United States

California Legislature Passes Climate Corporate Data Accountability Act

Earlier this month, the California legislature approved SB 253, the Climate Corporate Data Accountability Act (SB 253). Starting in 2026, “reporting entities” must report their scope 1 (direct) and scope 2 (purchase and consumption of energy) emissions for the prior fiscal year and annually thereafter. A “reporting entity” under SB 253 is: 1) a partnership, corporation, limited liability company, or other business entity formed under the laws of the State of California, the law of any other state of the United States (U.S.) or the District of Columbia, or under an act of the Congress of the U.S.; 2) with total annual revenue above $1 billion (based on the company’s revenue for the prior fiscal year); and 3) that does business in California. Governor Newsom previously announced his intention to sign SB 253.

Please see our client alert for more information on SB 253.

California Legislature Approves Climate-Related Financial Risk Disclosures

Earlier this month, the California legislature approved SB 261, Greenhouse gases: climate-related financial risk (SB 261). SB 261 will require “reporting entities” to prepare a climate-related financial risk report describing the company’s climate-related financial risk and risk mitigation measures by January 1, 2026, and biennially thereafter. A “reporting entity” under SB 261 is: 1) a partnership, corporation, limited liability company, or other business entity formed under the laws of the State of California, the law of any other state of the U.S. or the District of Columbia, or under an act of the Congress of the U.S.; 2) with total annual revenue above $500 million (based on the company’s revenue for the prior fiscal year); and 3) that does business in California. Governor Newsom previously announced his intention to sign SB 261.

Please see our client alert for more information on SB 261.

California Prepares First-of-Its-Kind Food Additive Ban in the U.S.

Beginning in 2027, California Assembly Bill 418 (AB 418), The California Food Safety Act, will ban brominated vegetable oil, potassium bromate, propylparaben, and red dye 3 from foods in California due to associated health risks. AB 418 aims to correct what some consider to be a loophole in regulation by the U.S. Food and Drug Administration (FDA). In contrast to the U.S., the European Union (EU) already prohibits these substances as food additives due to associated health risks including cancer, pediatric behavioral and developmental issues, and reproductive harm. While red dye 3 is also banned by FDA from use in cosmetics, it currently is permissible in the U.S. as a food additive.

Please see our client alert for more information on AB 418.

California Legislators and Governor Agree on Clean Energy Legislative Package

In an effort to meet California’s goal of deploying 25 gigawatts of offshore wind generation and achieving zero-carbon electricity sales by 2045, California legislators passed Assembly Bill 1373, a clean energy legislative package intended to accelerate the state’s nascent offshore wind industry by creating a central buyer to procure clean electricity, including electricity from offshore wind. Governor Newsom previously announced his support for the legislative package, and he is expected to sign the bill.

U.S. Securities and Exchange Commission’s (SEC’s) Investor Advisory Committee (IAC) Recommends Enhanced Human Capital Management (HCM) Disclosure

On September 21, 2023, the IAC made two non-binding recommendations to the SEC. First, that the SEC update Regulation S-K Item 101(c) to require specific HCM data, including: 1) the number of people employed by the issuer, broken down by whether those people are full-time, part-time, or contingent workers; 2) turnover or comparable workforce stability metrics; 3) the total cost of the issuer’s workforce, broken down into major components of compensation; and 4) workforce demographic data sufficient to allow investors to understand the company’s efforts to access and develop new sources of talent, and to evaluate the effectiveness of these efforts. Second, that the SEC require narrative disclosure in Management Discussion & Analysis of how a company’s labor practices, compensation incentives, and staffing fit within the company’s broader strategy. According to the SEC’s Spring 2023 Rulemaking Agenda, the agency anticipates release of proposed HCM disclosure rules in October 2023.

Europe

Main Takeaways from the State of the Union Address by European Commission (EC) President Ursula von der Leyen

During her address on the State of the (European) Union on September 13, 2023, EC President Ursula von der Leyen announced that the EC will hold a series of “Clean Transition Dialogues” with industries in order to support every sector in building business models to achieve decarbonization. President von der Leyen also announced three key initiatives:

1. A “European Wind Power package” with three objectives: 1) acceleration of further fast-track permits for wind electricity generation; 2) improvement of the wind energy auction systems across the EU; and 3) increased focus on skills, access to finance, and stable supply chains in wind electricity generation.
2. Reducing reporting obligations by 25 percent for small- and medium-sized enterprises at the European level, with legislative proposals expected to be announced in October 2023.
3. An anti-subsidy investigation into electric cars coming from China. The EC alleges that the price of Chinese electric cars is kept artificially low by “huge state subsidies,” distorting the EU internal market.

Consultations Published by the EC on the Sustainable Finance Disclosure Regulation

On September 14, 2023, the EC launched both a targeted consultation and a public consultation, which will run until December 15, 2023, to seek feedback on the Sustainable Finance Disclosure Regulation (SFDR). The consultation focuses on issues around legal certainty, the useability of the regulation, and the regulation’s ability to play its part in tackling greenwashing. The targeted consultation will gather input from public bodies and stakeholders who are more familiar with the SFDR and the EU’s sustainable finance framework as a whole.

United Kingdom (UK) Sustainability Disclosure Regime Under Development

On August 2, 2023, the UK announced its intention to create the UK Sustainability Disclosure Standards (SDS). The aim of the UK SDS is to form the basis of any future requirements in UK legislation or regulation for companies to report on risks and opportunities relating to sustainability matters, including those arising from climate change. In order to facilitate interoperability and to provide globally comparable information for investors, the UK SDS will be based on the recently-published SDS issued by the International Sustainability Standards Board (ISSB).

Please see our client alert for more detail on the SDS published by the ISSB.

Other International

New ESG Standards Coming into Effect in South Korea

Beginning on September 1, 2023, the South Korean self-regulatory organizations ESG Standards Institute, Korea ESG Research Institute, and Sustinvest implemented new ESG evaluation standards. The Measure to Enhance the Transparency and Reliability of the ESG Evaluation Market was previously announced by Korea’s Financial Services Commission on May 24, 2023, and is supported by the three major South Korean ESG rating agencies (Financial Services Commission, the Korea Exchange, and the Korea Capital Market Institute).

African Climate Summit Produces Signed Declaration Supporting a Global Carbon Tax

The inaugural African Climate Summit, which convened leaders of African nations to align on Africa’s climate priorities and advance a unified position on how to simultaneously mitigate climate change and eradicate poverty, concluded on September 6, 2023. The summit resulted in a Declaration on Climate Change and Call to Action (the Declaration). The Declaration advocated for the establishment of a global carbon tax on fossil fuels, maritime transport, and aviation, and affirmed Africa’s commitment to the success of the upcoming COP28 conference in Abu Dhabi.

G20 Summit Produces Agreement to Triple Renewable Energy

On September 9, 2023, at the G20 summit in New Delhi, India, leaders of the G20 nations agreed to collaborate on efforts to triple new global renewable energy capacity by 2030. The leaders further agreed to pursue the deployment of abatement and removal technologies.

The ISSB Announces the Members of Its Transition Implementation Group (TIG) for Its First Sustainability Disclosure Standards

On September 14, 2023, the ISSB announced the members of its TIG on IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The TIG includes members from disclosure preparers and assurance providers, who represent jurisdictions from around the world. The TIG aims to provide a public forum for stakeholders to share implementation questions, follow discussion of such questions, and provide supporting materials such as webinars, case studies, and other educational material.

California Supreme Court Rules Employees Can Pursue Private Attorneys General Act (PAGA) Claims on Behalf of Other Aggrieved Employees in Court Despite Arbitration Agreement

Earlier this year, the California Supreme Court ruled that where an employee has brought a California PAGA action against their employer that is comprised of both individual and non-individual (representative) claims, a court order compelling arbitration of the employee’s individual claims “does not strip the [employee] of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.” The court’s decision has significant implications for California employers. In 2022, the U.S. Supreme Court held essentially the opposite—that where an enforceable arbitration agreement exists, a court could compel an employee to litigate individual claims in arbitration and that, when it did so, the employee could no longer pursue any representative claims in court and the court should dismiss any such representative claims. As a result of this new decision, California employers can expect to see an increase in costly PAGA actions. Many companies have faced criticism for requiring mandatory arbitration with employees that shielded those companies from public scrutiny. This ruling by the California Supreme Court may provide a channel for employees to bring issues into the public domain even if those employees have signed mandatory arbitration agreements.

Please see our client alert for a detailed discussion regarding the California Supreme Court’s decision.

U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS) Release Proposed Rules on the Prevailing Wage and Apprenticeship Requirements

On August 29, 2023, the Treasury and the IRS released proposed regulations and accompanying frequently asked questions regarding the “prevailing wage” and “apprenticeship” requirements that taxpayers must satisfy to claim a 5x multiplier for certain credits and deductions, as established by the Inflation Reduction Act of 2022 (IRA). These proposed regulations affect taxpayers’ ability to obtain the 5x multiplier under a number of code sections, including the Alternative Fuel/EV Charger Credit, the New Energy Efficient Homes Credit, and Carbon Sequestration Credit. The proposed regulations provide helpful guidance as to when and how wage determinations are made for laborers and mechanics who are engaged in construction, alteration, or repair work with respect to qualified energy facilities and projects. The proposed regulations also provide much-needed guidance on a cure process that taxpayers can use to cure any failure to meet prevailing wage requirements for such laborers and mechanics.

Separately, the proposed regulations provide guidance on the three tests taxpayers must meet to satisfy the apprenticeship requirement. As detailed in our client alert, the apprenticeship requirement mandates that taxpayers: 1) ensure at least an applicable percentage of the total labor hours performed with respect to a qualified facility are performed by qualified apprentices; 2) ensure that any applicable “apprenticeship-to-journeyworker” ratios are satisfied; and 3) employ at least one qualified apprentice if four or more individuals are employed to perform construction, alteration, or repair work on a qualified facility. Similar to the prevailing wage rules, the proposed regulations provide helpful guidance for taxpayers to cure any failure to satisfy the apprenticeship requirements, as well as requirements that taxpayers must satisfy to meet a “good faith exception” to complying with the apprenticeship rules. The Treasury and the IRS have requested comments on the proposed regulations by October 29, 2023.

U.S. Court of Appeals for the District of Columbia Hears Oral Arguments on Challenge to the U.S. Environmental Protection Agency (EPA) Vehicle Emissions Rule

On September 14, 2023, a three-judge panel in the U.S. Court of Appeals for the District of Columbia heard oral arguments in Texas v. EPA. The case was brought by Attorneys General from Republican-led states in an effort to overturn the EPA’s 2021 promulgation of emission standards for light duty vehicles model year 2023 and later, published at 86 Fed. Reg. 74,434 (Dec. 30, 2021). As part of the suit, the Attorneys General have asked the court to assess whether the rule is authorized under Section 202(a) of the Clean Air Act.

California Files Suit Against Major Oil Companies

On September 15, 2023, California’s Attorney General filed a complaint in San Francisco County Superior Court against several of the world’s largest oil companies. The complaint alleges, among other things, that the companies created a public nuisance by “creating harmful climate-related conditions throughout California,” made misleading environmental marketing claims that fossil fuel products were “low carbon” or “green,” and failed to warn consumers about the climate-impacts of their products.

Some of the oil companies named in the complaint were previously named in a lawsuit filed by the cities of Oakland and San Francisco, California in the Federal District Court in San Francisco, alleging that the companies had created a public nuisance. The previous lawsuit was dismissed in a 16-page order on June 25, 2018.

U.S. Department of Energy (DOE) Loan Programs Office (LPO) Announces Conditional Commitment for Storage Plant

On August 31, 2023, the DOE’s LPO announced a conditional loan commitment of up to $398.6 million to Eos Energy Enterprises, Inc. (Eos) for the construction of a facility to produce utility-scale zinc-bromine battery energy storage systems in Turtle Creek, Pennsylvania. The loan will be made through the Title 17 Clean Energy Financing Program, which received additional loan funding under the IRA. Eventually, Eos plans to source nearly all of the materials used to manufacture the batteries in the U.S.

Please see our Federal Funding Database for more information on LPO awards.

Wilson Sonsini Participates in Stanford Law School Panel on the IRA

At a recent Stanford Lawyers for Sustainability Initiative webinar on “Inflation Reduction Act: Direct Pay and Other Opportunities for Early-Stage Entrepreneurs,” Wilson Sonsini attorneys joined Emma Hutchinson of the Office of Public Affairs with the DOE and discussed how early-stage entrepreneurs can benefit from the Direct Pay provisions in the IRA.