| Regulatory and Reporting Developments |
United States
California Laws Banning Per- and Poly-Fluoroalkyl Substances (PFAS) Go Into Effect January 1, 2025
California Governor Gavin Newsom recently signed two bills into law requiring manufacturers to limit the the amount of PFAS, also known as "forever chemicals," in certain products. Beginning January 1, 2025, AB 1817 will prohibit, among other things, the manufacture and sale of new, not previously owned, covered textiles containing PFAS and impose new labeling requirements on manufacturers of such textiles. AB 2771 also takes effect January 1, 2025, and will prohibit people and entities from, among other things, manufacturing or selling cosmetic products that contain PFAS. The legislation is expected to have widespread impacts on consumer products.
U.S. Department of Treasury (Treasury) and Internal Revenue Service (IRS) Release Final Regulations for Section 48 Investment Tax Credit
On December 4, 2024, the Treasury and the IRS issued final regulations regarding the investment tax credit under Section 48 of the Internal Revenue Code of 1986, as amended. The final regulations provide updates to proposed regulations published on November 17, 2023, including clarifications to energy project rules, prevailing wage requirements, energy storage property, and recapture requirements.
For more information on the final regulations, please see our client alert.
California Air Resources Board (CARB) Issues Climate Corporate Data Accountability Act (SB 253) Enforcement Notice
On December 5, 2024, CARB issued an enforcement notice (the Notice) acknowledging that some companies will need additional time to comply with SB 253, which requires annual disclosures of greenhouse gas (GHG) emissions for companies with over $1 billion in annual revenue that do business in California. In the Notice, CARB states that it will exercise enforcement discretion for disclosures made in 2026 with respect to covered entities that attempt to comply with SB 253 in good faith. CARB will not take enforcement action for incomplete disclosure as long as a covered entity makes a good faith effort to retain all data relevant to emissions reporting for the entity's prior fiscal year. Further, a covered entity may disclose Scope 1 and Scope 2 GHG emissions in 2026 based on information that it already possesses or it already collecting as of December 5, 2024.
U.S. Environmental Protection Agency (EPA) Unveils National Strategy to Prevent Plastic Pollution (NSPPP)
On November 21, 2024, the EPA released the NSPPP outlining opportunities for voluntary and regulatory actions to protect public health and the environment. Authorized by Congress in the Save Our Seas 2.0 Act (S.1982) passed on December 18, 2020, this plan encourages businesses, academia, industries, nongovernmental organizations, governments, and consumers to address plastic pollution. As the third pillar of the EPA's Series on Building a Circular Economy for All, the NSPPP recommends interventions across the entire plastics lifecycle that combat pollution and maximize resource use by reducing waste, promoting innovation, and improving waste management.
Europe
European Commission (EC) to Simplify European Union (EU) Sustainability Reporting
On November 8, 2024, following a meeting of the Council of the EU in Budapest, EC President Ursula von der Leyen announced that the EC intended to simplify the European Union's sustainability reporting regulations. President von der Leyen explained that the EU would consolidate overlapping sustainability reporting obligations under the Corporate Sustainability Reporting Directive, the Taxonomy Regulation, and the Corporate Sustainability Due Diligence Directive into a single "omnibus" regulation to reduce "bureaucratic burdens" and overlapping data points, aiming for concrete proposals in 2025.
This would align with the Budapest Declaration's goal of simplifying regulations and cutting reporting requirements by at least 25 percent by mid-2025. However, while procedural burdens may decrease, President von der Leyen indicated that the substantive content of reporting obligations will remain unchanged. It is currently unclear how the EC will consolidate sustainability reporting requirements into one single regulation.
United Kingdom (UK) Government Publishes Results of Consultation on Potential Regulatory Regime for ESG Ratings Providers
On November 14, 2024, the UK government published the results of its consultation on introducing a regulatory regime for ESG ratings providers. It noted that the consultation had shown strong support for the introduction of some kind of regulatory regime for ESG ratings providers. The government also released draft legislation, which is open for public comment until January 14, 2025.
The draft rules would apply both to UK and foreign-based ESG ratings providers and contain several exclusions, including an exclusion for ratings produced as part of another regulated service. It is uncertain how soon any regulatory regime for ESG ratings providers could come into existence. Firstly, the draft legislation would have to be passed by the UK Parliament in 2025. Afterwards, the UK's Financial Conduct Authority would have to create rules and guidance before this future regime could come into force.
EC Publishes Clarifications on EU Taxonomy for Sustainable Economic Activities
On November 29, 2024, the EC published a draft notice containing a set of Frequently Asked Questions (FAQs) on the EU taxonomy, a classification system for sustainable economic activities. The FAQs respond to Technical Screening Criteria (TSC) used to identify certain economic activities considered to contribute substantially to achieving the six environmental objectives of the EU Taxonomy Regulation without causing significant harm to any other environmental objective.
The FAQs cover questions about the TSC as set out in secondary legislation to the EU Taxonomy Regulation including the Taxonomy Climate Delegated Act, and the Taxonomy Environmental Delegated Act, as well as the disclosure obligations for the non-climate environmental objectives laid down in the amendments to the Taxonomy Disclosures Delegated Act. They also address questions about the generic "Do No Significant Harm" criteria which ensure that economic activities contributing to one of the environmental objectives encapsulated in the Taxonomy Regulation do not cause significant harm to any of the other environmental objectives.
European Institutions Reach Preliminary Agreement to Defer Deforestation Regulation Compliance by One Year
On December 3, 2024, the European Parliament and the Council of the EU struck a preliminary agreement to defer the application of the regulations addressing the risks of deforestation and forest degradation brought about by the placement or exportation of certain products from the EU market (the Deforestation Regulation) by one year, following a proposal of the EC from October 2024. According to the agreement, large companies would have until December 30, 2025, and small- and medium-size enterprises would have until June 30, 2026, to comply with their obligations under the Deforestation Regulation, compared with the previous respective compliance dates of December 30, 2024, and June 30, 2025. The amendment to the Deforestation Regulation is expected to be formally passed by both the European Parliament and the Council of the EU this month.
The Deforestation Regulation covers commodities such as cattle, cocoa, coffee, oil palm, rubber, soy, and timber, and products derived from these commodities. It requires companies trading in these goods to conduct extensive supply chain due diligence efforts to ensure that these goods do not result from recent (post December 31, 2020) deforestation, forest degradation, or breaches of local environmental and social laws.
| Litigation and Enforcement Action |
States Allege That Certain Investment Management Companies Used ESG Investing to Manipulate Coal Production
On November 27, 2024, 11 states filed a complaint against several large asset management companies alleging that those asset management companies pressured coal companies to reduce carbon emissions and output in an attempt to promote ESG initiatives at the expense of consumers' utility bills. The complaint, filed in the United States District Court for the Eastern District of Texas, Tyler Division, is one of a number of lawsuits targeting efforts to promote ESG goals.
United States Court of Appeals for the Fifth Circuit (Fifth Circuit) Strikes Down Nasdaq Board Diversity Rules
On December 11, 2024, the Fifth Circuit issued an opinion vacating the U.S. Securities and Exchange Commission’s (SEC's) 2021 order approving The Nasdaq Stock Market LLC's (Nasdaq's) board diversity listing standards establishing diversity metrics for boards of directors and requiring each listed company to disclose the breakdown of its board by race, gender, and sexual orientation, or to explain why the company could not achieve the rule’s diversity metrics. The Fifth Circuit's ruling, decided in an en banc session by a 9-8 vote, held that the SEC exceeded its authority under the Securities Exchange Act of 1934 (the Exchange Act) when it endorsed the Nasdaq rule. The court addressed the purposes of the Exchange Act and held that such purposes "bear no relationship to the disclosure of information about the racial, gender, and sexual characteristics of directors of public companies." The court also held that the SEC failed to "point to 'clear congressional authorization' to regulate" in a manner allowing it to approve the diversity listing standards thus vacating the standards pursuant to the major questions doctrine.
For more information on the Fifth Circuit Ruling, please see our client alert.
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