The U.S. Securities and Exchange Commission (SEC) adopted its final climate change disclosure rules on March 6, 2024. The Enhancement and Standardization of Climate-Related Disclosures for Investors will require registrants to provide certain climate-related information in their registration statements and annual reports. The final rules will require information about a registrant's climate-related risks that have materially impacted or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. In addition, under the final rules, certain disclosures related to severe weather events and other natural conditions will be required in a registrant's audited financial statements.
On April 4, 2024, the SEC voluntarily stayed its final rules, pending judicial review in the Eighth Circuit of the consolidated petitions seeking review, making uncertain the effective date and phase-in periods of the final rules.
The U.S. Department of Labor’s (DOL) final rule titled Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (2022 ESG rule) continued to face legal hurdles in 2024. The 2022 ESG rule expands retirement plan fiduciaries’ duties under the Employee Retirement Income Security Act of 1974 (ERISA) to allow managers to determine whether ESG considerations are relevant to investments’ risks and returns. Specifically, the 2022 ESG rules allow fiduciaries to consider “the economic effects of climate change and other [ESG] factors”. . . if the fiduciary such factors are “relevant to a risk and return analysis.”
In 2023, the 2022 ESG rule experienced numerous legal hurdles, including a lawsuit filed in January 2023 by 26 states and other plaintiffs alleging the rule oversteps the DOL’s authority under ERISA, and is arbitrary and capricious under the Administrative Procedure Act (APA). In September 2023, the United States District Court for the Northern District of Texas denied the plaintiffs’ motion for summary judgement, finding the rule did not violate the DOL’s authority under ERISA and is not arbitrary and capricious under the APA. In July 2024, the United States Court of Appeals for the Fifth Circuit vacated the District Court’s decision and remanded the case back to the District Court after the Supreme Court’s decision in Loper Bright. On February 14, the District Court again found the 2022 ESG rule was not contrary to ERISA, and thus not a violation of the APA. Utah v. Su represents the first ERISA case that tests the review of agency rulemaking in a judicial landscape following the overturning of the long-standing Chevron deference doctrine.
The Environmental Protection Agency (EPA) significantly advanced the implementation of the Greenhouse Gas Reduction Fund in 2024, obligating $27 billion in grants authorized under the Inflation Reduction Act of 2022. This program, designed to leverage private capital for clean energy projects, is structured into three distinct funding streams.
First, the National Clean Investment Fund awarded $14 billion to three nonprofit coalitions, to facilitate large-scale clean technology financing. These entities are tasked with establishing governance frameworks to ensure compliance with Justice40 Initiative requirements, emphasizing equitable investment in disadvantaged communities.
Second, the Clean Communities Investment Accelerator allocated $6 billion to five nonprofit financing hubs. These organizations are tasked with enhancing community lenders’ capacity to finance emissions-reducing projects, with a focus on underserved populations. They face compliance challenges, including documenting the impacts of investments on emissions reductions and verifying the tangible benefits provided to disadvantaged communities.
Third, the Solar for All program distributed $7 billion to 60 recipients, including states, municipalities, and nonprofits, to expand low-income households’ access to residential solar energy. Recipients must develop robust reporting systems to measure emissions reductions and community benefits while ensuring alignment with federal environmental justice goals.
Across all funding streams, recipients must implement carbon accounting systems to verify emissions reductions and ensure federal funds accountability. Legal complexities include navigating federal grant requirements, environmental justice mandates, and compliance with emissions verification protocols. The EPA is expected to issue further guidance as recipients transition into full program implementation in 2025.
Representative Rick Allen (R-GA) sponsored H.R. 5339, the Protecting Americans’ Investments from Woke Policies Act. The bill was debated by the House on September 18, 2024 and passed by a vote of 217-206. In part, the bill amends ERISA by restricting contemplation of ESG factors in investment decisions. The bill requires fiduciaries of employer-sponsored plans to only consider pecuniary factors when making such decisions. Non-pecuniary factors may be used if the fiduciary can provide a showing that consideration of such factors is consistent with the interests and financial benefits of plan participants and beneficiaries. The Senate has not taken up the bill.
Representative Bill Huizenga (R-MI) sponsored H.R. 4790, the Prioritizing Economic Growth Over Woke Policies Act. As with H.R. 5339, this bill was originally introduced and reported out of committee in 2023. On September 29, 2024, it was debated by the House and ultimately passed by a vote of 215-203. The bill would amend the Securities Act of 1933 by allowing the SEC to limit corporate disclosure to only material information. Non-material information disclosure mandates would be required to be publicly available, as well as justifications for such disclosures. Furthermore, the bill would instruct the SEC to commission a study on the economic impact and extraterritorial legality of the European Union (EU) Corporate Sustainability Due Diligence and Corporate Sustainability Reporting Directives. The bill would prohibit the SEC from compelling the inclusion of shareholder proposals in proxy statements, allowing for the exclusion of such proxies if the proposals are environmental, social, or political in nature, under Section 240.14a-8 of Title 17, Code of Federal Regulations. The Senate has not taken up the bill.
InNavahine F. v. Hawaii Department of Transportation, a group of youth plaintiffs sued the Hawaii Department of Transportation (HDOT) alleging the establishment, operation, and maintenance of the state transportation system violates the public trust doctrine of the Hawaii Constitution and infringes on the plaintiffs’ constitutional right to a clean and healthful environment, which include the right to a life-sustaining climate system. On June 20, 2024, the case resulted in a historic settlement where HDOT committed to systemic decarbonization of the state's transportation system, aiming to achieve net-negative emissions by 2045. The Navahine settlement highlights youth-led climate litigation as a powerful tool for systemic change and marks the first time a state agency committed to working with youth plaintiffs to address climate change concerns, emphasizing the constitutional right to a sustainable environment.
Judicial decisions played a pivotal role in shaping the 2024 ESG legal landscape. In recent years, more non-profit organizations and advocacy groups are leveraging litigation to seek transparency and corporate accountability practices that extend beyond direct benefits to shareholders. These forces have intensified public scrutiny of policies and regulations surrounding ESG. Several key decisions reaffirmed the importance of balancing corporate fiduciary duties with the growing emphasis on ESG factors. Courts have reinforced the principle that, while ESG considerations are integral to modern business strategy, they cannot override a company's primary obligation to prioritize shareholder profits without sufficient data or rationale.
As greenwashing litigation evolves, plaintiffs are seeking to expand the scope of greenwashing litigation to companies’ “aspirational statements.” Recent judicial developments highlight a growing recognition that misleading ESG claims can be both a consumer protection issue and a violation of securities laws. These rulings, once again, underscore the necessity for corporations to furnish transparent, evidence-based declarations pertaining to their environmental impact, especially with increased public security. However, the feasibility for plaintiffs to bring civil actions depends on whether they have standing and can demonstrate tangible harm.
Another avenue for bringing greenwashing claims is securities litigation, particularly under the Securities Exchange Act of 1934, Section 10(b), and SEC Rule 10b-5, which prohibit fraudulent or misleading statements related to the sale of securities. The SEC charged the company with making false claims regarding the ESG focus of three of its exchange-traded funds (ETFs). Although these funds were marketed as avoiding investments in fossil fuels and tobacco, the SEC discovered that they held substantial investments in companies connected to these industries. The SEC’s investigation revealed that the third-party data used for screening was inadequate and that WisdomTree did not have sufficient internal policies to ensure compliance. This led to a $4 million civil penalty and a cease-and-desist order against the firm.
On September 27, 2024, California enacted Senate Bill 219 (SB 219), which amended the Climate Corporate Data Accountability Act (SB 253) and the Climate‐Related Financial Risk Act (SB 261). SB 219 (1) extends the rulemaking deadline for the California Air Resources Board (CARB) under SB 253 related to Scope 1, 2, and 3 emissions by six months to July 1, 2025; (2) allows CARB to establish a timeline for the disclosure of Scope 3 emissions, replacing the previous requirement to disclose Scope 3 emissions within 180 days of disclosing Scope 1 and 2 emissions; (3) clarifies that, for Scope 1, 2, and 3 emissions disclosures under SB 253, consolidated reports at the parent company level are acceptable; (4) permits, rather than requires, CARB to engage a third-party “climate reporting organization” to develop the reporting program; and (5) removes the requirement that the entity’s fee be paid with the filing of the disclosure.
On December 5, 2024, CARB released an enforcement notice stating its intention to exercise its enforcement discretion under California Health and Safety Code section 38532. CARB does not intend to take enforcement actions against reporting entities for incomplete Scope 1 and scope 2 emissions reporting in the first report due in 2026, as long as the entities make a good faith effort to retain relevant data.
Both SB 253 and SB 261 have been challenged by the U.S. Chamber of Commerce, California Chamber of Commerce, American Farm Bureau Federation, Los Angeles County Business Federation, Central Valley Business Federation, and Western Growers Association. The plaintiffs claim that the laws violate the First Amendment, the Supremacy Clause, and constitutional limitations on extraterritorial regulation, including the dormant Commerce Clause. Most recently, the U.S. District Court for the Central District of California rejected the plaintiffs' request for summary judgment on their facial First Amendment challenge, allowing the issue to move to discovery. The laws have not been stayed pending judicial review.
Assembly Bill 2331 (AB 2331), introduced in early 2024 to address ambiguities in the Voluntary Carbon Market Disclosures Business Regulation Act (AB 1305), was not enacted before the California legislative session ended on August 31, 2024. Consequently, in-scope entities must plan to comply with AB 1305's original disclosure requirements by January 1, 2025 and update them no less than annually.
For a description of SB 253, SB 261, and AB 135, see the 2023 edition of The Year-in-Review.
Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act came into force on January 1, 2024, and functions to reduce forced and child labor through reporting obligations for goods that enter the Canadian Supply Chain. Child labor is described as labor or services by person(s) under the age of 18 that are contrary to Canadian law, present danger to the child, deprive the child of the opportunity to attend school, or constitute “worst forms of child labour” as defined in Article 3 of the Worst Forms of Child Labour Geneva Convention.
All entities that produce, sell, or distribute goods in Canada, import goods produced outside of Canada, or control entities engaged in any of the latter activities, must prepare an annual report to the Minister outlining steps taken to reduce forced labor throughout the supply chain. Entities include corporations, trusts, partnerships, or unincorporated public organizations. Entities are also organizations that have a place of business in Canada, does business in Canada, are prescribed by regulations, or meets two of the three following conditions: "(i) it has at least $20 million in assets, (ii) it has generated at least $40 million in revenue, and (iii) it employs an average of at least 250 employees." Entities must report the details of their supply chain, due diligence processes, areas of risk, remediation measures, employee training, and effectiveness assessments in relation to forced labor and child labor within their supply chain by May 31 of each year. Once the report is approved, the entity must take transparency efforts by making the report publicly available on their website and sending the report to any shareholders.
To enhance biodiversity and promote sustainable development and environmental stewardship, the United Kingdom mandated that planning permissions (to enable development in England) granted after February 12, 2024, are subject to a condition of securing a biodiversity net gain (BNG) of at least 10% to be maintained and managed for at least 30 years. BNG is a development approach that ensures wildlife habitats are left in a measurably better state than they were before the development. The Biodiversity Metric, developed by Natural England and later adopted by the Secretary of State and Department for Food and Rural Affairs, uses a habitat-based method to assess and manage the levels of biodiversity. This method focuses on the quality of habitats that signal their viability to support various species. The habitat-based method will provide ecologists, developers, planners, and all otherwise interested parties with a means of monitoring biodiversity due to development or changes in land management.
The Corporate Sustainability Reporting Directive (CSRD) took effect on January 5, 2023, introducing reporting in line with the European Sustainability Reporting Standards (ESRS). As of January 1, 2024, CSRD became applicable for EU-incorporated companies that are already subject to the Non-Financial Reporting Directive (NFRD), with reports to be published in 2025. Additional categories of companies will fall within the scope of CSRD in 2025 through 2028. A key concept in CSRD is double materiality, which requires companies to report not only the impact of sustainability matters on their performance, but also to assess the ESG-related practices at each step in the company’s value chain for the impact on the planet and society.
On July25, 2024, the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) entered into force, mandating companies to identify, mitigate, and report on the impact of their operations and supply chains on human rights and the environment. The aim of CSDDD is to foster sustainable and responsible corporate behavior in companies' operations across global value chains.
This mandatory legislation applies to both EU and non-EU companies operating in the EU, primarily targeting those in high-risk industries. These currently include: (1) large EU companies with over 1000 employees and a net turnover exceeding €450 million; and (2) large non-EU companies with a net turnover in the EU exceeding €450 million. Reporting requirements include the assessment of adverse human rights impacts and adverse environmental impacts, obtaining information regarding their own operations, their subsidiaries and those of their business partners to identify general areas where adverse impacts are likely to occur and be most severe. On November 8, 2024, European Commission President Ursula von der Leyen indicated that certain EU ESG and sustainability reporting obligations may be consolidated into an “omnibus” regulation to streamline “often overlapping” reporting requirements, including under CSRD, CSDDD, and the EU Taxonomy.
A revised Ambient Air Quality Directive (AAQD) entered into force on December 10, 2024. Building on the original 2008 regulations, the revised Directive aligns the 2030 EU air quality standards more closely with the World Health Organization recommendations. AAQD defines limit values for 12 key air pollutants, including sulfur dioxide (SO₂), nitrogen dioxide (NO₂), particulate matter (PM₁₀ and PM₂.₅), lead, benzene, and carbon monoxide, amongst others, aiming to reduce harmful effects on human health and the environment.
The legislation mandates EU Member States to assess ambient air quality using standardized methods and criteria, ensuring consistent data collection and evaluation across the EU. This data must be made available to the public, promoting transparency and awareness of air pollution levels. This benefits the public at large, but also significantly streamlines the communication of data and reciprocal exchange of information between Member States.
