ESG Weekly Update – February 8, 2023

8 February 2023

Europe: EU Plans to Streamline Renewable Energy and Clean Tech Investments

On February 1, 2023, the European Commission announced its Green Deal Industrial Plan, which aims to incentivize investment in the renewable energy sector. In a draft proposal circulated to EU Member States for consultation, the Commission indicated that its plan is based on four pillars:

  • a predictable and simplified regulatory environment” based on forthcoming legislation: the Net-Zero Industry Act (which aims to streamline strategic projects), the Critical Raw Materials Act (which aims to ensure access to rare earths and other necessary materials) and reforming the electricity market (by reducing the cost of renewables);
  • speeding up access to finance” through facilitating public finance and ensuring a level playing field from a competition perspective. This pillar also seeks to amend the EU’s current state aid legislation by increasing the threshold for notifications of support for renewable energy investments. The Commission also announced that it is considering tax breaks and tax credits for clean tech investments. Further, the Commission proposed setting up a European Sovereignty Fund to support efforts to finance innovations in green technology;
  • enhancing skills” through establishing Net-Zero Industry Academies to develop skills for jobs affected by the transition; and
  • open trade for resilient supply chains” through the EU’s network of Free Trade Agreements and other forms of cooperation.

The Commission’s proposal is largely viewed as a response to the U.S. Inflation Reduction Act (the “IRA”). Passed in the second half of 2022, the IRA introduced new, and expanded upon existing, U.S. federal tax credit opportunities in connection with renewable energy investments. The EU hopes that its own support of such investment, in part through the proposed measures, will disincentivize companies from leaving Europe to take advantage of the friendlier investment climate in the United States.

Press Release
Green Deal Industrial Plan for the Net-Zero Age

U.S.: Republican State Attorneys General Sue the Department of Labor

On January 26, 2023, Republican attorneys general representing 25 states sued the U.S. Department of Labor (the “DOL”) seeking to block regulations, effective January 30, 2023, that permit fiduciaries to consider climate change and other ESG factors when selecting investments for retirement plans (the “Rule”). The Rule, finalized in November 2022, expressly permits fiduciaries under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) to take ESG factors into account as long as they comply with ERISA’s fiduciary duties of prudence and loyalty.

The lawsuit alleges that the Rule exceeds the DOL’s statutory authority under ERISA and “undermines key protections for retirement savings of 152 million workers” in the name of promoting ESG factors in investing, including the Biden Administration’s stated desire to address climate change. The lawsuit claims that the Rule will result in reduced investment in the fossil fuel industry, which would directly harm many of the plaintiff states.

The lawsuit also asserts that the Rule fails under the “major questions doctrine” due to the magnitude of the assets impacted by the Rule. The “major questions doctrine,” which was the basis of the Supreme Court’s decision to strike down an EPA rule aimed at curbing climate change in West Virginia v. EPA, requires clear congressional authorization for agency actions that are of economic or political significance.

Debevoise Update - DOL ESG Rule

UK: Competition Authority Launches Investigation into Household Essentials Greenwashing

On January 26, 2023, the UK Competition and Markets Authority (the “CMA”) announced that it will review whether household products known as “fast-moving consumer goods,” such as food, drinks, cleaning products and toiletries, are rightly marketed as environmentally friendly.

The investigation targets products sold online or in-store, by big and small businesses alike. In particular, the CMA will review the use of vague or broad statements with no evidence to back up their environmental claims, and other misleading statements regarding the use of recycled or natural materials.

Previously, in January 2022, the CMA launched a review into the fashion industry, which resulted in the greenwashing investigations of ASOS, Boohoo and Asda’s brand George. The investigations follow the introduction of the Green Claims Code in 2021, a guide outlining the UK consumer law principles applicable to claims that a product or service is sustainable or environmentally friendly.

Press release
Green Claims Code

Global: Principles for Responsible Investment Releases 2023 Reporting Framework

On January 26, 2023, the Principles for Responsible Investment (“PRI”) released a new reporting framework for PRI signatories when submitting their annual reports on responsible investment activities. The PRI currently has 5,369 signatories, including Blackrock, Vanguard and Kohlberg Kravis Roberts & Co. The 2023 framework is “signatory-centric,” incorporating feedback following the 2021 pilot reporting cycle.

Highlights include:

  • new voluntary indicators focused solely on human rights;
  • improved clarity to the terminology and clearer questions and response options;
  • reduced reporting effort by having fewer indicators and simpler indicator structures; and
  • improved consistency by aligning the reporting structure with other recognized frameworks, including the Task Force on Climate-related Financial Disclosures, and removing the reporting requirements for asset owners relating to asset classes.

The PRI announced that the new reporting tool will be available when the reporting cycle opens in mid-May.

Press release

U.S.: California Lawmakers Propose Value Chain Emissions Disclosure Law

On January 30, 2023, California State Senator Scott Wiener proposed a bill, the Climate Corporate Data Accountability Act, which starting from 2026 would require companies to disclose their full value chain greenhouse gas emissions, inclusive of their Scopes 1, 2 and 3 emissions. The bill applies to both private and public U.S. companies that do business in California with total annual revenues of US$1 billion or greater.

The proposed legislation is part of a package introduced to address climate change. The California Senate attempted to pass a similar bill in 2022, but fell short of passing the state Assembly by one vote. The reform follows in the footsteps of the Securities and Exchange Commission’s proposed ESG disclosure rules for issuers, expected in April 2023 (more on this here).

California Climate Corporate Data Accountability Act