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.
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:
- 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.
- 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.
- 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.
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.