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December 2023 Update

We are pleased to share the December 2023 issue of Wilson Sonsini’s Sustainability and ESG Advisory Practice Update. Each issue combines news, key legal developments, and resources related to sustainability and environmental, social, and governance (ESG) matters relevant to public and private companies internationally.

In this issue, we cover:

  • Compliance with California’s AB 1305 Required by January 1, 2024
  • Glass Lewis Issues 2024 ESG Policy Updates
  • SEC Publishes Fall 2023 Regulatory Agenda
  • European Financial Advisory Group and GRI Announce Further Collaboration on Sustainability Reporting Standards

We hope that you will find this information practical and useful. For any questions, please contact Amanda Urquiza, Manja Sachet, Scott Zimmermann, or any other attorney from Wilson Sonsini’s Sustainability and ESG teams.


Regulatory and Reporting Developments

United States

Compliance with California’s AB 1305 Required by January 1, 2024

Earlier this year, California enacted Assembly Bill 1305: Voluntary Carbon Market Disclosures (AB 1305). AB 1305 requires certain public and private companies to make climate disclosures available on their websites by January 1, 2024. Companies that fall into one or more of the following three categories must make climate disclosures in accordance with AB 1305:

  1. companies that a) make claims regarding the achievement of net zero emissions, claims that the company, a related entity, or a product is “carbon neutral,” or make other claims implying that the company, a related entity, or a product does not add net carbon dioxide or greenhouse gases to the climate or has made significant reductions to its carbon dioxide or greenhouse gas emissions (Climate-Related Claims) and b) operate in California or make Climate-Related Claims in California;
  2. companies that a) buy or use voluntary carbon offsets (VCOs), b) operate in California or buy or use VCOs sold within California, and c) make Climate-Related Claims; or
  3. companies that market or sell VCOs in California.

On December 6, 2023, the author of AB 1305 submitted a letter to the Chief Clerk of the California Assembly indicating that his intent was that the first annual disclosures under AB 1305 commence on January 1, 2025. Once the California Assembly reconvenes on January 3, 2024, it may provide further clarification on timing.

Please see our reminder for additional information about AB 1305.

Glass Lewis Issues 2024 ESG Policy Updates
 
In November 2023, Glass Lewis & Co. (Glass Lewis) published its 2024 U.S. Benchmark Policy Guidelines (the Guidelines) and 2024 Shareholder Proposals & ESG-Related Issues Benchmark Policy Guidelines (the ESG Guidelines), which become effective for shareholder meetings on and after January 1, 2024. The Guidelines update Glass Lewis’s policies regarding several ESG matters, including cyber risk oversight, board oversight of environmental and social (E&S) issues, and board accountability for climate-related issues. The ESG Guidelines update Glass Lewis’s overall approach to E&S issues, adding a new discussion relating to engagement between shareholders and companies.

In the Guidelines, Glass Lewis states its belief that insufficient oversight of material E&S issues can present direct financial and legal risks that could harm shareholder interests. The Guidelines and ESG Guidelines note that Glass Lewis reviews a company’s governing documents, including committee charters, when evaluating the board’s role in oversight of E&S issues.
 
Please see our post on Known Trends, Wilson Sonsini’s public company blog, for additional information related to the Guidelines and ESG Guidelines.  

SEC Publishes Fall 2023 Regulatory Agenda

On December 6, 2023, Chair of the U.S. Securities and Exchange Commission (SEC) Gary Gensler announced the SEC’s Fall 2023 Regulatory Agenda (Regulatory Agenda), detailing the SEC’s planned regulatory actions for the next 12 months. The SEC has changed the target dates for finalizing or proposing key ESG-related rules, including the following:

Rule

Anticipated Timing

Climate Change Disclosure

April 2024 (for final rule)

Human Capital Management Disclosure

April 2024 (for proposed rule)

Corporate Board Diversity

October 2024 (for proposed rule)

The SEC also continues to contemplate potential action relating to Conflict Minerals Amendments in its long-term agenda, which does not include any anticipated timing.

Please see our post on Known Trends for additional information related to the Regulatory Agenda.

Department of the Treasury (Treasury) and Department of Energy (DOE) Propose Regulations to Clarify “Foreign Entity of Concern” Compliance

On December 4, 2023, the Treasury and the DOE concurrently released proposed regulations (the Treasury Regulations) and other guidance (the Proposed Guidance) to clarify the prohibition in Internal Revenue Code Section 30D(d)(7) on sourcing applicable materials in electric vehicle (EV) batteries from an FEOC, as defined in Section 40207(a)(5) of the Infrastructure Investment and Jobs Act. Under the Proposed Guidance, FEOC designation includes foreign entities “owned by, controlled by, or subject to the jurisdiction or direction of a government of a covered nation.” Further, an FEOC includes a foreign entity that is engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States. The Proposed Guidance provides specific rules for determining whether an entity is owned by or affiliated with the government of a covered nation, using several functional tests. In addition, the Treasury Regulations provide specific rules for how qualified EV manufacturers must demonstrate compliance with the FEOC rules. Public comments on both the Proposed Guidance and Treasury Regulations are requested by January 2, 2024, and January 18, 2024, respectively.

Commodity Futures Trading Commission’s (CFTC) Proposed Guidance Regarding the Listing of Voluntary Carbon Credit Derivative Contracts

On December 4, 2023, the CFTC issued proposed guidance setting forth a framework for CFTC-regulated exchanges (or designated contract markets (DCMs)) and swap execution facilities (SEFs) to ensure compliance with existing requirements under the Commodity Exchange Act (CEA) and CFTC regulations as they relate to the listing or trading of voluntary carbon credit (VCC) derivative contracts on DCMs or SEFs. The proposed guidance includes the following:

  • terms and conditions for VCC derivative contracts listed on DCMs and SEFs;
  • clarification that DCMs have an obligation to perform ongoing, active monitoring of the terms and conditions of VCC derivative contracts, and a reminder that CFTC regulations require DCMs to have rules requiring their market participants to keep records of their trading, including activity in the underlying spot market; and
  • a summary of requirements for DCMs submitting VCC derivative contract terms and conditions and any contract amendments as part of the CFTC’s standard product review process.

Public comments on the proposed guidance are requested by February 16, 2024.


Europe

Provisional Political Agreement on European Union (EU) Supply Chain Due Diligence

On December 14, 2023, the European Parliament (the Parliament) and European Council (the Council) provisionally agreed on the Corporate Sustainability Due Diligence Directive (CSDDD). As proposed, the CSDDD would apply to EU companies with more than 500 employees and net turnover above €150 million (approximately $164 million) and non-EU companies with equivalent EU turnover. Lower thresholds would apply to companies in high-risk sectors such as manufacturing of textiles or extraction and trade of minerals. The proposed CSDDD would require covered companies to identify, mitigate, and remedy adverse impacts upstream and downstream in their global value chains. Covered adverse impacts range widely, including labor exploitation, environmental pollution, and climate change. The financial sector is mostly exempted under the proposed CSDDD, with financial sector companies only required to perform diligence on their upstream suppliers, but not clients.

As proposed, the CSDDD includes potential fines of up to five percent of net worldwide turnover for violations of the CSDDD and requires that management compensation be tied to compliance with the law. The proposed CSDDD still needs to be formally passed by both the Parliament and the Council, which is expected to occur in the first half of 2024.

EU Agrees on Political Deal for Product Sustainability

On December 5, 2023, the Parliament and the Council provisionally agreed to replace the Ecodesign Directive (the Directive), greatly enlarging its scope with a new Ecodesign Regulation (the Proposed Ecodesign Regulation). While the Directive only applied to energy-related products, the Proposed Ecodesign Regulation would apply to almost all products excluding motor vehicles, making them not only more energy efficient, but also more durable, reparable, and recyclable.

The Proposed Ecodesign Regulation would: a) require every product to have a digital “product passport,” enabling consumers to easily compare product characteristics; b) empower the European Commission (the Commission) to adopt product-specific eco-design standards; c) address practices associated with planned obsolescence; d) require companies to annually report how many unsold consumer products they destroy; and e) prohibit the destruction of unsold textiles and shoes. The Proposed Ecodesign Regulation still needs to be formally passed by both the Parliament and the Council.

EU Strikes Provisional Deal to Decarbonize Gas Markets and Promote Hydrogen

On December 8, 2023, the Parliament and the Council provisionally agreed on new rules to decarbonize the gas market and establish a market design for hydrogen (the Proposed Gas Market Rules). A new entity called the European Network of Network Operators for Hydrogen would promote dedicated hydrogen infrastructure, enable cross-border coordination, and interconnector construction.

The Proposed Gas Market Rules would limit the duration of long-term contracts for the import of unabated fossil fuels to the year 2049 to avoid locking in carbon-intensive energy sources. EU Member States would be allowed to limit bidding for capacity to access the network and liquid natural gas (LNG) import terminals from Russian natural gas or LNG. Finally, the Proposed Gas Market Rules address crisis management procedures for the cross-border flow of gas in emergencies, reducing nonessential consumption in such cases, and emerging cybersecurity risks. The Proposed Gas Market Rules still need to be formally adopted by both the Parliament and the Council.

Standards and Frameworks Updates

European Financial Reporting Advisory Group (EFRAG) and the Global Reporting Initiative (GRI) Announce Further Collaboration on Sustainability Reporting Standards

On November 30, 2023, EFRAG and GRI announced a new collaboration agreement to strengthen cooperation on sustainability reporting.

Together, EFRAG and GRI launched the GRI-ESRS Interoperability Index, a tool designed to assist companies in complying with disclosure requirements and avoid double reporting. Under the agreement, EFRAG and GRI will continue to develop training and educational opportunities for complying companies and help companies develop practical guidance for effectively meeting sustainability disclosure requirements.

Wilson Sonsini's Sustainability Highlights

Wilson Sonsini Advises OhmConnect on Merger Agreement with Google Nest

On December 14, 2023, Google Nest Renew, a load shifting service for Google Nest thermostats that helps customers shift their energy usage to times when the electrical grid is cleaner or energy is less expensive, announced that it is spinning out from Google and combining with OhmConnect, a start-up that Sidewalk Infrastructure Partners invests in that helps manage load shifting services for Nest and other smart thermostat brands. The new company will be called “Renew Home.” Wilson Sonsini is advising OhmConnect on the transaction.

Wilson Sonsini Advises Lithos Carbon on $57.1 Million Offtake Agreement in Largest-Ever Frontier CDR Purchase

On December 7, 2023, Frontier, an advance market commitment that aims to accelerate the development of carbon removal technologies, announced its first enhanced weathering offtake agreements with Lithos Carbon (Lithos), a San Francisco-based agricultural carbon removal company. Frontier buyers will pay Lithos $57.1 million to permanently remove 154,240 tons of carbon dioxide between 2024 and 2028. Wilson Sonsini advised Lithos in the transaction.

Wilson Sonsini Advises SparkMeter on Honeywell Smart Energy Investment and Partnership

On November 29, 2023, SparkMeter, a provider of grid management services, equipment, and software solutions that increase access to reliable electricity in underserved communities across Africa, Asia, and the Americas, announced a strategic $5 million investment and global partnership with Honeywell Smart Energy, one of the largest utility digital solution providers in the world. Wilson Sonsini advised SparkMeter on the transaction.

Wilson Sonsini Obtains Dismissal at Trial of Claims Against RWE

On December 14, 2023, Judge Jennifer Rochon of the U.S. District Court for the Southern District of New York dismissed claims brought against Wilson Sonsini client RWE, a renewable energy company, arising out of RWE’s acquisition of renewable energy projects, including a wind farm in western New York known as the Cassadaga Project.

Wilson Sonsini Advises Sunrun on over $1 Billion in Non-Recourse Financings in Third Quarter of 2023

Sunrun, the nation’s leading home solar, battery storage, and energy services company, completed several asset-backed securitizations in 2023 with legal counsel from Wilson Sonsini, including the largest asset-backed securitization in Sunrun’s history and across the entire residential solar industry.

Wilson Sonsini Advises Warwick Carbon Solutions on Its First-of-Its-Kind Industrial Decarbonization Project

Earlier this year, Warwick Carbon Solutions (WCS) subsidiary Broadwing Energy announced that it signed formal agreements to build a first-of-its-kind power and steam cogeneration facility in Decatur, Illinois. WCS will build and operate a 360-megawatt cogeneration plan with carbon capture and sequestration for the provision of integrated clean energy and green steam to Archer-Daniel-Midland’s Decatur processing operations. Wilson Sonsini serves as lead project development and finance counsel to WCS in the transaction.

 

Other Recent Updates:  

In connection with COP28, the United Arab Emirates announces $30 billion climate fund
 
Singapore launches ESG data solution

U.S. Environmental Protection Agency announces final rule on air pollutants

Nasdaq announces new ESG data platform

The Commission adopts guidelines for sustainability agreements in agriculture

United Kingdom releases battery strategy

New Jersey adopts zero-emission vehicle standards

Michigan governor signs clean energy legislation, which includes a clean electricity standard, into law



Contributors

Amanda Urquiza
Manja Sachet
Scott Zimmermann
Jindrich Kloub
Michael Occhiolini
Amy Simmerman
Roshanne Arathoon
Sasha Bobrowicz

Beau Brawner
Deirdre Carroll
Cesar Fischer
Nicole Gambino
Julius Giesen
Jaron Goddard
Toni Hodge

Brandon King
Tyler Kivley
Zack Lenox
Karli McConnell
Michelle Mealer
James Newhouse
Andrew Ralston

 


 

© 2023 Wilson Sonsini Goodrich & Rosati, Professional Corporation


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