ESG Weekly Update – September 7, 2022

7 September 2022

U.S.: EPA Proposes Designating Two “Forever Chemicals” as Hazardous Substances under CERCLA

The U.S. Environmental Protection Agency (“EPA”) has proposed to designate two per- and polyfluoroalkyl substances (“PFASs”) as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act. The proposed rule is based on evidence that perfluorooctanoic acid (“PFOA”) and perfluorooctanesulfonic acid (“PFOSA”) pose a substantial danger to human welfare and the environment.

Studies show that such PFASs can dwell in the human body for years, potentially leading to cancer and developmental effects, as well as damage to the reproductive, cardiovascular and immunological systems. If this proposal is finalized, it would require reporting of PFOA and PFOSA releases to the EPA, thus providing the EPA with enhanced data on these substances and allowing it to promote improved waste management. Further, the EPA would in certain circumstances be able to require a clean-up of these releases and use its enforcement discretion to seek recovery of related costs from responsible parties.

Commenting on the proposal, EPA Administrator Michael S. Regan noted that “[c]ommunities have suffered far too long from exposure to these forever chemicals” and that this move “will improve transparency and advance EPA’s aggressive efforts to confront this pollution.” The EPA will soon publish a Notice of Proposed Rulemaking in the federal register, after which comments will be accepted for 60 days.

EPA press release

U.S.: California Passes Climate Package

On August 31, 2022, the State of California passed legislation and issued a number of new climate policies, codifying a net zero emissions target and approving a record $54 billion in climate spending. The three key developments are:

  • Passage of the California Climate Crisis Act – which, among other things, sets forth plans to:
    • achieve net zero greenhouse gas (“GHG”) emissions in California as soon as possible, but no later than 2045, and to achieve and maintain net negative GHG emissions thereafter; and
    • reduce human-caused GHG emissions to at least 85% below 1990 levels by 2045.
  • Establishment of the Carbon Capture, Removal, Utilization, and Storage Program – which requires the state to set up a program to:
    • evaluate the efficacy, safety and viability of carbon capture, utilization and storage technology and carbon dioxide removal technologies, and to facilitate the capture and sequestration of carbon dioxide from these technologies, where appropriate;
    • develop monitoring and reporting schedules to state regulatory agencies for such projects to ensure their efficacy, safety and viability; and
    • ensure that all such projects follow certain standards.
  • Establishment of community protections against oil and gas wells – which, among other things:
    • implement new compliance standards for oil or gas productions and wells within certain protected zones from January 1, 2025;
    • require all operators with a production facility or well in protected zones to develop a leak detection and response plan no later than January 1, 2025, and to fully implement this plan by January 1, 2027; and
    • require operators with a production facility or well in protected zones to report publicly on certain metrics (including failures of emissions detection systems and leaks) on an annual basis from January 1, 2027.

All but one of California Governor Gavin Newsom’s climate proposals passed. Aside from the California Climate Crisis Act, a separate bill to strengthen the state’s 2030 GHG emissions target was narrowly defeated.

Environmental Defense Fund

UK: Investor Group Calls on Government to Introduce Mandatory Human Rights and Environmental Due Diligence Legislation

Thirty-nine institutional investors, including Abrdn, Brunel Pension Partnership, Legal and General Investment Management and Storebrand Asset Management, issued a statement directed at the UK government in support of a Business, Human Rights and Environment Act that would require all companies to conduct human rights and environmental due diligence in its supply chain. This statement was coordinated by the Corporate Justice Coalition.

Specifically, the statement sets out the following recommendations:

  • Due diligence processes: In line with recommendations in the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, businesses should have an obligation to identify, prevent, mitigate and account for how they address their potential and actual human rights and environmental impacts through an ongoing due diligence process. Through this due diligence process, businesses should meaningfully engage with actual and potential affected stakeholders or their appointed representatives. The form of this engagement is not set out in the statement.
  • Scope: The mandated due diligence should be cross-sectoral and apply to all public and private business enterprises and financial institutions domiciled or operating in the UK. To that end, the due diligence framework should ensure proportionality in its application; while the responsibility to respect human rights and the environment applies to all businesses, the means through which a company meets this standard will vary according to its size and the severity of its impacts, among other factors.
  • Remedy and accountability: Businesses should provide for, cooperate in or use leverage to ensure remediation of adverse impacts in their global value chains and within their operations. Furthermore, businesses should be held liable for the harm, loss and damage arising from their failure to prevent adverse human rights and environmental impacts within their operations and throughout their global value chain and be required to adequately compensate victims of abuse. The forum for this accountability mechanism is not set out in the statement.
  • Governance: Corporate boards should oversee and be accountable for the implementation of rigorous human rights and environmental due diligence processes; monitor, discuss and report on their development; and ensure their results are reflected in forward-looking targets relevant for the prevention and mitigation of human rights and environmental risks and impacts and are adequately considered and integrated in the business’s overall strategy.

The proposal for mandatory human rights and environmental due diligence law is not new. In October 2021, companies including Microsoft, Nestle, Unilever and others signed a statement calling for such a law. In February 2022, the European Commission adopted a proposal on a Directive on Corporate Sustainability Due Diligence that would impose similar due diligence requirements, though this proposal has not yet been presented to the European Parliament and Council (see our note on the proposed Directive here).


Global: Leading Financial Market Participants Call for Stronger Alignment of Regulatory and Standard Setting Efforts around Sustainability Disclosure

On August 30, 2022, a joint statement was published by the World Business Council for Sustainable Development, the Principles for Responsible Investment and the International Federation of Accountants. The group called for major standard-setting efforts to align more closely and support a global baseline for reporting sustainability-related information. The statement was signed by 65 investors, companies and professional accounting firms, including Deloitte, Ernst & Young, PwC, KPMG, Nestle, Shell and Hewlett Packard Enterprise.

The statement acknowledges the recent efforts made by the International Sustainability Standards Board (“ISSB”), the U.S. Securities and Exchange Commission and the European Commission, together with the European Financial Reporting Group, to address sustainability reporting, but notes that the issue of compatibility has persisted.

To address the inconsistencies between the different sustainability reporting standards, the statement proposes a coordinated approach that includes a global baseline of sustainability disclosures for capital markets and a globally consistent corporate reporting system. This requires aligning key concepts, terminologies and metrics on which disclosure requirements are built.

The statement calls on policymakers to engage with the ISSB working group to ensure alignment on a global level.