Gibson Dunn Environmental, Social and Governance Update (October 2024)

Client Alert  |  November 7, 2024

We are pleased to provide you with Gibson Dunn’s ESG update covering the following key developments during October 2024. Please click on the links below for further details.

I. GLOBAL

  1. Taskforce on Nature-related Financial Disclosures (TNFD) publishes guidance on nature transition planning

On October 27, 2024, the TNFD published guidance on drafting a nature transition plan. The paper also defines a nature transition plan and explains how to disclose it in accordance with the TNFD recommended disclosures. Specifically, a nature transition plan is a plan laying out the organization’s goals, targets, actions, and other accountability mechanisms to respond and contribute to the transition set out by the Global Biodiversity Framework (GBF). The GBF’s transition is to halt and reverse biodiversity loss by 2030 and put nature on a path to recovery by 2050. In creating the draft guidance, the TNFD states it built on current market practice for climate transition planning.

  1. International Sustainability Standards Board (ISSB) finalizes updates to the Sustainability Accounting Standards Board (SASB) Standards Taxonomy

In October 2024, the ISSB published updates to incorporate amendments previously made to the SASB Standards. First, in June 2023, amendments were adopted to align the SASB standards with the International Financial Reporting Standards (IFRS) S2 Climate-related Disclosures. The IFRS S2 sets out the requirements for disclosing information about climate-related risks to which the entity is exposed, as well as climate-related opportunities available to the entity. Second, in December 2023, amendments were made to improve the international applicability of the SASB standards. These amendments apply to non-climate-related content and were designed to aid preparers in applying the standards regardless of the jurisdiction in which they operate or the accounting principles used. The updates are also intended to support consistency between the SASB and other standards, such as the IFRS Sustainability Disclosure Taxonomy.

II. UNITED KINGDOM

  1. UK Government issues response on UK Carbon Border Adjustment Mechanism (UK CBAM) consultation

On October 30, 2024, the UK Government published its response to the UK CBAM consultation. UK CBAM is intended to ensure that “highly traded, carbon intensive” imported goods are subject to a carbon price that is comparable to goods produced in the UK. The Government confirmed that it would introduce UK CBAM on January 1, 2027, initially applying to goods imported from the aluminum, cement, fertilizer, hydrogen, iron and steel sectors. The sectoral scope will remain under review and products from the glass and ceramic sectors will be considered for future inclusion. It would apply to “direct” and “indirect” (including certain “precursor”) product emissions, and the overall UK CBAM liability is intended to account for carbon prices applicable in other jurisdictions.

  1. New duty on UK employers to prevent sexual harassment in the workplace comes into force

On October 26, 2024, the Worker Protection (Amendment of Equality 2010) Act 2023, which places a new positive and anticipatory legal duty on UK employers to take “reasonable steps” to prevent sexual harassment in the workplace, came into force. Guidance suggests the duty covers sexual harassment by clients, customers and other third parties (not just by other employees). Under the new rules, the Employment Tribunal will have the power to uplift compensation for harassment by a maximum of 25% where an employer is found to have breached this duty. The Equality and Human Rights Commission has provided guidelines on the reasonable steps employers can take to identify risks and prevent sexual harassment, including: (i) developing effective anti-harassment policies; (ii) adopting a zero-tolerance approach; (iii) conducting risk assessments; (iv) training staff on dealing with potential incidents; and (v) monitoring complaints and outcomes.

We note that the Employment Rights Bill (discussed below) expands the employer’s obligation by requiring them to take “all reasonable steps” to prevent sexual harassment in the workplace.

  1. Institute of Directors publishes a voluntary code of conduct for directors

Following a public consultation undertaken between June and August 2024, on October 23, 2024, the Institute of Directors launched a Code of Conduct to help directors of UK companies make better decisions and to provide organizational leaders with a behavioral framework to help them build and maintain the trust of the wider public in their business activities. The voluntary Code is structured around the following six key principles of director conduct: (1) leading by example: demonstrating exemplary standards of behavior in personal conduct and decision-making; (2) integrity: acting with honesty, adhering to strong ethical values, and doing the right thing; (3) transparency: communicating, acting and making decisions openly, honestly and clearly; (4) accountability: taking personal responsibility for actions and their consequences; (5) fairness: treating people equitably, without discrimination or bias; and (6) responsible business: integrating ethical and sustainable practices into business decisions, taking into account societal and environmental impacts.

  1. House of Lords Select Committee publishes its report on The Modern Slavery Act

On October 16, 2024, the House of Lords Modern Slavery Act 2015 Committee published a report on the Modern Slavery Act 2015. In the report titled “The Modern Slavery Act 2015: becoming world-leading again,” the Select Committee recommends: (i) that the UK Government’s immigration policy and legislation should recognize and consider the difference between migrants who come to the UK willingly and those who have come because they have been trafficked; (ii) creation of an arms-length single enforcement body to ensure stronger compliance with relevant labor rights and standards, which should act as a single point of contact for labor exploitation across all sectors; and (iii) legislation requiring companies meeting the threshold to undertake modern slavery due diligence in their supply chains. The UK Government is required to respond by December 16, 2024.

  1. UK’s cap-and-floor scheme to support energy storage investment

On October 10, 2024, the UK Government announced a new scheme to promote investment in long duration electricity storage capacity, including for renewable energy sources. This announcement follows the UK Government’s 2024 consultation proposing a “cap-and-floor” scheme, which the Government believes would provide a guaranteed minimum income for developers, in return for a limit on revenues. The scheme is expected to open next year, with Ofgem acting as the regulator.

  1. UK Government publishes its Employment Rights Bill

On October 10, 2024, the UK Government published its Employment Rights Bill (the “Bill”). The Bill proposes enhancements to “Day One” employee rights including removing the qualifying periods for protection from unfair dismissal, flexible working, parental leave, paternity leave, and bereavement leave. The Bill also provides for sexual harassment to become a protected disclosure under whistleblowing laws, as well as changes: (i) to the controversial practice of dismissing and re-hiring employees as a means of unilaterally changing terms of employment; (ii) to the ability of employers to engage workers on “zero hours” contracts; and (iii) designed to strengthen employee rights and protections in connection with both collective redundancy situations (lay-offs) and business transfers, strategic sourcing transactions, and other transfers subject to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246). The Bill seeks to establish a single enforcement body for UK employment laws and an extension to the time limits for bringing employment claims before the Employment Tribunal. In addition, the Bill imposes further obligations on employers to address the gender pay gap, extend the gender pay gap regime to include race and disability and support employees going through menopause. The consultation process is expected to begin in 2025. Please see here for our detailed briefing.

  1. UK Government pledges £21.7 billion in funding for carbon capture and storage projects

On October 4, 2024, the UK Government announced that funding will be made available to launch the UK’s first carbon capture sites, which includes Teesside and Merseyside. Over the next 25 years, funding of up to £21.7 billion is expected to be made available to be allocated between carbon capture, use and storage, and hydrogen.

III. EUROPE

  1. Sustainability Statements among the European Securities and Markets Authority’s (ESMA) Key Three Enforcement Priorities

The initial reports under the Corporate Sustainability Reporting Directive (CSRD) are expected in reporting season on financial years ending December 31, 2024, i.e., in Q1/Q2 2025, and will be closely monitored by ESMA. The CSRD establishes a comprehensive reporting framework that includes more than 1,000 specific data points. On October 24, 2024, the ESMA outlined the European common enforcement priorities for the 2024 reporting period, highlighting sustainability statements as one of three key focus areas. ESMA, together with national enforcers in the EU, will pay particular attention to these areas when examining the application of the relevant reporting requirements. This comes alongside other important issues, including companies’ assessments of materiality and the disclosure of methodologies used to evaluate the materiality of certain topics.

  1. EU invests EUR 4.8 billion in Decarbonization Projects Funded by Carbon Pricing

The European Commission announced on October 23, 2024, that it has chosen 85 projects focused on decarbonization technologies to receive EUR 4.8 billion in grants funded through its EU Emissions Trading System (EU ETS). This is the fourth and largest round of the Innovation Fund, bringing the total amount awarded to date to EUR 12 billion. This latest round is notable for including projects of different sizes, from large and medium-scale initiatives to small and pilot projects. It also emphasizes the manufacturing of clean technologies, supporting the development and operation of production facilities for key components in wind and solar energy, heat pumps, electrolyzers, fuel cells, energy storage technologies and the battery supply chain. The Commission plans to announce the next call for proposals for the Innovation Fund in December 2024.

  1. EU Council agrees to delay the EU Deforestation Regulation (EUDR) Applicability by one year

On October 16, 2024, following a proposal by the European Commission on October 2, 2024, the Council of the European Union decided to extend the application timeline for the EUDR. The EUDR, which is directly applicable in all EU member states, in its current form starts to be effective from December 31, 2024 for large and medium sized companies and from June 30, 2025, for micro and small enterprises. In case the European Parliament ratifies the EU Council’s decision in its plenary session on November 13/14, 2024, the EUDR will only be phased-in for large and medium-sized companies on December 30, 2025, and for micro and small enterprises on June 30, 2026, allowing companies to better prepare for its vast array of requirements.

  1. Open letter urges EU to establish ambitious investment plan for climate and biodiversity goals

On October 9, 2024, a coalition of 47 businesses, civil society organizations, and investors published a letter, urging the EU to establish an investment plan to achieve its climate and biodiversity targets. The letter emphasizes the need for swift mobilization of public and private resources to limit global warming and preserve ecosystems. It is argued that a predictable regulatory framework is crucial to attract private investment necessary to facilitate the green transition. Thus, without a long-term strategy, the EU may risk losing its competitive edge and undermining the Clean Industrial Deal. Notable signatories of the open letter include World Wildlife Foundation, the European Environmental Bureau, and Uber.

  1. ESMA published first report on EU Carbon Markets for 2024

On October 7, 2024, ESMA published the first edition of its EU Carbon Markets report. The report will be published annually and provides an overview of the EU Emissions Trading System. According to the report, the prices in the EU Emissions Trading System have decreased significantly since the beginning of 2023. This is attributed to a combination of lower demand for EU emissions, falling natural gas prices and decarbonization of the European energy sector, along with increased supply following the decision to auction additional allowances to finance the REPowerEU plan. 

  1. CSRD Transposition is progressing

A new draft of the Luxembourg CSRD transposition law has been published. Enactment of the transposition laws in Poland and Spain is imminent. An overview of the transposition of CSRD into national laws can be found here.

IV. NORTH AMERICA

  1. U.S. House bill could alter the reporting of greenhouse gas emissions caused by federal legislation

On October 29, 2024, U.S. Representative Joe Neguse (D-CO) introduced H.R. 10074, a bill directing the Comptroller General of the United States, in coordination with the National Academy of Sciences, to study alternatives for a nonpartisan congressional office or agency to project the net greenhouse gas emissions likely to be caused by federal legislation. The bill also includes a provision for studying lessons that can be learned from states that have “successfully implemented carbon scoring for legislative proposals,” such as California. Co-sponsors of the bill include Representative Kathy Castor (D-Fl), Representative Sean Casten (D-IL), and Representative Jared Huffman (D-CA).

  1. The Hershey Company (Hershey) accused of material misrepresentations related to bubble gum product

On October 24, 2024, plaintiffs filed a class action complaint against Hershey alleging, among other claims, that the company violated provisions of the California Business and Professions Code by issuing false and misleading statements regarding the company’s products. The complaint targets Hershey’s claims regarding its commitment to the planet, communities, and children, and the plaintiff’s claim that testing shows that the company’s popular Bubble Yum Original Flavor Bubble Gum contains organic fluorine, perfluoroalkyl and polyfluoroalkyl (PFAS) chemicals in levels dangerous to the health of the children who are targets of company marketing. California law prohibits manufacturers from selling juvenile products containing PFAS substances.

  1. New York City Comptroller proposes fossil fuel ban in pension fund investing

On October 22, 2024, New York City Comptroller Brad Lander announced that his office will propose ceasing future investments in midstream and downstream infrastructure by New York City’s three public pension funds. The pension funds completed their exit from fossil fuel reserve investments in 2022, and this next proposal will be presented to the trustees of the funds in early 2025. This policy builds from previous action taken by Comptroller Lander and the trustees of several New York education retirement systems to decarbonize the holdings of those retirement funds.

  1. House of Representatives introduces Stop Woke Investing Act

On October 22, 2024, U.S. Representative Andy Biggs (R-AZ) introduced the Stop Woke Investing Act, which would require the U.S. Securities and Exchange Commission (the “SEC”) to allow companies to determine which shareholder proposals to include on their proxy cards and limit the number of shareholder proposals a company is required to include on its proxy card (the number to be determined by the company’s filing status). For example, a company that is a large accelerated filer would not need to include more than seven shareholder proposals, while a non-accelerated filer would not need to include more than two shareholder proposals. This bill is identical to the Stop Woke Investing Act introduced by Senator Eric Schmitt (R-MO) in late 2023 and referred to the Senate Banking, Housing and Urban Affairs committee (though the bill did not progress further).

  1. WisdomTree Asset Management, Inc. (WisdomTree) settles enforcement action related to ESG investment strategy

On October 21, 2024, the SEC charged investment advisor WisdomTree with making misstatements and failing to comply with the company’s own ESG investment strategy. The SEC’s order asserts that WisdomTree claimed in prospectuses for ESG-marketed funds that the funds would not invest in companies “involved in certain controversial products or activities,” including fossil fuels and tobacco. However, the SEC alleged that WisdomTree’s screening process was inadequate, resulting in the ESG-marketed funds investing in companies deriving revenues from fossil fuels and tobacco. The SEC’s order found that WisdomTree violated the antifraud provisions and the compliance rule in the Investment Advisers Act of 1940. WisdomTree consented to entry of the SEC’s final order and agreed to pay a $4 million penalty.

  1. SEC seeks comments on Green Impact Exchange, LLC (GIX) registration

On October 21, 2024, the SEC issued an order instituting proceedings to determine whether to grant or deny GIX’s application for registration as a national securities exchange. GIX filed its Form 1 application with the SEC on May 9, 2024, and seeks to operate a fully automated electronic equity trading platform. If the SEC grants GIX’s application, companies whose securities are listed on another national securities exchange may apply to list their securities on GIX. GIX proposes to require all companies listing their securities on the trading platform to comply with GIX’s Green Governance Standards. According to GIX’s Form 1 application (Exhibit H-5), these standards provide investors with information regarding the “quality of a listed company’s commitment to sustainable ways of doing business,” rather than enforcing targets or reporting frameworks. The SEC’s order requests comments from interested persons on or before November 15, 2024.

  1. Bill seeks to prevent federal agencies from considering the social cost of carbon and other greenhouse gases in agency action

On October 11, 2024, U.S. Representative Richard Hudson (R-NC) introduced the Transparency and Honesty in Energy Regulations Act of 2024. The bill seeks to prohibit federal agencies from considering the social cost of carbon, methane, nitrous oxide or any other greenhouse gas as part of any cost-benefit analysis, rulemaking, issuance of any guidance, agency action, or as a justification for any rulemaking, guidance document, or agency action. An additional section of the bill requires the head of each federal agency to submit a report to House and Senate committees detailing the number of proposed and final rulemakings, guidance documents or agency actions since January 2009, that have used the social cost of carbon or any of the other listed emissions or greenhouse gases. Twelve members, all Republicans, co-sponsored the proposed legislation.

  1. Canada to require mandatory climate disclosures for large companies and provide sustainable investment guidelines

On October 9, 2024, the Canadian government announced its intention to require mandatory climate-related financial disclosures. The purpose of these disclosures, which apply to large, federally incorporated private companies, is to “help investors better understand how large businesses are thinking about and managing risks related to climate change, ensuring that capital allocation aligns with the realities of a net-zero economy.” The specific information included in these disclosures is yet to be determined, but the disclosure requirements will be incorporated into the Canada Business Corporations Act through an amendment. The reporting requirements will not apply to small and medium-sized businesses. The government may encourage voluntary disclosure, however.

The Canadian government also announced its decision to introduce Made-in-Canada sustainable investment guidelines intended to serve as a tool for “investors, lenders, and other stakeholders navigating the global race to net-zero by credibly identifying ‘green’ and ‘transition’ economic activities.”

  1. U.S. Commodity Futures Trading Commission (CFTC) files lawsuit alleging carbon credit misrepresentations

On October 2, 2024, the CFTC filed a complaint in the U.S. District Court for the Southern District of New York against Kenneth Newcome, former chief executive officer and majority shareholder of carbon credit project developer C-Quest, alleging violations of securities laws. The complaint claims that Newcome “engaged in a fraudulent scheme that involved reporting false and misleading information to at least one carbon credit registry…to obtain carbon credits for beyond what the company was entitled to receive, and to increase the company’s revenue by millions of dollars.” The alleged violations occurred between 2019 and December 2023. As part of the remedy requested, the CFTC seeks orders requiring Newcome to pay a penalty, disgorge all benefits received from the alleged violations, and refrain from entering into future transactions involving certain commodities.

This complaint follows and relates to a CFTC order initiating administrative proceedings against CQC Impact Investors LLC (CQC) and an order initiating proceedings against Jason Steele, CQC’s former chief operating officer. Both orders were issued on September 30, 2024. For more on this CFTC action, see the CFTC press release relating to this matter.

In case you missed it…

The Gibson Dunn Workplace DEI Task Force has published its updates for October summarizing the latest key developments, media coverage, case updates, and legislation related to diversity, equity, and inclusion.

V. APAC

  1. Asia Investor Group on Climate Change (AIGCC) calls for ambitious energy targets in Japan’s 7th Strategic Energy Plan

On October 24, 2024, AIGCC submitted a position paper on Japan’s upcoming 7th Strategic Energy Plan. AIGCC urged for Japan to set ambitious energy transition targets, emphasizing the importance of renewable energy expansion, clear phaseout plans for fossil fuels, and carbon pricing mechanisms. The position paper highlights the need for investor input in policy development, a high-ambition scenario aligned with a 1.5°C pathway, and integration of emission reduction technologies to attract capital and strengthen Japan’s position in sustainable industries.

  1. Hong Kong unveils Sustainable Finance Action Agenda

On October 21, 2024, the Hong Kong Monetary Authority (HKMA) introduced its Sustainable Finance Action Agenda, setting out its vision and targets for banks to reach net-zero financed emissions by 2050. Banks are expected to disclose climate-related risks, align with global standards, and make transition plans available by 2030 on a “comply or explain” basis. The agenda also focuses on HKMA’s own investment sustainability, incentivizing green finance innovations, and addressing talent gaps in sustainable finance. These initiatives underscore Hong Kong’s aim to become a sustainable finance hub in Asia.

  1. Australia releases Guide on AI for ESG practitioners

On October 21, 2024, the Australia Department of Industry, Science and Resources and the National Artificial Intelligence Centre jointly published an introductory guide to AI for ESG practitioners, highlighting how AI can help address urgent challenges in health, climate change, sustainability, accessibility, and inclusion. The introductory guide addresses why ESG practitioners should consider responsible use of AI, how to assess AI in the ESG sector, ideas for enhancing ESG solutions with AI and steps to start responsibly using AI in ESG contexts.

  1. Malaysia’s ESG Disclosure Report: Establishing Baseline Standards for Reporting Practices

On October 15, 2024, the Securities Commission Malaysia (SC) and the World Bank released a joint report on “ESG Disclosure Assessment of Malaysia’s Listed Companies and Recommendations for Policy Development” at the SC-World Bank Conference 2024. This report, based on a comprehensive assessment of ESG practices among 90 companies and major asset owners, sets a baseline for sustainable reporting. While highlighting strong governance and social reporting, it identifies gaps in environmental metrics, especially on climate and biodiversity. The report concluded with a set of recommendations, including enhancing disclosure practices and supporting Malaysia’s National Sustainability Reporting Framework.

  1. Hong Kong Code of Conduct for ESG ratings and data products providers

On October 3, 2024, the International Capital Market Association (ICMA) published the Hong Kong Code of Conduct for ESG Ratings and Data Products Providers (the Code). Modeled on international best practices and sponsored by the Hong Kong Securities and Futures Commission, the Code is a voluntary Code of Conduct that aims to establish and promote a globally consistent, interoperable, and proportionate voluntary code for providers offering ESG ratings and data products and services in Hong Kong. The Code is closely aligned to the recommendations by the International Organization of Securities Commissions’ Report on “Environmental, Social and Governance (ESG) Ratings and Data Products Providers.” Following the publication, the ICMA is responsible for hosting and maintaining the Code.

Please let us know if there are other topics that you would be interested in seeing covered in future editions of the monthly update.

Warmest regards,
Susy Bullock
Elizabeth Ising
Perlette M. Jura
Ronald Kirk
Michael K. Murphy
Robert Spano

Chairs, Environmental, Social and Governance Practice Group, Gibson Dunn & Crutcher LLP

For further information about any of the topics discussed herein, please contact the ESG Practice Group Chairs or contributors, or the Gibson Dunn attorney with whom you regularly work.

The following Gibson Dunn lawyers prepared this update: Lauren Assaf-Holmes, Carla Baum, Mitasha Chandok, Becky Chung, Georgia Derbyshire, Ferdinand Fromholzer, Muriel Hague, William Hallatt, Beth Ising, Sarah Leiper-Jennings, Vanessa Ludwig, Babette Milz*, Johannes Reul, Annie Saunders, Helena Silewicz*, QX Toh, and Katherine Tomsett.

*Helena Silewicz, a trainee solicitor in London, and Babette Milz, a research assistant in Munich, are not admitted to practice law.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Environmental, Social and Governance practice group:

ESG Practice Group Leaders and Members:
Susy Bullock – London (+44 20 7071 4283, [email protected])
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, [email protected])
Perlette M. Jura – Los Angeles (+1 213.229.7121, [email protected])
Ronald Kirk – Dallas (+1 214.698.3295, [email protected])
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, [email protected])
Robert Spano – London/Paris (+33 1 56 43 13 00, [email protected])

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