ESG Weekly Update – March 21, 2024

21 March 2024

Other Notable Developments

Clean Energy Funding: On March 12, 2024, the U.S. Department of Energy announced that it would provide $425 million in funding to support the transformation of communities previously focused on coal energy into communities focused on decarbonization and clean energy products. Known as the Advanced Manufacturing and Recycling Grant Program, the initiative is the second round of Department of Energy investments in clean energy manufacturing and related projects.

U.S.: Fifth Circuit Stays SEC’s Climate Disclosure Rule

On March 15, 2024, the U.S. Court of Appeals for the Fifth Circuit stayed the SEC’s final climate disclosure rules (the “Climate Rules”). The court issued the stay in Liberty Energy Inc. v SEC, one of several cases filed in the Fifth Circuit since the SEC released the Climate Rules on March 6.

In this case, the petitioners (Liberty Energy and Nomad Proppant Services) argued that a stay was appropriate given the petitioners’ likelihood of success and the need to avoid irreparable injury from unrecoverable compliance costs and constitutional injuries. The petitioners’ legal challenge included claims under the major questions doctrine, Administrative Procedures Act, and First Amendment.

The SEC argued in response that the petition involved “speculative and remote assertions of harm,” noting that the Climate Rules have “not yet been published in the Federal Register” and would “not require any disclosures before March 2026 at the earliest.” Additionally, the SEC argued that a stay would be premature given that the Judicial Panel on Multidistrict Litigation had yet to assign a court to hear the multiple pending challenges, which the SEC requested the day before the stay’s issuance.

Nevertheless, in a one-sentence order that omitted any rationale, the court granted the stay. This stay pauses the Climate Rules’ applicability while the court considers the legal challenges raised.

Given pending challenges in other circuit courts (including the Sixth, Eighth, Eleventh, and D.C. Circuits) and the SEC’s request that the Judicial Panel on Multidistrict Litigation consolidate the suits, what comes next is not entirely certain. A lottery will determine which circuit court ultimately will hear the legal challenges, chosen randomly from among the courts in which petitions have been filed. If the assigned court is not the Fifth Circuit, that court could affirm, modify, or revoke the Fifth Circuit’s stay as the legal challenges are heard.

Debevoise In Depth: Potential Legal Challenges to the SEC’s Climate Disclosure Rule
Debevoise In Depth: An In-Depth Analysis of the SEC’s Climate Related Disclosure Rules
Debevoise In Depth: SEC Issues Long-Awaited Climate-Disclosure Rule

U.S.: Court of Appeals Sides with Tech Companies Over Child Labor in Africa

On March 5, 2024, the U.S. Court of Appeals for the District of Columbia unanimously ruled in favor of tech companies Alphabet, Apple, Dell Technologies, Microsoft and Tesla, in a decision that rejected an appeal by former child miners and their representatives. The claim accused the tech companies of supporting forced labor through the purchase of cobalt from a supply chain that originated in the Democratic Republic of the Congo, asserting that the companies “deliberately obscured” their dependence on child labor.

The appeals court held that purchasing cobalt through the global supply chain did not amount to “participation in a venture,” a requirement under a federal law that protects victims of human trafficking and forced labor. The plaintiffs could appeal again or even file additional lawsuits, according to a statement by their lawyer, who noted they are “far from finished seeking accountability.”


EU: European Parliament Adopts “Green Claims Directive” to Combat Greenwashing

On March 12, 2024, the European Parliament announced its adoption position on establishing a system, also known as the “green claims directive,” to verify and pre-approve environmental marketing claims. The directive would require companies to submit evidence before advertising products as “biodegradable,” “less polluting,” “water saving,” or having “bio based content.” The directive would also require EU Member States to designate verifiers to pre-approve the use of these marketing claims.

Parliament’s position reiterates that green claims based solely on carbon offsetting are banned, and clarifies that green claims about products should remain possible even if they contain hazardous substances, though this may be revisited in the near future.

Micro enterprises are exempt from the new rules, and SMEs will have an additional year to come into compliance compared with the yet-to-be-determined compliance deadline for larger businesses. Companies found in violation of the directive could face penalties such as temporary exclusion from public procurement tenders and fines of at least four percent of their annual turnover.

While Parliament adopted its first reading position with 467 votes in favor, 65 against, and 74 abstentions, the Directive will be followed up by the next Parliament, once the European elections ensue from June 6 through 9, 2024.

Press Release

Global: Net-Zero Banking Alliance Updates its Climate Guidelines

On March 13, 2024, members of the Net-Zero Banking Alliance (“NZBA”) voted to adopt a new version of the Guidelines for Climate Target Setting for Banks.

For the first time, the scope of the targets will include capital market activities, which for some financial institutions represent a significant source of attributable greenhouse gas emissions. The new guidelines will update and clarify technical language, reflecting the changes in methodologies and data availability in the last three years, including around transition planning and policy engagement. The Alliance has retained the key principles of the original guidelines, including reaching net zero by 2050 and setting intermediate 2030 sectoral targets.

Eric Usher, Head of the UN Environment Programme Finance Initiative, stated that “this bank-led update to the Guidelines, and its important addition of facilitated emissions from capital market activities, ensures that current and future NZBA member banks will continue to set targets in line with the most ambitious temperature goals of the Paris Agreement and the latest science.”

The guidelines, originally produced in 2021, will be reviewed again no later than 2027.

Updated Guidelines
ESG Weekly Update (March 8, 2024): U.S.: House Oversight Committee Probes Climate Pledges by Asset Managers
ESG Weekly Update (June 1, 2023): Global: Net Zero Insurance Alliance Holds Emergency Meeting Following Defections
ESG Weekly Update (May 19, 2023): U.S.: House Committee on Oversight and Accountability Hears Testimony on ESG Influence

Canada: Updated ESG Disclosure Guidance Released by Canadian Securities Regulators

On March 7, 2024, the Canadian Securities Administrators (“CSA”) published updated guidance concerning ESG disclosure practices for investment funds.

The guidance builds on the CSA’s original notice published two years ago, and addresses additional ESG-related matters. With the revised guidance, the CSA “aims to bring greater clarity and consistency to ESG-related fund disclosure and sales communications to enable investors to make more informed investment decisions.”

Among the new provisions, the guidance adds specific disclosures advice for funds that track ESG-related indices; funds with carbon offset series; funds that address ESG-related issues regarding their engagement with companies, or in proxy voting; and certain fund of funds. The guidance also identifies the expected disclosures for funds that use ESG strategies but without ESG factors in their investment objectives, and provides clarification on whether and when ESG-related communications are sales communications.

CSA Guidance
Investment Executive
MB Securities

This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.