ESG Weekly Update – March 9, 2023

9 March 2023

U.S.: Senate Passes Bill to Overturn Department of Labor ESG Rule

On March 1, 2023, the Senate passed a joint resolution, with support from almost all Republican and two Democratic senators, to nullify a Department of Labor rule allowing retirement plan fiduciaries to consider ESG factors when selecting investments and exercising shareholder rights.

The resolution follows other efforts to overturn the rule, which entered into force on January 30. On January 26, 25 Republican state attorneys general sued the Department of Labor seeking to block the rule (see more on this here). On February 14, largely the same group of state attorneys general published a letter requesting Congress to overturn the rule (which we reported here).

The resolution will now be sent to the White House for consideration, and President Biden has indicated that he plans to exercise his veto. A two-thirds majority in both the House and Senate is required to override the presidential veto, which is unlikely to be achieved given the current composition of both houses of Congress.

Debevoise Update – DOL ESG Rule

U.S.: Government Ramps up Efforts to Curb Child Labor

On February 27, 2023, the Departments of Labor and Health and Human Services announced the formation of an inter-agency taskforce to address the rise in child labor violations. The agencies noted a 69% increase in child labor violations since 2018. In the last year alone, the Department of Labor uncovered 835 companies unlawfully employing roughly 3,800 children.

The probes, and the rise in violations, have been attributed to an increase in migration into the United States of unaccompanied minors and the network of enablers, recruiters and contractors who target migrant minors for work in large plants.

To address the violations, the task force is advocating for more severe penalties for companies found to violate child labor laws. The task force also seeks to speed up the deportation relief process for child workers who come forward and participate in worker-protection investigations.

Press Release

EU: Council and Parliament Reach Provisional Agreement on European Green Bonds

On February 28, 2023, the European Council and Parliament reached a provisional agreement on the creation of European Green Bonds Standards (the “Standards”).

The Standards will introduce uniform requirements for issuers of bonds that wish to use the designation “European green bond” or “EuGB.” Under the provisional agreement, all EuGB proceeds must be invested in economic activities that are aligned with the EU Taxonomy (if the relevant sectors fall within scope), save for a “flexibility pocket” of 15% of economic activities that are not yet covered by the EU Taxonomy.

Further, the Standards set up a registration system and supervisory framework for external reviewers of European green bonds appointed to confirm the alignment of the bonds with the Standards. They also provide voluntary disclosure requirements for other environmentally sustainable bonds and sustainability-linked bonds issued in the EU.

The next legislative step is for the provisional agreement to be confirmed and adopted by the European Council and Parliament.

Council Press Release

U.S.: Texas Lawmakers Introduce Bill Seeking an ESG Ban for Insurers

On February 21, 2023, Republican members of the Texas State Legislature introduced a bill, SB 1060, that would prevent insurers from considering ESG scores as they establish insurance rates. If enacted into law, the bill could result in some large insurers discontinuing their operations in the state given the widespread use of ESG metrics in the industry.

Risk is an essential component of the calculation insurance companies make to determine whether customers will receive an insurance policy as well as the cost of the policy. Such risks often specifically include environmental risks, such as floods, drought, wildfires and earthquakes.

SB 1060 follows the move last year to ban 10 financial firms from doing business with Texas because they were seen as boycotting energy companies. SB 1060 will have an even wider potential impact, prohibiting insurance companies deemed to violate the proposed law from doing any business in the state.

Republican lawmakers in other states are considering laws that would similarly target the insurance industry. Debevoise maintains an online tracker monitoring state-level ESG legislative developments, the current version of which can be accessed on the Debevoise ESG Resource Center.

SB 1060

Australia: Securities and Investment Commission Sues Mercer for Greenwashing

On February 28, 2023, the Australian Securities and Investment Commission (“ASIC”) launched legal proceedings against Mercer Superannuation (Australia) Limited (“Mercer”), an Australian super fund manager.

According to ASIC, Mercer’s Sustainable Plus fund— which is marketed as investing in environmentally friendly assets—invested in 15 fossil fuel companies, 15 alcohol companies and 19 gambling companies. Mercer had marketed the fund as ideal for investors who prioritized sustainability because the fund excluded investments in assets related to carbon-intensive energy sources, alcohol and gambling.

While ASIC has issued citations against companies found to have engaged in greenwashing in the past, its action against Mercer is its first greenwashing lawsuit. The lawsuit is part of a broader focus by the Australian government on companies making false environmental claims, an area the Australian Competition and Consumer Commission has targeted in recent months.

ASIC Press Release

France: Court Dismisses Loi de Vigilance Case Against TotalEnergies

On February 28, 2023, the Paris Tribunal (the Tribunal judiciaire) dismissed a case brought against TotalEnergies for allegedly failing to comply with its duties under the 2017 Loi de Vigilance. The Loi de Vigilance requires large French companies to establish a vigilance plan (plan de vigilance) providing for measures to identify risks and prevent severe impacts on the environment and human rights resulting from their own activities, as well as those of their subsidiaries, subcontractors and suppliers.

The claim was brought by a consortium of NGOs who argued that TotalEnergies failed to adopt and implement a compliant vigilance plan. The claimants mainly relied on TotalEnergies’ oil projects in Uganda and Tanzania, particularly the Tilenga oil development and the East African Crude Oil Pipeline (“EACOP”), which they claim adversely impacted approximately 118,000 people in Uganda and Tanzania, many of whom are awaiting compensation for the harm caused. The claim was submitted pursuant to an interim procedure (before a juge des référés).

The tribunal dismissed the claim on procedural grounds. In particular, the tribunal held that the claimants were not admissible due to their failure to give appropriate notice to TotalEnergies. The tribunal found that, under French law, claimants were required to give notice for each one of the vigilance plans they sought to challenge. In the present case, because the NGOs only gave notice to TotalEnergies regarding its 2018 vigilance plan, the tribunal held that their challenge to the later plans (2019, 2020 and 2021) was inadmissible.

The tribunal also held that the claim fell outside of its jurisdiction as an interim court, which is limited to certain claims (for instance, where there is obvious illegality). It noted that an in-depth examination of the allegations against TotalEnergies was required to decide the claim against it but that such an examination would exceed its powers.

Nevertheless, the tribunal found that:

  • TotalEnergies had formally established a vigilance plan that included the five items required by law;
  • there was contradictory evidence about the operations of the Tilenga oil development and the EACOP; and
  • there is no regulation specifying the “vigilance” standard that a company must meet.

The tribunal found Friends of the Earth France, Survie and other claimant NGOs have reserved their right to take further legal action against TotalEnergies. For instance, they may decide to bring a claim on the merits against TotalEnergies. In addition, the decision may be appealed. The claimants have 15 days to lodge their appeal, running from the day after the notification of the decision.

Judgment 1 (in French)
Judgment 2 (in French)