United States

Federal Energy Regulatory Commission (FERC) Adopts Major Generator Interconnection Reforms

Last month, FERC Commissioners unanimously approved Order No. 2023 (the Order), which represents a significant reform to its energy generator interconnection rules. The Order aims to reduce interconnection backlogs nationwide by imposing new, more stringent requirements on transmission providers and interconnection customers alike. Notable reforms from the Order include: 1) the requirement for transmission providers that have not yet adopted cluster studies (and are not in the process of adopting cluster studies) to transition to a first-ready, first-served cluster study process, where studies are clustered together as opposed to performed on a sequential, first-come, first-served basis; 2) the imposition of new readiness requirements for interconnection customers, including stronger site control requirements and mandatory commercial readiness deposits; 3) the elimination of the “reasonable efforts standard” applicable to transmission providers and the replacement of it with firm deadlines and penalties to timely incentivize the completion of interconnection studies, which are necessary for identifying where to interconnect for improved network access; and 4) the adoption of numerous reforms aimed at better incorporating new technologies into the interconnection process, including storage and grid enhancement.

Biden Administration Proposes Heightened Fuel-Efficiency Vehicle Standards

On July 28, 2023, the National Highway Traffic Safety Administration proposed new Corporate Average Fuel Economy Standards for certain passenger cars, light trucks, heavy-duty pickup trucks, and vans. If finalized, the proposal would require an industry fleet-wide average—meaning the sales-weighted fuel economy of the entire fleet of vehicles sold in the United States—of approximately 58 miles per gallon for passenger cars in model year 2032 by increasing fuel economy two percent year-over-year for passenger cars.

Federal Acquisitions Regulation (FAR) Council Proposes Sustainable Federal Procurement Rule

On August 3, 2023, the FAR Council, which is responsible for establishing and coordinating federal procurement regulations, released a rule that would require the Department of Defense, General Services Administration, and National Aeronautics and Space Administration to prioritize the procurement of sustainable products and services to the maximum extent practicable. The FAR Council requested that comments to the proposed rule be submitted on or before October 2, 2023.

White House Council on Environmental Quality (CEQ) Proposes Permitting Reform Rule

Last month, the CEQ released its proposed Bipartisan Permitting Reform Implementation Rule, which codifies the changes to the National Environmental Policy Act (NEPA) enacted in June through the Fiscal Responsibility Act (the Debt Limit Bill). The rule’s requirements include stricter deadlines for NEPA permitting and page limits for environmental assessments. Please see our June update for more details about the Debt Limit Bill.

Bureau of Ocean Energy Management (BOEM) Announces New Mid-Atlantic Wind Energy Areas (WEAs)

On July 31, 2023, BOEM announced its intention to move forward plans to lease approximately 356,550 acres of offshore WEAs located off the coast of Delaware, Maryland, and Virginia. The WEAs have the potential to provide 4 to 8 gigawatts (GW) of offshore wind energy, in furtherance of the Biden Administration’s goal of deploying 30 GW offshore wind power by 2030. BOEM has opened a Notice of Intent (NOI) to request feedback on its preparation of an environmental assessment for each WEA. NOI comments must be submitted on or prior to August 31, 2023.

U.S. Department of Commerce (Commerce) Issues Final Scope Ruling Regarding Solar Tariffs Applicable to Imported Solar Cells and Modules from Cambodia, Malaysia, Thailand, and Vietnam Using Parts and Components Manufactured in China

On August 18, 2023, Commerce announced a final scope ruling (Ruling), which was subsequently published in the Federal Register on August 23, 2023, pursuant to Commerce’s circumvention inquiry into crystalline silicon solar cells and modules from China. Commerce found that certain Chinese producers are shipping certain solar products through four southeast Asian countries: Cambodia, Malaysia, Thailand, and Vietnam (each and collectively an “inquiry country”), for “minor processing in an attempt to avoid paying antidumping and countervailing duties (AD/CVD).” The investigation was requested by California-based solar panel manufacturer, Auxin Solar, in 2022, claiming that Chinese solar manufacturers were circumventing existing U.S. import duties by doing only “minor processing” or “insignificant” work on solar modules and cells in the four aforementioned countries before shipping the solar products to the United States.

The Ruling will not take immediate effect. President Biden issued a Presidential Proclamation 10414 on June 6, 2022, which delayed the collection of duties collected on any solar module and cell imports from the four countries listed above until June 2024, provided that the imports are “consumed” in the U.S. market within six months of termination of the proclamation.

Commerce investigated eight companies in total, and found that five of them are attempting to bypass U.S. duties by doing “minor processing” in one of the four abovementioned countries are:

• BYD Hong Kong (Cambodia)
• New East Solar (Cambodia)
• Canadian Solar (Thailand)
• Trina Solar (Thailand)
• Vina Solar (Vietnam)

This means that the other three companies, Hanwha Qcells, Jinko, and Boviet Solar will not be subject to additional duties. Commerce clarified, however, that solar cells made in one of the four abovementioned countries, even if such cells incorporate wafers from China, but are then exported to a non-inquiry country and further assembled into modules or other products in such non-inquiry country, are not covered by the Ruling. That is, if solar cells or modules are “merely transshipped from a Southeast Asian country through another third country, then it may still be covered by the circumvention findings and resulting suspension, cash deposit, and certification requirements.” (See Commerce Memorandum, December 19, 2022, linked here).

These four countries are responsible for approximately three-quarters of solar modules imported into the United States. Due to the extra duties to be assessed pursuant to the Ruling, costs for procuring solar panels may rise.

Europe

European Commission (EC) Adopts European Sustainability Reporting Standards (ESRS)

On July 31, 2023, the EC adopted the ESRS to harmonize sustainability-related disclosures and replace voluntary standards. Companies (including EU subsidiaries of non-EU companies) that fall within the scope of the Corporate Sustainability Reporting Directive (CSRD) will need to use the ESRS to guide their sustainability-related disclosures. The ESRS establishes mandatory standards, including: 1) general sector-agnostic standards that apply to all undertakings regardless of the sectors in which the undertaking operates and set out overarching disclosure requirements; and 2) 10 topical standards focused on specific environmental, social, and governance (ESG) matters (such asclimate, pollution, workforce, and business conduct). The ESRS follows the “double materiality” concept, which expands a company’s reporting boundary across its value chain and focuses not just on how sustainability factors affect the company financially, but also on the company’s impact on society and the environment. While the disclosures for topical standards are subject to a materiality assessment, an exception applies to climate change-related disclosures, meaning that if a company concludes that climate change is not a material topic, it must provide a detailed explanation of the reasons why.

For more information EU ESG disclosure requirements generally, please see this Client Alert.

European Securities and Markets Authority (ESMA) Releases Public Statement on Sustainability Disclosures Expected to be Included in Securities Prospectuses

On July 11, 2023, ESMA released a public statement regarding sustainability disclosures in prospectuses that are drafted under the EU Prospectus Regulation, which lays out the requirements for the drafting, approval, and distribution of prospectuses in securities markets. The statement sets out ESMA’s view of how current European Union (EU) legislation should be interpreted regarding the disclosure of sustainable bonds. ESMA noted the “importance of [ESG] matters to investors,” asking issuers and their advisors to consider sustainability-related matters when preparing prospectuses. ESMA’s statement focuses on, among other things: 1) the basis for any sustainability-related statements, requiring issuers to provide an objective explanation regarding their sustainability profile (for example,by stating that the issuer adheres to a specific market standard or label, including material information about that standard or label); and 2) specific sustainability-related disclosures, warning companies that they should not use sustainability disclaimers as a way to avoid responsibility for things they have control over. ESMA’s statement also mentions that any material sustainability-related disclosure published in an issuer’s non-financial reporting in accordance with the Non-Financial Reporting Directive and future sustainability reporting under the CSRD should be included in equity prospectuses.

For more information on EU ESG disclosure requirements generally, please see our previous Client Alert.

EU and Chile Agree to Critical Materials Deal

On July 18, 2023, the EU and Chile signed a Memorandum of Understanding (MOU) establishing a partnership intended to secure sustainable raw materials value chains to accelerate the clean energy and digital transition. The MOU highlighted the following areas of focus: 1) joint investment in raw materials extraction and processing; 2) investing in research and innovation; 3) cooperation on ESG criteria and alignment with international standards; 4) building infrastructure for project development; and 5) investing in job training and skills development. Following the signing of the MOU, the EU and Chile plan to develop an operational roadmap for the partnership that will include specific cooperation actions to be carried out by relevant stakeholders.

Asia

Tokyo Stock Exchange Releases Revised General Equality Rules

On July 28, 2023, the Tokyo Stock Exchange, Inc. released Revisions to Listing Rules in Relation to the Intensive Policy for Gender Equality and the Empowerment of Women 2023 and the Desired Investment Unit Level (the Revisions). The Revisions provide that domestic listed companies listed on the Prime Market shall strive to appoint at least one female executive by 2025, aim to have at least 30 percent female executives by 2023, and formulate an action plan to achieve such goals. The Revisions implement the plan published in June 2023, by Japan’s Council for Gender Equality, as discussed in our June update.

Australia Explores a Carbon Border Adjustment Mechanism

In a speech on August 15, 2023, Australia’s Minister for Climate Change and Energy announced that his department will undertake a review of carbon leakage policy responses, including a carbon border adjustment mechanism—similar to what the EU has adopted—for the steel and cement industries. The review will culminate in a report that the Minister expects to be published in late 2024.

New Zealand Establishes Climate Fund to Support Goal to Reach 100 Percent Renewable Electricity

On August 8, 2023, Prime Minister Chris Hipkins and Minister of Energy and Resources Megan Woods unveiled New Zealand’s first net zero fund, which will deploy up to $2 billion to accelerate the growth of renewable energy generation such as solar, wind, and green hydrogen, with the goal to make New Zealand one of the first countries in the world that generates 100 percent renewable electricity.

International Sustainability Standards Board (ISSB) Publishes Draft Disclosure Taxonomy

On July 27, 2023, the ISSB published a Proposed International Financial Reporting Standards (IFRS) Sustainability Disclosure Taxonomy (Proposed Taxonomy) to support the implementation of its recently published IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, which were summarized in our June update and discussed at greater length in our Client Alert. In order to promote the aims of the Proposed Taxonomy to reflect the disclosure requirements in IFRS S1 and IFRS S2 and to facilitate the consumption of sustainability-related financial information digitally, the Proposed Taxonomy follows best XBRL modelling practice to maximize the likelihood that it can be used effectively with other financial reporting taxonomies. ISSB will consider written comments to the Proposed Taxonomy that it receives by September 26, 2023, which can be submitted via email to commentletters@ifrs.org or online at https://www.ifrs.org/projects/open-for-comment/.

2023 Proxy Proposal Report

Between January 1, 2023, and August 18, 2023, 241 companies in the S&P 500 held annual meetings. Those companies received 630 Rule 14a-8 stockholder proposals, 110 proposals related to environmental issues, 278 proposals related to social issues, and 181 proposals related to corporate governance issues.

Stockholders have voted to approve one environmental, six social, and 14 governance proposals, for a total of 21 proposals so far this year. Based on these statistics, shareholder proposal activity is down significantly this year, as compared to the same period in 2022. Between January 1, 2022, and August 18, 2022, comparatively, a total of 44 shareholder proposals related to ESG passed, marking a 53 percent decline in shareholder proposal passage year over year. Notably, passage of environmental proposals was down most significantly, from nine in 2022 for an 89 percent decline, while social issues were down from 14 in 2022, a 57 percent decline. Governance proposals also saw a more modest decline, from 17 in 2022, or 19 percent.

We will continue to monitor ESG-related Rule 14a-8 proposals as this proxy season comes to an end.

Department of Labor (DOL) Strengthens Davis-Bacon Rules

On August 8, 2023, the DOL issued a rule to update prevailing wage requirements for federally-funded construction projects under the Davis-Bacon Act. Through the rule, which marks the first comprehensive update to prevailing-wage requirements in over 40 years, the DOL intends to ensure that wages paid on federally-funded construction projects do not lag wages paid on local, nonfederal projects. The rule changes the DOL definition of “prevailing wage” to prevent the prevailing wage calculation from being pulled down in instances in which a few employers pay very little. Additionally, the rule makes it easier for the DOL to update prevailing wages. Previously, prevailing wages could only be updated after the DOL conducted a study of prevailing wages with contractors and other local parties. The rule allows the DOL to bypass the study requirement and adopt prevailing wages determined by state and local governments. Under the rule, the DOL may also issue wage determinations in instances in which the study process produced insufficient wages, and may update outdated wage rates.

Study Concludes That the Rate of S&P 500 Board Appointments for Black Directors Is Decreasing

Spencer Stuart, an executive search and leadership firm, published the results of its 2023 S&P 500 New Director and Diversity Snapshot study. The study found that the share of newly appointed directors on S&P 500 boards that are Black or African American dropped from 26 percent in 2022 to 15 percent in 2023.

Held v. Montana Update

On August 14, 2023, Montana District Court Judge Kathy Seeley issued a 103-page ruling after holding a two-week trial that we previously discussed in our June update. Judge Seeley held, among other things, that: 1) Montana’s greenhouse gas emissions (GHG) are fairly traceable to a provision of Montana law that “forbids the State and its agents from considering the impacts of [GHG] emissions or climate change in their environmental reviews” (the MEPA Limitation); 2) Montana’s GHG emissions and climate change are a substantial factor in causing climate impacts to Montana’s environment and harm and injury to the plaintiffs; 3) the plaintiffs have a constitutional right to a clean and healthful environment, which includes the climate; and 4) the MEPA Limitation is unconstitutional and enjoined. The office of Montana’s Attorney General said that the State plans to appeal the ruling.

Fearless Fund Lawsuit Challenges the Use of Race- and Gender-Focused Investment Criteria

On August 2, 2023, the American Alliance for Equal Rights (AAER) filed a lawsuit against Fearless Fund, LLC and its affiliates (Fearless Fund), an Atlanta-based venture capital fund that invests in businesses led by women of color. AAER alleges that Fearless Fund operates a racially discriminatory program, in violation of Section 1981 of the Civil Rights Act of 1866, by granting awards of $20,000 exclusively to businesses owned by black women. AAER seeks to prohibit such actions and obtain a temporary restraining order and preliminary injunction against the fund in order to prevent Fearless Fund from identifying its next grant recipients. AAER also represented the plaintiffs in the recent Harvard College and University of North Carolina Supreme Court cases outlawing affirmative action in college admissions.

Plaintiff Alleges That Target Corporation (Target) Made “False and Misleading” Statements Related to ESG-Related Risks

The America First Legal Foundation filed a lawsuit alleging that Target misled investors about its oversight of ESG-related risks in its proxy statements after Target faced controversy related to its Pride Month products and marketing. This lawsuit is the continuation of one example, among several recent examples, of the politicization of corporate marketing initiatives.

U.S. Supreme Court Addresses Race-Conscious Policies in University Admissions and Religious Accommodations in the Workplace

On June 29, 2023, the U.S. Supreme Court decided Students for Fair Admission, Inc. v. President and Fellows of Harvard College, holding that the race-conscious affirmative action programs of Harvard University and the University of North Carolina violated the equal protection clause of the U.S. Constitution. Based on this decision, public schools using race-conscious policies must be prepared to provide an “exceedingly persuasive justification that is measurable and concrete enough to permit judicial review” and there must be “the most exact connection between justification and classification” in order to satisfy strict scrutiny under the Constitution. In this decision, the Court did not address the use of Diversity, Equity, and Inclusion (DEI) programs in the workplace or employer efforts to foster diverse and inclusive workplaces. Even so, employers should continue to implement and manage DEI programs with the advice of counsel as such programs may implicate a number of federal, state, and local laws.

On the same day, the U.S. Supreme Court issued its decision in Groff v. DeJoy Postmaster General, creating a new and much higher standard for assessing religious accommodation requests in the workplace. Based on this new decision, employers can only deny such requests if satisfying the request would result in substantial increased costs in relation to the conduct of an employer’s particular business. Prior to this decision, courts had analyzed religious accommodation requests based on whether they would require an employer to bear more than a de minimis cost. The new standard established by Groff is far more employee-friendly that the prior standard. It also is ambiguous. As a result, it likely will require litigation over a period of time to inform how the new standard will be applied and what constitutes a significant enough cost to justify the denial of an accommodation request.

Questions about these decisions, religious accommodations, and DEI programs can be addressed by Wilson Sonsini's employment and trade secret litigation group. For more information, please contact Rico Rosales, Marina Tsatalis, Jason Storck, Rebecca Stuart, or another member of the employment and trade secret litigation group.

United Kingdom (UK) Court Refuses to Reconsider ClientEarth’s Derivative Claim Against Shell

On July 12, 2023, ClientEarth, which holds 27 shares of Shell Plc (Shell), asked the English High Court (the Court) at an oral hearing to reconsider its climate-related application for a derivative claim against Shell, which was originally dismissed by the Court in May 2023. Judicial permission for a derivative claim was required in this case since generally UK company law requires that a company—through its constitutional organs rather than its shareholders—pursue a cause of action against its directors for a breach of duty. On July 24, 2023, the Court confirmed its judgment and denied ClientEarth’s application for reconsideration. The Court found that it must dismiss an application if, inter alia, the shareholder is not acting in good faith in seeking to continue the claim, such as “where the primary purpose of bringing the claim is an ulterior motive in the form of advancing ClientEarth’s own policy agenda with the consequence that, but for that purpose, the claim would not have been brought at all ....”

For more information on the original claim, please see our March and June updates.

Top Democrat on House Financial Services Committee Urges Financial Services CEOs to Continue Diversity Programs

On August 7, 2023, Rep. Maxine Waters (D-CA), the highest-ranking Democrat on the House Financial Services Committee, wrote a letter to the CEOs of the major financial services companies, urging the CEOs to continue corporate DEI programs. In the letter, Rep. Waters noted that corporate DEI programs in the financial services sector had succeeded in increasing representation for women and people of color. The letter also pointed to the continued underrepresentation of women and people of color at senior positions in financial services companies as justification for their continued use. The letter was written in response to an earlier letter sent to the CEOs by Republican Attorneys General, which advocated against the companies’ continued use of DEI programs.

Wilson Sonsini Receives an “A” Grade from the Law Students for Climate Accountability

Law Students for Climate Accountability released their 2023 Climate Scorecard, which grades Vault 100 firms according to their litigation, transactional, and lobbying work, and gave Wilson Sonsini an “A” Grade. Wilson Sonsini was one of only five firms that received an “A” grade. Please see our news article for more information.

Wilson Sonsini Participates in Discussion on Corporate Efforts to Promote Diversity

On July 31, 2023, Wilson Sonsini partner Marina Tsatalis participated on a panel entitled Race, Religion, and the Corporation: What Could Possibly Go Wrong?, which discussed two Supreme Court decisions issued on June 29, 2023, that promise to fundamentally reshape the relationship between employers and employees.

Wilson Sonsini Supports Renewable Energy Markets (REM) 2023

Organized by the nonprofit Center for Resource Solutions, REM has been the leading conference for the clean energy marketplace since 1997 by bringing together leaders from federal and state governments, large corporate purchasers, the nation’s leading utilities and electricity generators, and marketers from around the world. Wilson Sonsini is a proud supporter of Renewable Energy Markets 2023, which will take place September 18-20, 2023, in Washington, D.C.

Wilson Sonsini Advises Leap on $12 Million Investment

On July 18, 2023, Leap, a leading platform for energy market access, announced that it secured $12 million in equity financing. Wilson Sonsini represented Leap in the transaction. Please see our client highlight for more information.