ESG Weekly Update – April 3, 2024

3 April 2024

Other Notable Developments

UN Guiding Principles: As part of its remit to advise on the implementation and clarification of the UN Guiding Principles on Business and Human Rights, the UN Working Group on Business and Human Rights has completed its draft report on ESG index and data providers’ responsibility and capacity to assess their clients’ human rights obligations; the report is expected to be submitted to the UN Human Rights Council in June 2024.

U.S. Decarbonization: As part of President Biden’s Investing in America agenda, the U.S. Department of Energy announced investments of up to $6 billion in decarbonization projects in energy-intensive industries, such as aluminum and metals, cement and concrete, chemicals and refining, and iron and steel.

U.S.: SEC Requests Eighth Circuit Deny Stay of Final Climate Disclosure Rule

On March 27, 2024, the Securities and Exchange Commission (“SEC”) urged the U.S. Court of Appeals for the Eighth Circuit to reject Liberty Energy, Inc. and Nomad Proppant Services, LLC’s request for a stay of the SEC’s final climate disclosure rule (the “Rule”) published on March 6, 2024. Separately, on March 26, 2024, the U.S. Chamber of Commerce, the Texas Association of Business, and the Longview Chamber of Commerce filed an emergency motion for a stay in the Eighth Circuit.

As reported in our last update, legal challenges to the Rule have been filed in the Second, Fifth, Sixth, Eighth, Eleventh, and DC Circuits. On March 21, 2024, the SEC’s request that the cases be consolidated was granted; the cases were assigned to the Eighth Circuit following a random selection process. Following the consolidation order, the Fifth Circuit, which had issued a stay of the Rule on March 15, transferred the cases to the Eighth Circuit and lifted its original stay. The Eighth Circuit is conservative-leaning—16 of the court’s 17 judges were appointed by Republican presidents.

In requesting another stay, the petitioners argued that they would face “imminent harms” if the Rule were permitted to proceed. In its letter filed with the Court on March 27, 2024, the SEC disagreed, noting that Liberty “identified no imminent harm justifying such emergency relief or a stay pending judicial review.” In its separate motion, the U.S. Chamber of Commerce made similar claims of “immediate, irreparable harm” and urged the Court to decide on its motion by April 12, 2024.

Liberty Energy and Nomad Proppant Services Request for Stay
Chamber of Commerce Motion
SEC Response
Debevoise In Depth – SEC Issues Long-Awaited Climate-Related Disclosure Rule
Debevoise In Depth – An In-Depth Analysis of the SEC’s Climate-Related Disclosure Rules
Debevoise In Depth – Potential Legal Challenges to the SEC’s Climate Disclosure Rule

EU: Financial Markets Regulator Releases Draft Rules for Green Bond Review

On March 26, 2024, the European Securities and Markets Authority (“ESMA”), the EU financial markets regulator, issued draft Regulatory Technical Standards (“RTS”) concerning the registration and supervision of external reviewers under the EU Green Bond Regulation, which takes effect on December 21, 2024. ESMA sought to clarify and standardize the criteria used for assessing an application to register as an external reviewer of green bonds. The draft RTS cover conflicts of interest with green bond issuers, the requisite level of expertise for analysts, and the outsourcing of assessment activities, forms, templates, and procedures.

Ensuring the quality of external review is a regulatory priority for the EU given the key role played by green bonds in the EU’s transition to a low carbon economy. The draft RTS seek to establish strong external review of green bonds to prevent greenwashing and to foster competition between external reviewers to reduce the costs of such reviews incurred by green bond issuers.

The draft RTS are open for public consultation. ESMA is seeking comments from relevant investors, issuers, and trade associations. Following consideration of that feedback, ESMA expects to submit the draft RTS to the European Commission by December 21, 2024.

ESMA Press Release

U.S.: House Republicans Reintroduce Legislation to Ban ESG in Retirement Plans

On March 21, 2024, Republican Congressman Greg Murphy introduced H.R. 7780, the Safeguarding Investment Options for Retirement Act (“SIORA”), a new bill designed to prevent fiduciaries of tax-advantaged retirement plans from considering ESG factors in their investment decisions. The bill, which has been referred to the House Ways and Means Committee, would amend the Internal Revenue Code to require plan trustees to invest “exclusively on the basis of financial risk and return factors.” If passed, managers and plans that explicitly consider ESG factors would risk losing their tax-advantaged status.

Murphy had previously proposed a different version of SIORA, H.R. 9198, in October 2022. That version of the law, which was referred to but never voted on by the Ways and Means Committee, would have permitted fiduciaries to consider investments with “non-pecuniary” goals, so long as all investment actions were “based only on pecuniary factors” and such “non-pecuniary” investments were not offered as a default option.

The introduction of this legislation is part of a series of efforts to overturn a 2022 Department of Labor rule permitting consideration of ESG factors in ERISA plans. In March 2023, Republican lawmakers successfully voted to nullify the rule, but the resulting resolution was vetoed by President Biden (see our previous update). In September 2023, a federal judge separately ruled against a coalition of Republican state attorneys general who had sued to block the rule, finding that it did not violate ERISA (as discussed here). That case has since been appealed, and on March 21—the same day that the latest version of SIORA was introduced—the Department of Labor filed a brief in defense of the rule with the Fifth Circuit.

Press Release
H.R. 7780 (2024)
H.R. 9198 (2022)

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