide an efficient response to climate risks.

The scorecard finds that all nine agencies have publicly affirmed climate as a systemic risk to the financial system, and that all have made progress in identifying the data needed to evaluate threats. However, only one agency, the Federal Housing Finance Agency, has made public progress on addressing the impacts of climate change on vulnerable communities that are disproportionately burdened by the physical and financial risks of climate impacts. As such, Ceres welcomed the proposal to include climate resiliency and disaster preparedness as community development activities under the Community Reinvestment Act regulations, a piece of legislation aimed at encouraging banks to meet the credit needs of the communities where they operate.

Finally, under the Ceres scorecard, the SEC was the highest-performing regulator on climate in the United States, and was specifically called out for being the only U.S. agency taking action on climate-related disclosure.

The 2021 edition of the scorecard found that U.S. regulators were far behind their global peers in taking action against climate threats. Now, Ceres reports that “[i]n the fourteen months since, U.S. financial regulators have made significant progress… [but] still lag far behind some of their global counterparts and what science demands.” Debevoise has covered a number of the regulatory developments highlighted in the Ceres Climate Risk Scorecard in previous ESG Weekly Updates. To access previous issues and visit our ESG Resource Center, click here.

2022 Climate Risk Scorecard
Ceres Executive Summary
Community Reinvestment Act Proposed Rulemaking
SEC Climate-Related Disclosures Proposed Rulemaking