The Nickel Report

A set of mandatory environmental, social, and governance (ESG) reporting standards, the European Sustainability Reporting Standards (ESRS), are set to enter into force in the European Union (EU) at the end of this year.  These standards were adopted by the European Commission, the EU’s executive branch, on July 31, 2023 and, barring rejection by the European Parliament or the European Council, will be implemented as part of the EU’s Corporate Sustainability Reporting Directive (CSRD) – a fundamental pillar of the broad “EU Green Deal” – which requires mandatory ESG reporting for certain companies that do business in the EU.  This summary provides an overview of who is subject to the CSRD and when, summarizes key information covered under this initial set of standards, highlights technical guidance from the entity that created the standards, and discusses planned future development of additional standards.

The Greenhouse Gas (GHG) Protocol Corporate Standard and related guidance are widely accepted as leading sources for companies to use in quantifying and reporting their GHG emissions. Companies report GHG emissions for a number of reasons (both legally mandated and voluntary) and in a number of contexts. Accurate accounting and reporting is critical because inaccuracies in emissions reporting can potentially expose the reporting entity to several types of legal liability, as evidenced by the recent proliferation of lawsuits alleging “greenwashing” claims and increasing regulatory scrutiny in this area.

President Biden issued his first veto today. Biden’s veto returns to Congress a joint resolution that attempts to nullify a recent rule from the Department of Labor regarding consideration of Environmental, Social, and Governance (ESG) factors when investing in retirement accounts. This rule went into effect on January 30, 2023, and allows for retirement plan fiduciaries to consider ESG factors when selecting investments and exercising shareholder rights. Some have said ESG investing is controversial because it allows for retirement plan fiduciaries to consider factors such as climate change and equity instead of focusing solely on maximizing financial returns; while others have argued that past measures prohibiting the consideration of ESG factors are equally problematic.

On November 28, 2022, the Council of the European Union (EU) formally adopted the Corporate Sustainability Reporting Directive (CSRD), following the European Parliament’s formal adoption of the directive earlier last month. The CSRD is a broad environmental, social, and governance (ESG) reporting framework that will impose uniform, mandatory reporting requirements on many companies with European operations, including companies not based in Europe.

We have written extensively on the US Securities and Exchange Commission (SEC) proposal to require that public companies disclose climate-related information and other environment, social, and corporate governance (ESG) trends. However, the European Union (EU) is at the vanguard of emerging requirements focused on climate-related information and broader ESG-aligned information.

On September 22, 2021, the Division of Corporation Finance (Division) of the Securities and Exchange Commission (SEC) issued a sample comment letter to highlight its increased focus on climate change-related disclosures or the absence of such disclosures in issuer filings under the Securities Act and the Exchange Act. This sample comment letter follows a recent increase in climate-related comments the Division has issued during the disclosure review process, and many of the sample comments appear to be derived from actual comment letters issued in 2021. The sample is consistent with the SEC’s 2010 Guidance Regarding Disclosure Related to Climate Change, which does not mandate specific, line item climate change-related disclosures, but instead takes a principles-based approach.

In a recent post, we discussed the various risks, trending issues, and emerging concerns arising from environmental, social, and corporate governance factors (“ESG”). As noted previously, neglecting ESG considerations can result in a number of risks to a company, including risks associated with the reputational, financial, and legal impacts of handling ESG issues poorly. We also observed how managing ESG issues well can enhance corporate value and performance, and create competitive advantages for companies. Given these emerging risks and opportunities, it is perhaps unsurprising that ESG has begun to play a larger role in the M&A context in recent years.

In a recent post (“Environmental, Social and Corporate Governance: What are the Risks, Really?”), we discussed the various risks, trending issues, and emerging concerns arising from environmental, social, and corporate governance (“ESG”). One key takeaway is that ESG-related activity at the federal government is just getting started and that agencies have already begun devoting substantial resources to ESG issues, like the U.S. Securities and Exchange Commission’s recently-announced Climate and ESG task force to “develop initiatives to proactively identify ESG-related misconduct.”

As noted previously in the October 2020 edition of Baseload, the capital markets have seen explosive growth in the issuance of ESG debt in recent years. The advantages to utilities have been generally twofold: (1) provide access to a larger investor base than would otherwise be available (i.e. those investors with ESG-focused criteria) and (2) provide evidence of good corporate citizenship regarding certain of the issuer’s projects.

Environmental, social and corporate governance (ESG) – like climate change and environmental justice – has been a hot topic of discussion in the early days of the Biden administration. Illustrating the interconnectedness of the trending issues, climate change and environmental justice are pillars of ESG.

As the Biden Administration settles in and begins to appoint its designees to key executive and administrative agencies, a series of policy objectives are coming into focus.  Chief among them is expanded attention and regulation in the ESG space regarding environmental, social and governance issues at American businesses. In this post, we survey the expected direction of these initiatives at, for example, the SEC, Department of Labor, and EPA.