ESG Weekly Update – July 26, 2023

26 July 2023

U.S.: SEC Asks Chinese Companies to Disclose Uyghur Forced Labor Ties

On July 17, 2023 the Securities and Exchange Commission (the “SEC”) issued guidance regarding disclosures pursuant to the Uyghur Forced Labor Prevention Act (“UFLPA”). UFLPA broadly prohibits the import of any goods manufactured wholly or in part in Xinjiang, China, into the U.S. It 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 (see our earlier Weekly Update on UFLPA here).

The SEC guidance urges companies to evaluate the information provided to investors to ensure that they are tailoring disclosures to the provisions of UFLPA and describing its impact on their businesses. It emphasizes that companies subject to UFLPA may face compliance risk and supply chain disruptions if they operate in Xinjiang or engage with companies that operate there. Accordingly, the guidance requires companies to evaluate the material impacts on their business and communicate these material risks to investors.

The SEC also published a sample letter it may send to companies with operations in Xinjiang, or who rely on counterparties that operate in Xinjiang, regarding UFLPA compliance. This letter would require companies to describe “to the extent material, […] how [their] business segments, products, lines of service, projects, or operations are impacted by the Uyghur Forced Labor Prevention Act (UFLPA), that, among other matters, prohibits the import of goods from the Xinjiang Uyghur Autonomous Region.”

SEC Guidance and Letter

U.S.: Letters Sent to Asset Managers as Part of a Series of Hearings on ESG-Related Topics

On July 18, 2023, Representative Bill Huizenga (R-MI 4th District) published letters sent to 10 asset managers, including BlackRock and Vanguard, seeking information on the approach they take when balancing ESG-related initiatives with their fiduciary duties to shareholders.

Each letter asks the firm a series of questions, with an emphasis on proxy voting. Mr. Huizenga asks the firm to list proxy advisory firms they engage with, how often they vote in line with each advisory firms’ recommendations, and how the recommendations are evaluated. The focus on proxy voting follows the introduction of the Empowering Shareholders Bill (H.R. 4645 “To amend the Investment Advisers Act of 1940 with respect to proxy voting of passively managed funds, and for other purposes”), which would require investment advisers to “vote proxies in accordance with issuer voting instructions for covered securities held by passive index funds” (except where voting instructions of a shareholder are otherwise known).

The letters also ask how the firm ensures that shareholder votes align with maximizing investor returns and requests details on metrics used to measure the financial impact of ESG initiatives.

Rep. Huizenga Press Release

U.S.: Republican AGs Instruct CEOs to Avoid Race-Based Preferences in Hiring, Promotions, and Contracting

On July 13, 2023, 13 Republican state attorneys general issued an open letter to Fortune 100 CEOs warning them against using racial criteria in their employment practices. The letter, which was signed by the attorneys general of Alabama, Arkansas, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, Nebraska, South Carolina, Tennessee and West Virginia, comes in the wake of the Supreme Court’s recent rulings in Students for Fair Admissions v. President & Fellows of Harvard College and Students for Fair Admissions, Inc. v. University of North Carolina, which struck down Harvard College and the University of North Carolina’s affirmative action policies in college admissions.

While the Supreme Court’s ruling does not explicitly apply to corporations or hiring, lawyers and advocacy groups have argued that the Court’s underlying reasoning can be extended to any use of racial preferences in private employment. In their letter, the attorneys general criticize “overt and pervasive racial discrimination in the employment and contracting practices of Fortune 100 companies,” citing various racial diversity initiatives in hiring, contracting, and sales, among other areas. According to the group, such practices are “both immoral and illegal” under federal and state anti-discrimination laws, and companies that adopt such policies may be prosecuted. Proponents of diversity, equity and inclusion worry that the threat of litigation could have a negative effect on a wide range of corporate policies and initiatives.


Australia: Competition and Consumer Commission Announces New Rules Aimed at Combatting Greenwashing

On July 14, 2023, the Australian Competition and Consumer Commission (the “ACCC”) published draft guidance on how companies can avoid greenwashing when making environmental and sustainability claims. The guidance follows the publication of an ACCC report that found that 57% of the 247 companies examined made “concerning” claims about environmental credentials. The draft guidance sets out good practice for companies making environmental claims about their products and services, to improve the integrity of environmental and sustainability-related claims.

The draft guidance sets out eight key principles aimed at protecting consumers from greenwashing and strengthening consumer trust in green claims. These principles include ensuring that green claims are accurate and evidenced while placing emphasis on transparent language that avoids broad, unqualified statements.

The draft guidance concludes with details on the ACCC’s enforcement approach. Penalties for false or misleading representations include fines up to either A$50 million or three times the assessed benefit from the representation.

For more on greenwashing enforcement in Australia, see our earlier Weekly Updates on this topic here and here.

ACCC Draft Guidance
ACCC Report

UK: Financial Reporting Council Consults on Endorsement of ISSB Standards in the UK

On July 19, 2023, the UK Financial Reporting Council, an independent regulator overseeing corporate governance issues, launched a consultation on the endorsement of the International Sustainability Standards Board (the “ISSB”) Disclosure Standards on sustainability and climate (more information on the standards can be found in an earlier Weekly Update here).

The consultation focuses on whether the disclosures required under the ISSB standards: (i) make the information “understandable, relevant, reliable and comparable for investors”; (ii) are technically possible to prepare; (iii) can be made at the required time; and (iv) are expected to generate benefits proportionate to the costs incurred. The aim is to establish whether the ISSB standards are suitable for application in the UK or whether any amendments are necessary.

Responses to the consultation must be submitted by October 11, 2023.

Press Release
Call for Evidence