United States

California Governor Gavin Newsom Signs ESG Disclosure Bills

On October 7 and 8, 2023, California Governor Gavin Newsom signed three bills that will require companies and investors to provide new disclosure. Senate Bill 253, the Climate Corporate Data Accountability Act (SB 253) will require companies that do business in California and have annual revenue over $1 billion to annually disclose, via reports provided to California’s State Air Resources Board, their Scope 1 and Scope 2 emissions beginning in 2026. Senate Bill 261, Greenhouse gases: climate-related financial risk (SB 261) will require companies that do business in California and have annual revenue over $500 million to biennially disclose, via climate risk reports provided to California’s State Air Resources Board, climate-related financial risk and measures taken to reduce and adapt to such climate-related financial risk beginning in 2026. Senate Bill 54, Venture capital companies: reporting (SB 54) will require covered venture capital companies to annually report certain diversity information beginning on March 1, 2025, by submitting a report to California’s Civil Rights Department.

Please see our client alert for more information on SB 253, SB 261, and SB 54.

Europe

Transitional Phase of the European Union’s (EU) Carbon Border Adjustment Mechanism Begins

On October 1, 2023, the transitional phase of the EU’s Carbon Border Adjustment Mechanism (CBAM) started to apply to EU importers of iron, steel, cement, aluminum, fertilizer, hydrogen, and electricity.

As discussed in our May update, the EU had adopted the CBAM aiming to ensure that the carbon price of imports is equivalent to the carbon price of domestic production, subject to the EU’s Emissions Trading System. To that end, EU importers will be required to buy “carbon certificates” which match the carbon pricing for these goods had they been produced in the EU.

For this transitional phase, EU importers will only have to report, by January 31, 2024, on the emissions embedded in their imports for the fourth quarter of 2023 without paying any financial adjustment. This transitional phase is intended as a learning period to allow the European Commission to collect useful information on embedded emissions in order to refine its methodology for the definitive period. This starts in 2026 and will require importers to buy and surrender the carbon certificates corresponding to the greenhouse gas emissions embedded in their imported goods.

Taskforce on Nature-related Financial Disclosures (TNFD) Publishes Recommendations for Nature-Related Disclosures

In September 2023, the TNFD published recommendations for nature-related disclosures. The recommendations were developed as part of the 2022 Global Biodiversity Framework that almost 200 countries adopted in an effort to better protect nature. The recommendations are intended to help companies develop and implement strategies to reduce negative impacts to nature. The latest recommendations include disclosures about the metrics and targets used to assess and manage nature-related risks and opportunities, the processes used by an organization to identify and prioritize nature-related dependencies, the effects of nature-related dependencies on the organization’s business model and financial planning, and disclosures describing how an organization governs nature-related dependencies, impacts, risks, and opportunities.

Financial Accounting Standards Board (FASB) Moves Closer to Adopting Accounting Rules for Environmental Credits

On October 11, 2023, the FASB moved one step closer to developing clear accounting rules for companies that use renewable energy credits, carbon offsets, or cap-and-trade programs. U.S. accounting rules do not currently provide guidance to companies that use such credits to reduce pollution or increase their green energy use. The FASB met to address this ambiguity and published guidance determining that credit certificates, allowances, and offsets will be considered qualifying environmental credits under potential new accounting rules. The credits will need to be legally enforceable, tradeable and represent the prevention, control, reduction, or removal of emissions or other pollution. The FASB further noted that investments in renewable energy structures or entities, tax credits, or tax incentives will not be covered.

5th Circuit Court of Appeals Upholds Nasdaq’s Diversity Disclosure Rules

On October 18, 2023, a three-judge panel on the U.S. Court of Appeals for the Fifth Circuit upheld the Nasdaq Stock Market, LLC’s (Nasdaq) board diversity disclosure and board recruiting service rules. The opinion held, among other things, that Nasdaq is not a state actor subject to constitutional constraints, that the rules promulgated by Nasdaq are not attributable to the government, and that the U.S. Securities and Exchange Commission acted within its authority under the Securities Exchange Act of 1934 in approving Nasdaq’s rules. The opinion has been appealed to the full Fifth Circuit Court of Appeals.

Wilson Sonsini Represents Justice Climate Fund in Twin Greenhouse Gas Reduction Fund Applications

On October 12, 2023, Justice Climate Fund, the lead applicant of a transformational 28-member coalition representing more than 1,243 Community Lenders, Green Banks, and Innovation Funds focused on scaling green finance across the U.S. and its territories, including in low income and disadvantaged communities (LIDACs), submitted applications for the U.S. Environmental Protection Agency’s National Clean Investment Fund and Clean Communities Investment Accelerator grants. Wilson Sonsini advised Justice Climate on its Coalition and fund structuring, all related transactional documents, and the applications. The Coalition includes leading African American, Latino/Hispanic, Asian, and Native American intermediaries for Community Development Financial Institutions and other Community Lenders. Unique aspects of the work include the novel fund structure, the private capital leveraged, the scope and scale of the emissions reductions and community benefits, and the commitment to LIDACs.

Wilson Sonsini Advises Arbor Energy on $9 Million Seed Round

On September 7, 2023, digital energy company Arbor Energy announced that it had raised a $9 million seed round. Arbor is the first robo-advisor for energy, saving people an estimated $500 in the first year of service by monitoring how much they pay for energy and helping them automatically switch to a cheaper rate with the same utility. Wilson Sonsini advised Arbor on the transaction.

Wilson Sonsini Launches Inflation Reduction Act of 2022 (IRA) Resource

Wilson Sonsini is proud to announce the launch of our new IRA Resource, a single-source digital platform of relevant information related to IRA implementation. The site brings together the firm’s publications, client alerts, webinars and speaking engagements, IRA implementation tracker, and clean energy federal funding database that can provide clients with actionable insights to help unlock the benefits for solar and wind; batteries and energy storage; carbon capture, use, and sequestration; industrial decarbonization; electric vehicles and charging infrastructure; hydrogen; nuclear; advanced manufacturing; and energy efficiency.