Last week, the California Legislature passed two bills comprising the core of a landmark “Climate Accountability Package.”  Together, the two bills will impose extensive new climate-related disclosure obligations on thousands of U.S. public and private companies with operations in California.  Senate Bill 253 (SB 253) would require companies with greater than $1 billion in annual revenues to file annual reports publicly disclosing their Scope 1, 2 and 3 greenhouse gas (GHG) emissions.  Senate Bill 261 (SB 261) would require companies with greater than $500 million in annual revenues to prepare biennial reports disclosing climate-related financial risk and describing measures adopted to mitigate and adapt to that risk.

Yesterday afternoon during an appearance at Climate Week NYC, Governor Newsom told the audience emphatically, “of course I will sign those bills.”  When he does, many more companies will be required to improve the accuracy, completeness and rigor of their GHG reporting and climate risk disclosures. Because of the complexity of GHG reporting, we have focused the remainder of this post on SB 253.  Please see our separate post on SB 261 here.

Continue Reading California Legislature Passes Landmark Climate Disclosure Laws: Spotlight on SB 253

Last week, the California Legislature passed two bills as part of the state’s landmark “Climate Accountability Package.”  If signed by Governor Newsom as anticipated, the two laws—Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261)—will usher in significant climate-related disclosure requirements for thousands of U.S. public and private companies that do business in California.

SB 253 and SB 261 mark the most extensive emissions- and climate-disclosure laws enacted in the United States to date.  SB 253 requires companies with greater than $1 billion in annual revenues to file annual reports publicly disclosing their direct, indirect, and supply chain greenhouse gas (GHG) emissions, verified by an independent and experienced third-party provider.  SB 261 requires companies with $500 million in annual revenues to prepare biennial reports disclosing climate-related financial risk and measures they have adopted to reduce and adapt to that risk, with the first report due by January 1, 2026.

This post focuses on SB 261’s climate-related financial risk disclosure requirements. You can find our post on SB 253’s GHG emissions reporting requirements here.

Continue Reading California Legislature Passes Landmark Climate Disclosure Laws: Spotlight on SB 261

The following interview originally appeared in the National Law Journal.

What you need to know

  • One of the significant issues many of their multinational clients have is the growing divide between how they operate and what’s expected of them in the U.S. versus Europe.
  • At the same time the legal field has experienced this anti-ESG backlash over the last year in the U.S., the EU has moved full speed ahead on many ESG initiatives with significant consequences for businesses, including the EU Taxonomy, the Sustainable Finance Disclosure Regulation, the Corporate Sustainability Reporting Directive, and the Corporate Sustainability Due Diligence Directive.
  • There is also growing litigation risk because with so much more scrutiny, and so much more information in the public domain, there are a range of stakeholders and potential plaintiffs on ESG issues, from state officials to NGOs

The Biden administration has set clear policy goals to establish effective corporate net-zero strategies on the one hand, yet there has also been growing pushback against the climate aspect of ESG in many red states. How do you advise clients on climate regulation in this very fluid environment?

Jayni Hein: We are all witnessing this summer, yet again, record-breaking land and ocean temperatures and pervasive wildfire smoke. It’s undeniable that climate change is affecting how we live today and how businesses operate. How both the government and the private sector respond is critically important.

With respect to the climate regulation work that we are doing for our clients, there are a few key pillars of our work. First and foremost, with respect to climate regulation, we are focusing on the core legal issues that are essential to our client’s operation and business strategy. For our energy and power sector clients, this includes Clean Air Act regulation and state regulation of greenhouse gas emissions and other air pollution. For our transportation clients, this includes federal emission standards and state programs like California’s low carbon fuel standard.

While these regulations are foundational to our clients, they are also subject to significant changes across presidential administrations. So we’re actively advising clients on engagement in the ongoing rulemaking process on how they can strategically plan and operate in the midst of this regulatory uncertainty.

We are also advising clients on how to take advantage of the largest federal investments in clean energy and climate mitigation and history. With the passage of the Inflation Reduction Act in 2022 and the Infrastructure Investment and Jobs Act in 2021, these laws are driving a domestic clean energy renaissance.

We are partnering with our clients to help them take full advantage of these incentives to structure new ventures and to develop projects here in the United States; this work is driving the clean energy economy.

As a third pillar of our work, we help corporate clients set and meet their decarbonization goals. While “ESG” has become almost a dirty word in some Republican states and circles, at the same time, many of our clients are focused on strategies to decarbonize. This has created a tricky landscape for some.

As a result of all of this activity, Covington launched a new carbon management and climate mitigation practice on June 1. It was created from the need to provide our clients with holistic legal and policy advice with respect to climate mitigation and carbon management.

Dan Feldman: We are closely tracking a whole range of ESG initiatives at state levels in both red states and blue states. We are monitoring what’s happening in Congress, particularly with the recent congressional hearings from different committees on the House side, and also what’s happening internationally in a whole range of jurisdictions.

This anti-ESG backlash is getting a lot of press attention right now, and in some cases, has migrated into the legal and regulatory framework such as in the recent passage of legislation in Florida.

Our clients are trying to be responsible and responsive to a whole array of stakeholders that are engaged on ESG and sometimes with conflicting views. Their investors may be demanding some criteria and their employees and consumers may be seeking something else. And then the array of governments that they are actively engaging with and the jurisdictions in which they operate in are making demands across the political spectrum.

The challenges frequently are helping clients better define and execute what their fiduciary responsibilities may be as best as possible. And it can be quite difficult given this range of opinions about what ESG consists of, how it should be implemented, and what should be prioritized.

You touched on the challenging environment corporations operate in—could you explain how you advise clients to meet these challenges?

DF: It can be complicated. Regulations including most notably the SEC Climate-Related Disclosure Rules are still in development. How they wind up, whether it will just cover Scope 1 and 2, or also potentially Scope 3 disclosures remains to be seen.

But we are also waiting for final Clean Air Act regulations. The FTC Green Guides were put out over a decade ago and are in the process of being updated now. So we’re waiting for clearer guidance on claims from being sustainable to net zero or carbon neutral. The regulatory terrain is uncertain.

Second of all, the pathways are still fairly unclear how a company can best meet corporate commitments they’ve already made or are contemplating on decarbonization.

We are still trying to ensure that these mechanisms can be scaled in a way that’s most effective, and that there’s accountability, guidance and instruction for companies that are seeking to execute on their commitments.

That can mean how they implement science-based target initiatives. It can mean their adherence to protocols like the Greenhouse Gas Protocols. It can mean how they incorporate carbon offsets or voluntary carbon markets into their decarbonization plans. Much of this is still at such a relatively formative stage, it means that there’s frequently not clear cut decisive answers that will guide them.

As a result, clients are trying to work with quite imperfect information in terms of their execution. This a multijurisdictional challenge that a number of our clients have, operating both in some red states which are taking more anti-ESG action—sometimes rhetoric, but sometimes proposed legislation—as well as blue states that are looking to push boundaries in support of more progressive ESG policies.

One of the really significant issues we have with many of our multinational clients is the growing divide between how they operate and what’s expected of them in the U.S. versus Europe. At the same time that we have experienced this anti-ESG backlash over the last year in the U.S., the EU has moved full speed ahead on many ESG initiatives with significant consequences for businesses, including the EU Taxonomy, the Sustainable Finance Disclosure Regulation, the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD).

Lastly there is a growing litigation risk because with so much more scrutiny, and so much more information in the public domain, there are a range of stakeholders and potential plaintiffs on ESG issues, from state officials to NGOs. It could mean an array of greenwashing and environmental marketing claims and class actions challenging net zero claims, or state attorneys general led antitrust lawsuits, or other forms of climate litigation.

There has always been the potential for reputational risk or operational risk for companies resulting from ESG issues, but there’s now also more acute legal and regulatory risk.

How do you bridge the challenge for clients from committing to carbon transaction and net-zero strategies to actual implementation?

JH: To distill this to a few key points. First: set ambitious, yet achievable decarbonization goals. A lot of companies have goals and targets, yet increasingly, there are risks when companies have goals, but don’t actually have a plan to meet those targets.

That takes me to the second point: create a clear plan for achieving those objectives. This can include setting both short and long-term goals, conducting emissions accounting and reporting, and creating actionable plans for mitigating emissions.

Every company is situated a bit differently in regard to mitigation. Some companies are actively building renewable energy; others are procuring renewable energy from clean energy developers.

Others are interested in things like offsets or entering the carbon market. The plan that works well for one company may not be the best plan for another.

Third, involve a full range of stakeholders including relevant communities, advocates, and government officials.

There’s so much interest in what the private sector is doing in this space—this includes shareholders, employees, customers, and it certainly includes any local community that’s directly affected by a company’s operations. Think about who the stakeholders are, involve them in the process, and consider ways to optimize stakeholder benefits. There’s so much at stake when it comes to climate change and decarbonization—and the clock is ticking. We’re focused on helping our clients achieve their ambitious goals efficiently and durably.

Reprinted with permission from the August 28, 2023 edition of the National Law Journal© 2023 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com

On September 6, 2023, EPA held a webinar relating to pesticidal devices, focused on air cleaning devices.  The webinar highlighted EPA’s expectations for data that manufacturers must have on file to substantiate efficacy claims for these devices.  This provides important additional guidance to manufacturers regarding the types of testing EPA expects to be conducted.

Continue Reading EPA Webinar Addresses Pesticidal Device Efficacy Data

On 26 June 2023, the International Sustainability Standards Board (“ISSB”) published its inaugural International Financial Reporting Standards Sustainability Disclosure Standards (the “ISSB Standards”) (read our previous blog post on this here).  In August 2023, the UK Financial Conduct Authority (“FCA”) published Primary Market Bulletin 45, confirming its intentions to update its climate-related disclosures for listed companies under the Listing Rules (see LR 9.8.6 R (8) and LR 14.3.27 R) to reference UK-endorsed ISSB Standards.

Continue Reading Corporate Reporting in the UK: The International Sustainability Standards Board

On August 16, 2022—one year ago today—President Biden signed the Inflation Reduction Act (“IRA”), the most significant clean energy and climate law in U.S. history.  As we described in a series last summer, the IRA created durable tax credits and other fiscal programs to revitalize domestic manufacturing and incentivize clean energy solutions in nearly every sector of the economy. The IRA’s one year anniversary is a key opportunity to take stock of what the law has propelled and what is expected around the corner.

Continue Reading The First Year of the Inflation Reduction Act

On July 31, 2023, the White House Council on Environmental Quality (CEQ) released the  second phase of its revisions to the National Environmental Policy Act (NEPA) implementing regulations that govern federal environmental review. Titled the “Bipartisan Permitting Reform Implementation Rule,” the proposed rule reflects CEQ’s aim to revise and modernize the regulations and incorporate updates to address recent statutory changes to NEPA in the Fiscal Responsibility Act of 2023.1

Continue Reading White House Council on Environmental Quality Proposes “Phase 2” Revisions to Environmental Review Regulations

On 26 June 2023, the International Sustainability Standards Board (the “ISSB”) issued its inaugural International Financial Reporting Standards (“IFRS”) Sustainability Disclosure Standards (the “Standards”), heralding progress in the development of a global baseline of sustainability-linked disclosures. The Standards build on the concepts that underpin the IFRS Accounting Standards, which are required in more than 140 jurisdictions, but notably not in the United States for domestic issuers subject to regulation by the Securities and Exchange Commission (“SEC”), which must apply US Generally Accepted Accounting Principles (“US GAAP”).  Despite broad investor appetite for  transparent, uniform and comparable disclosure rules, the scope of required sustainability disclosure and timing for adoption of the SEC’s pending climate disclosure rule remains unresolved.

Continue Reading ISSB Issues Inaugural Global Sustainability Disclosure Standards

On 19 June 2023, after almost 20 years of negotiations, the United Nations (“UN”) member states adopted a landmark treaty to ensure the conservation and sustainable use of marine Biodiversity of areas Beyond National Jurisdiction (the “BBNJ” treaty).

One of the cornerstones of the BBNJ treaty is the creation of a new mechanism for the fair and equitable sharing of benefits arising from activities with respect to “marine genetic resources” (“MGRs”) and “digital sequence information” (“DSI”) from MGRs.  This mechanism is groundbreaking because it will require companies to pay for the use of genetic resources beyond national jurisdiction for the first time.  Until now, under the existing Convention on Biological Diversity (“CBD”) and its Nagoya Protocol, companies were required to make (non-)monetary contributions only for the utilization of genetic resources under national jurisdiction (e.g., from national territories, national seas and exclusive economic zones).  The BBNJ creates new “Access and Benefit-Sharing” (“ABS”) obligations on MGRs from maritime areas beyond national jurisdiction (i.e., the High Seas and the Area). 

Companies in sectors whose R&D depends on marine genetic resources will be required to contribute to share financial and other benefits.  In this blog we focus on those provisions of the BBNJ which will have the most direct impact on companies.

Continue Reading Historic Marine Biodiversity Treaty creates new Access and Benefit-Sharing obligations for life sciences companies

The Fiscal Responsibility Act of 2023, signed into law on June 3, raised the U.S. debt limit and ushered in the most significant revisions of the National Environmental Policy Act (NEPA) in its 50+ year history. While the statutory changes are notable and important to understand, most of the changes codify longstanding agency practice and are expected to have only modest effects on environmental reviews, primarily with respect to timelines for completion.

In addition to these statutory changes, energy and infrastructure developers and other stakeholders are awaiting the White House Council on Environmental Quality’s (CEQ’s) “Phase 2” proposed NEPA rule. CEQ will likely seek to harmonize its proposed rule with the new statutory changes and could pose questions for public comment regarding new provisions that may warrant interpretation by CEQ. Congress may pursue additional permitting-related changes in the coming months, as well.

The following is a summary of the key changes to NEPA, placed in relevant context.

Continue Reading Amendments to the National Environmental Policy Act (NEPA): Permitting Reform in Context