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

Client Alert  |  October 24, 2024

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

I. GLOBAL

  1. International Financial Reporting Standards (“IFRS”) Foundation launches guide to help companies voluntarily apply International Sustainability Standards Board (“ISSB”) sustainability reporting standards

On September 25, 2024, the IFRS Foundation released a new guide to support companies that plan to voluntarily adopt the ISSB’s sustainability and climate disclosure standards, which have already been adopted by jurisdictions representing nearly 55% of global GDP and more than 40% of global market capitalization.

The new guide, titled Voluntarily Applying ISSB Standards—A Guide for Preparers, is designed to support companies that operate in jurisdictions that do not yet require application of the ISSB standards, but who nevertheless wish to voluntarily report under them, either in response to investor demand or in preparation for global requirements. The IFRS Foundation notes that the guide helps support implementation by highlighting the following: (i) transition relief that allows companies to use a phased-in approach to the ISSB standards, (ii) proportionality mechanisms to address “the range of capabilities and circumstances of companies,” and (iii) resources from the IFRS Foundation to help companies transition from other frameworks and standards (such as the Task Force on Climate-related Financial Disclosure and Sustainability Accounting Standards Board standards) to the ISSB standards.

  1. International Energy Agency (“IEA”) publishes guidance on implementing COP28 energy goals

In connection with Climate Week NYC, the IEA published From Taking Stock to Taking Action on September 24, 2024. This report explores the actions needed to fully implement the global energy goals agreed on at the COP28 conference, as well as the risks of failing to do so. These goals include a 2050 net zero emissions pledge for the energy industry, a transition away from fossil fuels, and an intention to triple renewable energy capacity by 2030, among others.

  1. 24% of investors in Vanguard’s proxy choice program chose ESG-focused voting policy

On September 17, 2024, Vanguard released data from its 2024 Investor Choice voting pilot program, reporting that 24% of participating investors opted for an ESG-focused voting policy. Vanguard’s pilot program allows investors to select from a range of voting policy options and covers equity funds comprising more than $100 billion in assets. Of the 40,000 participants for the 2024 proxy season, 24.4% selected the Third Party ESG Policy (which will vote in accordance with Glass Lewis’s ESG Voting Policy recommendations), 43% selected the Vanguard-Advised Funds Policy (which will vote in accordance with the guidelines of each of Vanguard’s funds), 30.3% selected the Company Board-Aligned Policy (which will vote in accordance with the recommendations of each company’s board of directors), and 2.3% selected the “Not Voting” Policy (which will leave all shares unvoted). Vanguard stated that the Investor Choice pilot is meant to “enabl[e] interested individual investors to more fully align their investment portfolios with their personal preferences in order to advance their long-term financial goals” and that Vanguard is “committed to continuing to empower investors by expanding access to the proxy voting process.”

II. UNITED KINGDOM

  1. Financial Conduct Authority (“FCA”) offers temporary flexibility for firms to comply with its “naming and marketing” sustainability rules

On September 9, 2024, the FCA published a statement setting out temporary measures for firms to comply with its naming and marketing sustainability rules. The FCA noted that in-scope firms “should now be taking all reasonable steps to ensure compliance with the ‘naming and marketing’ and disclosure rules,” which come into effect starting on December 2, 2024. The FCA also noted that it is taking longer than expected for some firms to make the necessary changes. As a result, the FCA is providing further support and flexibility to firms that may need additional time to make the required changes. Until 5 pm on April 2, 2025, firms have limited temporary flexibility to comply with the naming and marketing rules in relation to a sustainability product that is a UK-authorised investment fund. The flexibility only applies to firms that comply with certain criteria outlined in the FCA’s statement. Regarding the authorization of mergers, wind-ups or terminations before December 2, 2024, the FCA has announced that it intends to take a “supportive, proportionate and outcomes-based approach in these circumstances.” Firms are requested to contact their supervisor or usual supervisory contact at the FCA to discuss on a case-by-case basis.

  1. Financial Reporting Council (“FRC”) publishes 2024 Annual Review of Corporate Reporting

On September 24, 2024, the FRC published its Annual Review of Corporate Reporting with its findings from monitoring UK companies’ annual report and accounts and its expectations for the upcoming reporting season. With respect to sustainability reporting, the FRC noted that “there were comparatively few compliance issues in premium-listed companies’ reporting against the Taskforce for Climate-related Financial Disclosures (TCFD) framework.” The FRC also wrote to companies that did not report against TCFD despite being in scope of the relevant Listing Rules or provided inadequate disclosures, amongst other reasons. This winter (2024/2025), the FRC also plans to publish results of a thematic review of climate-related financial disclosures reporting under the Companies Act 2006, which will cover a selection of large private and AIM companies with a year-end between August and December 2023.

  1. Competition and Markets Authority (“CMA”) publishes greenwashing guidance for the fashion industry and stakeholders

On September 18, 2024, the CMA published a compliance guide for fashion retail businesses explaining how they can follow the Green Claims Code when making environmental claims. According to the guidance, all businesses in the clothes, footwear, fashion accessories and related services (such as packaging, delivery and returns) supply chain are responsible for ensuring their environmental claims are accurate and substantiated. Given the guidance, the CMA expects there will be no excuse for using misleading claims, and that failure to ensure practices are aligned with consumer protection rules could carry a risk under the Digital Markets Competition and Consumers Act (of up to 10% of global turnover), once the Act’s enforcement provisions take effect in 2025. The publication follows a review in 2022 by the CMA into the fashion industry.

  1. UK government transfers the National Grid Electricity System Operator (“ESO”) into public ownership in £630m acquisition

On September 13, 2024, the UK Government announced its decision to acquire the ESO from National Grid, transitioning it into public ownership. From October 1, 2024, the entity will be reestablished as the National Energy System Operator (the “NESO”) and will assume responsibility for the comprehensive planning of Britain’s gas and electricity networks. For the purposes of the Energy Act 2023, NESO will be designated independent from the Government as the licensed Independent System Operator and Planner for the UK, taking on all existing functions of the ESO, under the oversight of Ofgem. This follows the joint consultation (which closed on May 9, 2024) by Ofgem and the Department for Energy Security & Net Zero on the structure and licensing of NESO, which noted that NESO will take on key operational roles in electricity, as well as planning roles in gas and hydrogen. This aligns with the UK Government’s commitment to decarbonise the power grid by 2030.

  1. Britain ends its dependence on coal for electricity

On September 30, 2024, the UK’s last remaining coal-fired power station at Ratcliffe-on-Soar closed, making Britain the first G7 nation to have ended its reliance on coal for electricity production. The closure follows the Government’s announcement in 2015 that all coal-fired power stations would close by 2025, a date which was later brought forward to 2024 in advance of the UK hosting COP26 in Glasgow. The phase-out of coal is a significant milestone in the UK’s transition plans.

  1. New Water (Special Measures) Bill to give regulators enforcement powers against water companies damaging the environment

On September 4, 2024, the Water (Special Measures) Bill was introduced by the UK Government in the House of Lords, proposing changes to the regulation of private companies providing water and sewerage services in England and Wales, including by requiring water companies to publish annual pollution incident reduction plans, providing information on emergency sewage overflows, introducing new automatic penalties for offences committed by water companies and giving regulators new powers to recover costs for enforcement work. Alongside the bill, the government also published explanatory notes, a delegated powers memorandum and a policy statement supporting the bill.

III. EUROPE

  1. Lawsuit against European Commission demands stricter emissions reductions by 2030

On August 27, 2024, Climate Action Network Europe and the Global Legal Action Network submitted their final written statements before the oral hearing in a lawsuit against the EU Commission. The NGOs challenge the legality of Europe’s emissions allowances for the period leading up to 2030, arguing that the EU Commission failed to adequately assess and establish suitable emission reduction targets and did not properly evaluate the impacts of climate change on fundamental rights. It is also alleged that the emission reductions in the EU’s Fit for 55 package are inadequate to meet the 1.5°C target of the Paris Agreement.

If the lawsuit is successful, this could lead to stricter emission targets, raising carbon allowance costs in the EU’s Emissions Trading System and impacting covered sectors and importers under the Carbon Border Adjustment Mechanism. Despite early challenges in court, a recent European Court of Human Rights ruling recognizing climate protection as a human right may bolster the NGOs’ case.

  1. European Commission proposes carbon footprint labels for flights

On September 25, 2024, the European Commission published a statement announcing the launch of a consultation on a new EU Flight Emissions Label (“FEL”) initiative to provide passengers with standardized information about the carbon footprint of their flights. The initiative is part of the broader ReFuelEU Aviation regulations, adopted in 2023, which seek to decarbonize the aviation sector. The FEL aims to establish a standardized and regulated approach for calculating flight emissions by considering factors like aircraft type, average passenger count, cargo weight, and the type of fuel used. Beginning in 2025, airlines operating flights within or departing from the EU will be able to voluntarily participate in this initiative.

  1. Italy launches greenwashing investigation into Shein, global fashion retailer, over environmental claims

On September 25, 2024, the Italian Competition Authority announced its investigation into Shein’s website operator, Infinite Styles Services CO. Limited, over potentially misleading advertising claims regarding the environmental sustainability of Shein-branded clothing. The inquiry focuses on claims made in various sections of the website. The Italian Authority alleges that Shein attempts to project an image of sustainable production and commercial practices through vague and potentially misleading statements, aiming to capitalize on increased consumer sensitivity to environmental issues. This investigation aligns with broader actions taken by EU regulators and lawmakers to combat greenwashing and protect consumers from misleading sustainability claims.

  1. European Commission launches infringement procedures against 17 member states over Corporate Sustainability Reporting Directive (“CSRD”) transposition delays

On September 26, 2024, the European Commission initiated infringement procedures against 17 EU member states (Belgium, Czechia, Germany, Estonia, Greece, Spain, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, and Finland) for failing to fully transpose the CSRD into their national laws. Although the CSRD took effect in early 2024, with the first reports due in 2025 for large public-interest companies, the mentioned countries missed the July 6, 2024 deadline for transposition.

In its published statement, the Commission emphasized that without full transposition, harmonized sustainability reporting across the EU would be impossible to achieve, which could potentially hinder informed investment decisions based on companies’ sustainability performance.

Under the EU’s infringement procedures, these 17 member states have two months to respond and complete transposition before the Commission may escalate the process (ultimately referring the matter to the European Court of Justice to impose penalties). Notably, on July 25, 2024, the Commission had already initiated an infringement procedure against Sweden, which delayed the implementation of the CSRD by six months, requiring Swedish companies to report only for fiscal years starting after July 1, 2024. In a related move, the Commission also launched infringement actions against 26 member states for failing to implement provisions under the Renewable Energy Directive, which aims for renewable energy to account for 42.5% of the EU’s total energy consumption by 2030.

IV. NORTH AMERICA

  1. California Governor signs amendments to climate-related legislation

On September 27, 2024, Governor Gavin Newsom signed Senate Bill (“SB”) 219, enacting amendments to SB 253 (requiring reporting of greenhouse gas emissions) and SB 261 (requiring reporting of climate-related financial risks and the measures taken to reduce and adapt to them). The amendments provide the California Air Resources Board (“CARB”) an additional six months to publish regulations related to SB 253, extending the deadline to July 1, 2025 from January 1, 2025, but do not alter the deadline for companies to comply with these regulations. SB 219 also allows emissions reports under SB 253 to be consolidated at the parent company level (which was already allowed under SB 261) and makes other changes to CARB’s responsibilities described in our client alert.  For further details on SB 253 and SB 261, please see our client alert and blog post.

  1. U.S. Senate bill would prevent retirement plan managers from using ESG factors in investment decisions

On September 26, 2024, U.S. Senator Bill Cassidy (R-LA) introduced the Restoring Integrity in Fiduciary Act, legislation that would prevent fiduciaries from considering ESG factors in investment decisions. In a press release, Senator Cassidy stated, “[a]sset managers should prioritize helping Americans achieve the best return for their retirement, not funneling their clients’ money to fund a left-wing political agenda.” The bill would amend the Employee Retirement Income Security Act (“ERISA”) to require fiduciaries to make investment decisions based only on “pecuniary factors.”

Senator Cassidy’s bill responds to the U.S. Department of Labor’s November 2022 rules that permit fiduciaries of ERISA-governed retirement plans to consider ESG in the selection process for investments. In March 2024, Congressman Greg Murphy introduced a similar bill to prevent retirement plan trustees from considering ESG factors when making investment decisions (described in our client alert).

  1. California sues Exxon Mobil Corporation (“Exxon”) over claims about plastic recycling

On September 23, 2024, the State of California brought a lawsuit against Exxon alleging the company made false and deceptive claims that recycling could solve the problem of plastic waste pollution. The lawsuit alleges Exxon knew the technology for recycling plastic was inadequate to process the amount of plastic waste the company produced, yet it continued to promote recycling as the solution to the plastic pollution crisis. Among other relief, California is seeking to compel Exxon to establish and contribute to an abatement fund to address plastic pollution in the state.  In the press release announcing the lawsuit, the California Attorney General notes that this lawsuit follows a two-year investigation into the fossil fuel and petrochemical industries’ role in the plastic pollution crisis and is aimed to “protect California’s natural resources from further pollution, impairment, and destruction, as well as to prevent [Exxon] from making any further false or misleading statements about plastics recycling and its plastics operations.”

  1. Toyota entities accused of misrepresenting machinery emissions compliance

A complaint was filed in a California federal district court against Toyota Industries Corporation (“Toyota”) and related entities on September 22, 2024 for allegedly misrepresenting the true emissions levels of its engines used in forklifts and other construction machinery. According to the class action lawsuit, Toyota represented these vehicles were “clean-burning, low-emissions, high-performance, and sustainable,” and plaintiffs purchased the vehicles assuming they met regulatory emissions standards. However, the complaint alleges that the vehicles emitted more emissions than were reasonably expected and did not comply with emissions standards.

  1. Microsoft Corporation (“Microsoft”) and Constellation announce renewable energy agreement and restart of Three Mile Island

On September 20, 2024, Constellation announced it had signed a 20-year power purchase agreement with Microsoft. Constellation intends to restart Three Mile Island Unit 1 (under the new name “Crane Clean Energy Center”) by 2028, and Microsoft will purchase the resulting energy to help match the power used for Microsoft’s data centers.  The project is expected to require significant financial investment in addition to U.S. Nuclear Regulatory Commission approval and state and local permitting.

  1. U.S. Commodity Futures Trading Commission (“CFTC”) issues final guidance regarding the listing of voluntary carbon credit derivative contracts

As summarized in our alert, on September 20, 2024, the CFTC issued final guidance regarding the listing of voluntary carbon credit derivative contracts on CFTC-regulated exchanges.

  1. U.S. Securities and Exchange Commission (“SEC”) finds investment advisory firm misled investors with its data-driven “biblically responsible investing” strategy

On September 19, 2024, the SEC charged investment advisory firm Inspire Investing with making misleading statements about using data-driven methodology to avoid investing in companies whose business practices did not align with biblical values. The firm represented that its methodology would score companies based on their business practices and not invest in companies that participate in certain enumerated activities or products. But according to the SEC order, as a result of a failure to adopt written policies and procedures governing its investment process, Inspire Investing inconsistently applied its investment criteria and had invested in companies that engaged in  business practices that did not align with its investment criteria, failing to comply with its representations about its investment strategy.

  1. U.S. House of Representatives passes anti-ESG bills

On September 19, 2024, the House passed the Prioritizing Economic Growth Over Woke Policies Act, H.R. 4790, by a vote of 215-203. The Act contains a series of anti-ESG bills aimed at curbing corporate ESG initiatives, signaling Republicans’ 2025 legislative priorities. Among other things, the package includes measures to (i) limit the SEC’s authority to impose new ESG disclosure requirements, including by requiring that rulemakings with disclosure obligations be grounded in materiality, (ii) require the SEC to report on the effects of the E.U.’s directives on corporate sustainability on companies, consumers, and investors, (iii) allow companies to exclude shareholder proposals with subject matters that are “environmental, social, or political (or a similar subject matter)” without regard to whether the proposal relates to a significant social policy issue, and (iv) require the SEC to study the financial and other incentives of shareholder proposals, proxy advisory firms, and the proxy process.

  1. Ten U.S. State Governors Form Coalition for Energy Choice

On September 17, 2024, Louisiana Governor Jeff Landry and New Hampshire Governor Chris Sununu announced the formation of The Governors’ Coalition for Energy Choice with eight other senators. The Coalition is intended to help address high energy costs and inflation and to support the formulation of smart energy policies. Its goals are to “ensure continued energy choice, minimize permitting and other regulatory barriers, limit expensive energy mandates, focus on affordability and reliability of energy infrastructure, and coordinate to positively manage energy resources and the environment.”

  1. SEC disbands Climate and ESG Task Force

The SEC recently disclosed that in the past few months, it disbanded the Climate and ESG Task Force in the Division of Enforcement. Formed in 2021 and reportedly composed of 21 lawyers, it pursued companies and investment advisors for three years for ESG-related fraud. The Task Force was involved in cases against numerous companies related to ESG matters, including publicly listed companies, financial institutions, and investment advisors. The expertise from the Task Force is now said to reside more generally within the Division of Enforcement.

V. APAC

  1. Australian court fines Vanguard over misleading sustainable investing claims

On September 25, 2024, an Australian federal court imposed a record A$12.9 million (USD$8.9 million) penalty on Vanguard Investments Australia for misleading claims about its ESG fund, the Vanguard Ethically Conscious Global Aggregate Bond Index Fund. The fund, launched in 2018, claimed to exclude companies with operations in fossil fuels and other controversial sectors. However, the Australian Securities & Investments Commission found that ESG research was not conducted on a significant portion of bond issuers, leading to the finding that the fund had investments in fossil fuel-related companies. Vanguard self-reported the issue in 2021 and admitted to making false claims. The court ruled that Vanguard’s misrepresentations were serious, affecting the fund’s main distinguishing feature and benefiting the company.

  1. Singapore Exchange to start incorporating IFRS Sustainability Disclosure Standards

On September 24, 2024, Singapore Exchange’s market regulator, SGX RegCo, updated its sustainability reporting rules for listed companies. The update follows the announcement earlier this year by the government of Singapore that it will implement mandatory climate-related reporting requirements for listed and large non-listed companies. The changes include delaying mandatory Scope 3 emissions reporting for smaller issuers, following concerns about evolving measurement and reporting methodologies. Larger issuers are expected to begin Scope 3 reporting for fiscal year 2026. Scope 1 and 2 emissions reporting will be required for fiscal year 2025. The new rules also mandate other sustainability report disclosures beginning for fiscal year 2026, covering ESG factors, policies, practices, and governance.

  1. Malaysia launches National Sustainability Reporting Framework

On September 24, 2024, Malaysia introduced a National Sustainability Reporting Framework (“NSRF”) to support its goal of reducing carbon intensity by 45% by 2030 and achieving net-zero emissions by 2050. Developed by the Advisory Committee on Sustainability Reporting, the NSRF employs ISSB Standards, specifically IFRS S1 and IFRS S2, as its baseline for sustainability disclosures. The NSRF aims to enable companies to provide reliable and comparable sustainability information, enhancing transparency regarding climate-related risks and sustainability practices. Implementation will be on a phased basis, allowing companies to adopt the standards based on their readiness, though they can also use other complementary frameworks.

  1. Hong Kong proposes IFRS-aligned sustainability reporting standards

On September 16, 2024, the Hong Kong Institute of Certified Public Accountants (“HKICPA”) released new Exposure Drafts for its HKFRS Sustainability Disclosure Standards (the HKFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and HKFRS S2 Climate-related Disclosures), ( proposing full convergence with the ISSB standards. The convergence aims to enhance global comparability and meet investors’ needs for reliable sustainability information and is expected to take effect on August 1, 2025. The HKICPA is seeking public comments on the Exposure Drafts until October 27.

  1. Hong Kong and Dubai strengthen collaboration on sustainable finance 

On September 16, 2024, the Hong Kong Monetary Authority (“HKMA”) and Dubai Financial Services Authority (“DFSA”) concluded their first Joint Climate Finance Conference in Hong Kong. The event, themed “Building a Net-Zero Asia – Middle East Corridor,” attracted over 240 participants from various financial sectors across Asia and the Middle East. The conference addressed transition finance demands and explored investment opportunities for the global net-zero transition. Notably, the HKMA and DFSA signed a Memorandum of Understanding to enhance their partnership in sustainable finance, promoting cross-border dialogue, knowledge sharing, and joint research.

  1. New Japan low carbon hydrogen development fund launched

On September 12, 2024, the Japan Hydrogen Fund, a new initiative dedicated to developing a low-carbon hydrogen value chain, was launched by a consortium of Japanese financial and industrial companies along with French energy giant, TotalEnergies. The fund has secured USD$400 million in initial commitments from investors including Toyota Motor Corporation, Iwatani Corporation, major Japanese banks, and other corporations. This launch aligns with Japan’s 2050 carbon neutrality goal and its 2030 interim targets for emissions reduction and energy mix transformation. The fund aims to support the development of a hydrogen supply chain both in Japan and globally by providing funding to hydrogen-related companies and projects.

  1. Australia passes mandatory climate reporting law

On September 9, 2024, Australia’s House of Representatives passed the Treasury Laws Amendment bill, introducing mandatory climate-related reporting requirements for large and medium-sized companies. The bill, which follows Senate approval in August, requires disclosures on climate-related risks and opportunities and greenhouse gas emissions across the value chain. Reporting will begin in January 2025 for the largest companies, with a phased approach for smaller entities, with reporting requirements varying depending on size. The legislation aligns with ISSB standards and includes a one-year grace period for Scope 3 reporting. Additionally, the House passed a law establishing the Net Zero Economy Authority, tasked with guiding Australia’s transition to net zero emissions. This includes reskilling workers and coordinating with industry and investors on transformation opportunities.

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
Michelle M. Kirschner
Michael K. Murphy

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, Spencer Bankhead, Mitasha Chandok, Becky Chung, Martin Coombes, Ferdinand Fromholzer, William Hallatt, Kriti Hannon*, Elizabeth Ising, Vanessa Ludwig, Cynthia Mabry, Babette Milz*, Johannes Reul, Emily Rumble, Meghan Sherley, Helena Silewicz*, and Katherine Tomsett.

*Kriti Hannon, an associate in Orange County; Babette Milz, a research assistant in Munich; and Helena Silewicz, a trainee solicitor in London, 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:

Environmental, Social and Governance (ESG):

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])
Michelle Kirschner – London (+44 20 7071 4212, [email protected])
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, [email protected])

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