Winston’s Environmental Law Update

The United States Environmental Protection Agency and Army Corps of Engineers (the Agencies) closed out 2022 by announcing a final rule that establishes a new definition of “waters of the United States” (WOTUS) for implementation of the Clean Water Act.[1]  The Agencies, which previously indicated there would be a two-step regulatory process to defining WOTUS, appear to be proclaiming this to be its “durable” revision for the long term.  But will this definition of WOTUS get washed away like its predecessors?  

Winston & Strawn partners Jonathan Brightbill and Eleni Kouimelis, along with Ross Nova, L.L. Bean’s Head of Global Compliance, presented at the 2022 Retail Law Conference for the Retail Industry Leaders Association in October. Their presentation, “Developing Environmental Regulatory and Litigation Risks for Finished Products,” discussed the risks retailers face from increasing regulatory scrutiny of chemicals of concern contained in finished products. What follows is a summary of the presentation.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA). The IRA reconciliation package includes $369 billion in funding and subsidies to support the transition to renewable energy and reduce greenhouse gas emissions from the energy sector.

On March 21, the U.S. Securities and Exchange Commission (“SEC”) is set to vote on its long-anticipated climate-related disclosure framework for SEC-registered companies. The SEC has been discussing this proposal for more than a year. There has been wide speculation about what it will require. Now the date is set for the disclosure.

A growing number of companies are pledging to achieve net-zero carbon emissions over the coming decades. With this, activists and academics are increasing scrutiny of such claims. Congress is holding hearings examining alleged “greenwashing” by corporations. And activists recently published a report examining the net-zero pledges of specific companies and criticizing the transparency and integrity of many such pledges. Now is the time for companies to revisit their climate, sustainability, and environmental, social, governance (ESG) substantiation and compliance procedures.

Deputy Attorney General Lisa Monaco recently said that the Department of Justice intends to “strengthen the way” that DOJ “respond[s] to corporate crime.” DAG Monaco’s speech and memorandum has important implications for environmental enforcement, including for companies making Environmental, Social and Governance (“ESG”) claims and disclosures.  Monaco specified “three actions” changing prior DOJ policies.

The Securities and Exchange Commission (SEC) acknowledged last week that it has stepped up review and investigation of public company climate-related financial and environmental, social, and governance (ESG) disclosures.

Government regulators around the world are increasing scrutiny of climate-related and other environmental, social, and governance (ESG) claims. Many companies are issuing “sustainability” reports, and voluntarily making ESG claims about social issues such as environmental justice in response to investor demands. But regulators are raising questions about their accuracy and support. We look at recent actions by United States and international regulators.  

Many companies now publish sustainability reports. Their managers are voluntarily trying to meet investor and consumer demand for climate-related disclosures.

A dozen state attorneys general — led by California and New York — are calling on the SEC to mandate broad ESG disclosures for climate-related financial risks. 

On May 20, 2021, President Biden signed Executive Order 14030 (EO 14030). Stating that the “intensifying impacts of climate change present physical risk to assets, publicly traded securities, private investments, and companies,” EO 14030 seeks to increase disclosure of climate-related financial risk by both the public and private sector.

Early this March, the Securities and Exchange Commission’s (SEC) Division of Examinations announced its 2021 examination priorities, which include a greater focus on climate-related risks and Environmental, Social, and Corporate Governance (ESG) matters. The annual examination priorities highlight areas which the SEC believes present potential risks to investors.

On October 1, 2020, the fourth version of the Equator Principles (EP4) came into effect. The Equator Principles are global, cross-industry risk management guidelines applicable to project finance advisory services, project-related corporate loans, and bridge loans. 

The SEC’s Investor Advisory Committee (the Committee) sounded the bugle for SEC action on environmental, social, and governance (ESG) disclosures in its May 14, 2020, formal recommendation. Following four years of meetings with investment advisors, asset managers and owners, and U.S. and foreign issuers, the Committee found that “investors consider certain ESG information material to their investment and voting decisions, regardless of whether their investment mandates include an ‘ESG-specific’ strategy.”