Category: Global

US Consulate in Tel Aviv Resumes Limited Operations for US Citizens and Nonimmigrant Visa Applicants

This post provides the latest update with respect to consular section operations in Israel. After closures caused by the Oct. 7, 2023, attacks on Israel and subsequent security concerns, the U.S. consular posts in Israel have resumed essential U.S. citizen services and limited nonimmigrant visa services.

The U.S. Citizen Services Unit has established daily walk-in times for U.S. citizens with immediate travel plans to obtain emergency passports. This includes emergency U.S. passport applications for first-time applicants. Furthermore, appointments can be made for all other purposes, including non-emergency travel. Appointments for renewal of lost or expired passports, Consular Reports of Birth Abroad, and notarial services are made available for the following week every Wednesday at 3 p.m. local time. Additionally, the U.S. Embassy in Jerusalem has warned that escalated levels of violence and danger in the West Bank may make it difficult for U.S. citizens to access the U.S. Embassy in Jerusalem and Consular Branch in Tel Aviv, so U.S. Services will be providing regular outreach to the West Bank for affected individuals.

Additionally, limited visa services have resumed and visa appointments can be scheduled for nonimmigrant work visas such as E-1, E-2, L-1, and H-1B; dependent visas; and student visas, such as F-1 and M-1. B visitor visa appointments and immigrant visa services continue to be unavailable. Importantly, Israeli citizens are eligible for visa-free visitor entries to the United States through the Electronic System for Travel Authorization (ESTA) for up to 90 days, subject to ESTA enrollment and approval.

Additionally, limited visa services have resumed and visa appointments can be scheduled for nonimmigrant work visas such as E-1, E-2, L-1, and H-1B; dependent visas; and student visas, such as F-1 and M-1. B visitor visa appointments and immigrant visa services continue to be unavailable. Importantly, Israeli citizens are eligible for visa-free visitor entries to the United States through the Electronic System for Travel Authorization (ESTA) for up to 90 days, subject to ESTA enrollment and approval.

©2023 Greenberg Traurig, LLP. All rights reserved.
For more news on US Visa Services in Israel, visit the NLR Immigration section.

DHS Publishes List of Countries Eligible for H-2A, H-2B Visa Programs

The Department of Homeland Security has published lists of countries whose nationals will be eligible for the H-2A and H-2B visa programs in the upcoming year.

‌Key Points:

  • The lists are mostly unchanged from last year, with one addition, Bolivia, to both lists.
  • All nationals who were eligible for the H-2A and H-2B visa programs last year will remain eligible this year.
  • Nationals of Mongolia and the Philippines will remain eligible for the H-2B visa program but not the H-2A program. Nationals of Paraguay will remain eligible for the H-2A program but not the H-2B program.
  • Nationals of countries that are not on the lists may be eligible for H-2A or H-2B visas on a case-by-case basis if U.S. Citizenship and Immigration Services makes a determination that issuing a visa would be in the national interest.

Additional Information: The countries whose nationals are eligible for the H-2A and H-2B visa programs are as follows.

Andorra The Kingdom of Eswatini Madagascar Saint Lucia
Argentina Fiji Malta San Marino
Australia Finland Mauritius Serbia
Austria France Mexico Singapore
Barbados Germany Monaco Slovakia
Belgium Greece Mongolia* Slovenia
Bolivia Grenada Montenegro Solomon Islands
Bosnia and Herzegovina Guatemala Mozambique South Africa
Brazil Haiti Nauru South Korea
Brunei Honduras The Netherlands Spain
Bulgaria Hungary New Zealand St. Vincent and the Grenadines
Canada Iceland Nicaragua Sweden
Chile Ireland North Macedonia Switzerland
Colombia Israel Norway Taiwan***
Costa Rica Italy Panama Thailand
Croatia Jamaica Papua New Guinea Timor-Leste
Republic of Cyprus Japan Paraguay** Turkey
Czech Republic Kiribati Peru Tuvalu
Denmark Latvia The Philippines* Ukraine
Dominican Republic Liechtenstein Poland United Kingdom
Ecuador Lithuania Portugal Uruguay
El Salvador Luxembourg Romania Vanuatu
Estonia

*Mongolia and the Philippines are eligible to participate in the H-2B program but are not eligible to participate in the H-2A program.

**Paraguay is eligible to participate in the H-2A program but is not eligible to participate in the H-2B program.

©2023 Berry Appleman & Leiden. All Rights Reserved.
For more news on Visa Program Eligibility, visit the NLR Immigration section.

China’s Supreme People’s Court Releases Typical Cases on Film Intellectual Property Protection

On November 3, 2023, China’s Supreme People’s Court (SPC) released the Typical Cases of Film Intellectual Property Protection by the People’s Courts (人民法院电影知识产权保护典型案例). The SPC stated, “In order to strengthen the publicity of the rule of law in the film field, further stimulate the innovation and creativity of the film industry, and promote the prosperity of socialist culture, the Supreme People’s Court issued typical cases on the protection of film intellectual property rights. Typical cases include both criminal cases and civil cases, involving pirated recordings and dissemination of theatrical movies, protection of the integrity rights of works, adaptation rights, information network dissemination rights, reasonable use of copyrights, protection of trade secrets, etc., which are important for promoting the rule of law. It is of positive significance to speed up the construction of a powerful film country.”

8 Typical Cases as explained by the SPC follow:

1. Copyright infringement cases involving Ma XX, Ma YY and others [Criminal Judgment of Yangzhou Intermediate People’s Court of Jiangsu Province （2020）苏10刑初11号]

[Basic case facts] From June 2016 to February 2019, the defendants Ma XX, Ma YY, Wen Jie, and Lu collaborated with others for the purpose of profit, colluded with theater staff to illegally obtain movie masters and keys, and then copied hundreds of movies such as “The Wandering Earth” and “Crazy Alien” with high-definition equipment, and sold the pirated and copied movies to “movie bar” operators to gain illegal profits.

[Judgment Result] The Intermediate People’s Court of Yangzhou City, Jiangsu Province held that the defendants Ma XX, Ma YY, Wen Jie, and Lu copied and distributed other people’s film works without the permission of the copyright owner for the purpose of profit, and jointly implemented the production The act of selling pirated films, with huge illegal gains and other particularly serious circumstances, constitutes a crime of copyright infringement. The four defendants were sentenced to fixed-term imprisonment of four to six years, and fined from RMB 600,000 to RMB 5.5 million, and their illegal gains were recovered. After the verdict was announced, the parties did not appeal or protest, and the first-instance judgment has become legally effective.

[Typical Significance] This case is a typical case in which the act of stealing and distributing theater movies constitutes a crime of copyright infringement. The people’s courts perform their intellectual property trial duties in accordance with the law and severely crack down on illegal and criminal acts of infringement and piracy in the film field, which is of great significance to strengthening the copyright protection of theatrical films and promoting the healthy development of the film and television industry.

2. Liang XX’s copyright infringement case [Criminal Judgement of the Shanghai No. 3 Intermediate People’s Court (2021）沪03刑初101号]

[Basic Case Facts] Since 2018, the defendant Liang XX has instructed Wang YY and others to develop and operate the “Renren Film and Television Subtitle Group” website and Android, IOS, Windows, MacOSX, TV and other clients, and instructed Xie ZZ and others to download unauthorized film and television works from overseas websites, translate, produce and upload them to relevant servers, and provide users with online viewing and downloading through the “Renren Film and Television Subtitle Group” website and related clients operated by them. There are 32,824 unauthorized film and television works on the “Renren Film and Television Subtitle Group” website and related clients, with a total of about 6.83 million members and an illegal business amount of more than 12 million RMB.

[Judgment Result] The Shanghai No. 3 Intermediate People’s Court held after trial that the defendant Liang XX copied and distributed other people’s works without the permission of the copyright owner for the purpose of profit, and there were other particularly serious circumstances, which constituted the crime of copyright infringement. Liang was sentenced to three years and six months in prison and fined RMB 1.5 million, and his illegal gains were recovered. After the verdict was announced, the parties did not appeal or protest, and the first-instance judgment has become legally effective.

[Typical Significance] There are many film and television works in this case and the rights holders are dispersed. The judgment clarified the legal application issues such as the crime of copyright infringement and the determination of the number of infringing film and television works. The criminal liability of the organizers and main participants shall be investigated in accordance with the law, and severe crackdowns shall be carried out for serious infringement of film copyright.

3. Copyright infringement dispute case between Shanghai Art Film Studio Co., Ltd. and Chongqing Yun Media Information Technology Co., Ltd. [Chongqing Fifth Intermediate People’s Court （2019）渝05民初3828号Civil Judgment]

[Basic facts of the case] Shanghai Art Film Studio Co., Ltd. owns the copyrights to the film works of the cartoons “Calabash Brothers” and “Calabash Little King Kong,” as well as the copyright to the character modeling art works of “Calabash Brothers” and “Calabash Little King Kong.” Chongqing Yun Media Information Technology Co., Ltd. (hereinafter referred to as Yun Media Technology Company) and others based on the story clips of the characters such as Seven Calabash Babies and Calabash King Kong in the cartoon, replaced the Mandarin carried by the audio data of the characters in the original work with Sichuan and Chongqing dialects, changed the dialogue content of the characters in the original work, produced multiple short videos of “Calabash Dialect Version,” and uploaded them to websites and public accounts for dissemination. Shanghai Animation Film Studio Co., Ltd. filed a lawsuit in court on the grounds that the above-mentioned actions carried out by Yun Media Technology Company and others constituted copyright infringement.

[Judgment Result] The Fifth Intermediate People’s Court of Chongqing held after trial that Yun Media Technology Company and others jointly produced the short video involved in the case, deliberately exaggerated the use of vulgar, negative, dark and uncivilized terms in dialects, changed the dialogue content of the characters in the original work, and vilified the original work. The character image in the work was uploaded to the Internet platform for wide dissemination, which conflicts with the core socialist values, damages the legitimate rights and interests of the copyright owner, and constitutes copyright infringement. It was ruled that Yun Media Technology Company and others should immediately stop the infringement, jointly publish a statement to eliminate the impact, and jointly compensate for economic losses. After the first-instance judgment, none of the parties appealed.

[Typical Significance] The judgment of this case emphasizes that the derivative use of other people’s film works  must not deface the characters in the film works, and must not include cultural dross. It must vigorously promote the core socialist values, which plays a positive guiding role in establishing healthy and civilized rule of law in the film industry.

4. Copyright ownership and infringement dispute case between Yu Mouzhu and Zhejiang Dongyang Meila Media Co., Ltd. [Chengdu Intermediate People’s Court of Sichuan Province （2018）川01民初1122号 Civil Judgment]

[Basic facts of the case] Yu Mouzhu published his novel “Wild Lily in Bloom” (盛开的野百合) on the website under the pseudonym Yu Mou, and adapted the novel into a script of the same name and sent it to Emei Film Group Co., Ltd. Since then, Zhejiang Dongyang Meila Media Co., Ltd. commissioned others to write the “Youth” movie script, and the film of the same name jointly produced with Huayi Brothers Film Co., Ltd. and others was released. Yu Mouzhu believes that the plot setting, character relationships, lines, and song and dance combinations of the “Youth” movie are highly overlapped with its novel and script, constituting substantial similarities, exceeding the boundaries of reasonable reference, and constituting an infringement of its rights to adapt and film and believes Zhejiang Dongyang Meila Media Co., Ltd., as the producer of the film “Youth” and other parties, jointly committed infringement.

[Judgment Result] The Intermediate People’s Court of Chengdu City, Sichuan Province held that there are obvious differences in the specific subject matter, story line, and theme between the “Youth” movie and Yu Mouzhu’s works. As far as the plot of the work is concerned, the multiple similar plots claimed by Yu Mouzhu are objective facts and limited expressions were not original and should not be protected. The plot of the disputed book and the character relationships advocated by Yu are obviously different from the movie “Youth.” Readers and audiences will not believe them to be similar and they do not have substantial similarities. Therefore, the all claims are dismissed. Yu Mouzhu was dissatisfied and appealed. The second-instance judgment of the Sichuan Provincial Higher People’s Court rejected the appeal and upheld the original judgment.

[Typical Significance] The judgment in this case clarified that objective facts and limited expressions are not original and are not protected by copyright law, and should be filtered when comparing infringements. The judgment also clarifies the correct comparison content and comparison method when determining whether a film work is infringing, protects the legitimate rights and interests of film copyright owners in accordance with the law, maintains a fair market competition order, and has positive significance for the prosperity of film creation.

5. Dispute case between Beijing iQiyi Technology Co., Ltd. and Shanghai Qiaojiaren Culture Media Co., Ltd. for infringement of the right to disseminate work information online [Beijing Intellectual Property Court (2021）京73民终2496号 Civil Judgment]

[Basic facts of the case] Beijing iQiyi Technology Co., Ltd. was authorized to obtain the exclusive information network dissemination rights and rights protection rights for the movie “I am not Madame Bovary.”  The APP operated by Shanghai Qiaojiaren Culture Media Co., Ltd. (hereinafter referred to as Qiaojiaren Company) provides online playback of the complete content of the film involved and added corresponding dubbing, sign language translation, and source subtitles on the basis of the pictures and sound effects of the video involved in this case, but no identification/prevention mechanism to limit viewership to those with dyslexia was used. Beijing iQiyi Technology Co., Ltd. believes that the APP provides online playback services for the accessible version of the movie “I Am Not Madame Bovary” to unspecified members of the public, infringing on its right to information network dissemination, and filed a lawsuit in court, requesting an order against Qiaojiaren Company to stop the infringement and compensate for economic losses and reasonable expenses.

[Judgment Result] The Beijing Intellectual Property Court held that the “accessible means that can be perceived by people with dyslexia” stipulated in the Copyright Law should include special restrictions on this “accessible means”, that is, it should be limited to meeting the requirements of and exclusive use of people with dyslexia.  The alleged infringement of Qiaojiaren Company is open to the unspecified public and does not meet the above conditions. It does not belong to statutory fair use and constitutes infringement. Considering that the original intention of Qiaojiaren Company was to make films accessible to people with disabilities and that the video involved had few clicks, the Court awarded economic losses of 10,000 RMB.

[Typical Significance] This case is the country’s first dispute involving an accessible version of a movie that infringes on the right to disseminate work information online. The judgment clarified that “providing published works to people with dyslexia in an accessible manner that they can perceive” is limited to the exclusive use of people with dyslexia. As a “fair use,” an effective verification mechanism for “people with dyslexia” should be adopted and exclude those who do not meet the criteria. The judgment in this case is conducive to the accurate implementation of the relevant international treaties that our country has joined (the “Marrakesh Treaty”), to the comprehensive protection of the rights of copyright owners, and to the regulation of the production and distribution of accessible versions of movies.

6. Zhejiang Shenghe Network Technology Co., Ltd. and Legend IP Co., Ltd. Confirmation of Non-infringement of Copyright Dispute Case [Hangzhou Internet Court（2021）浙0192民初10369号 Civil Judgment]

[Basic Case Facts] The Korean game “Legend of Mir 2” was launched in China in 2001. The rights holder, Legend IP Co., Ltd. (hereinafter referred to as “Legend IP”), after learning that the movie “Blue Moon” was about to be broadcast exclusively on the platform, believed that the movie infringed on the game’s copyright and sent a letter to the platform requesting to stop distributing the movie. The film producer sent a letter of reminder to Legend IP to enforce their IP, but Legend IP neither withdrew the warning nor sued. After the movie was released, Zhejiang Shenghe Network Technology Co., Ltd., as the copyright owner of the movie, sued for a declaratory judgement that the movie did not infringe the above-mentioned game copyright.

[Judgment Result] The Hangzhou Internet Court held that the overall picture of the game involved in the case is completely different from that of the movie in terms of picture composition, picture smoothness, lens experience, and audio-visual effects, and that the specific creative elements in the selection and arrangement of the audio-visual pictures are very different. There is a substantial difference, and the judgment confirms that there is no infringement. Legend IP was dissatisfied and filed an appeal. The second-instance judgment of the Intermediate People’s Court of Hangzhou City, Zhejiang Province rejected the appeal and upheld the original judgment.

[Typical Significance] The judgment of this case clarifies the thoughts of comparing whether the overall picture of the game and the film works are infringing, and points out that a work created later does not constitute infringement if it only refers to the theme or conception of the prior work, but specifically expresses that it has been separated from or differs from the prior work. The judgment of this case is conducive to guiding the development and prosperity of multi-style cultural innovation and promoting the high quality integrated development of the cultural industry.

7. Dispute over trade secret infringement between Xinli Media Group Co., Ltd. and Beijing Paihua Culture Media Co., Ltd. [Beijing Chaoyang District People’s Court(2017）京0105民初68514号 Civil Judgment]

[Basic facts of the case] Xinli Media Group Co., Ltd. (hereinafter referred to as Xinli Company) is the copyright holder of the movie “The Legend of Wukong.” It entrusted Beijing Paihua Culture Media Co., Ltd. (hereinafter referred to as Paihua Company) with the audio post-production of the film. Both parties signed a contract and agreed on a confidentiality clause. During the performance of the contract, Paihua Company violated the confidentiality agreement by outsourcing some of the work to outsiders for actual completion, and transmitted the film materials to the outsiders under the title “WKZ” (the first letters of the transliteration of the film title) through Baidu Cloud. While the film material was being stored on Baidu Cloud, it was hacked by criminals, causing the film involved to be leaked through the Internet before it was released. Xinli Company sued, requesting Paihua Company to stop the unfair competition behavior of disclosing the trade secrets of the film involved, make a public statement to eliminate the impact, and compensate for economic losses.

[Judgment Result] The Beijing Chaoyang District People’s Court held after trial that Paihua Company violated the confidentiality agreement by disclosing the film material involved to a party outside the case, and uploaded the material to Baidu Cloud, which ultimately caused the material to be leaked on the Internet. Both of these acts constituted Infringement of trade secrets. It was ruled that Paihua Company should compensate Xinli Company for economic losses of 3 million RMB and rights protection expenses of more than 300,000 RMB, and make a public statement to eliminate the impact. After the first-instance judgment, none of the parties appealed.

[Typical Significance] This case is a typical case of protecting materials as trade secrets during the film production process. Film materials are trade secrets, and there are many subjects involved in the film production process. All parties involved in film production have strict confidentiality obligations in all aspects of film production. Any violation of confidentiality obligations shall bear corresponding legal liability. The judgment in this case is conducive to promoting the standardization and legalization of the film production process, is conducive to protecting the rights of relevant rights holders involved in film production, and is conducive to promoting the prosperity and development of the film industry.

8. Unfair competition dispute case between Xinghui Overseas Co., Ltd. and Guangzhou Zhengkai Cultural Communication Co., Ltd. [Guangzhou Intellectual Property Court（2020）粤73民终2289号 Civil Judgment]

[Basic Case Facts] The Hong Kong movie “The King of Comedy” has a high reputation and the relevant public attention is high. Guangzhou Zhengkai Culture Communication Co., Ltd. (hereinafter referred to as Zhengkai Company) and Li XX promoted the accused infringing TV series “The King of Comedy 2018” on Weibo and WeChat official accounts in 2018 as the “series #King of Comedy” , and claimed in media promotions that it was adapted from “The King of Comedy” and so on. Hong Kong film copyright owner Xinghui Overseas Co., Ltd. filed a lawsuit in court, claiming that Zhengkai Company and Li XX were unfair competing.

[Judgment Result] After a hearing, the Guangzhou Intellectual Property Court held that by taking into account the box office receipts of the movie involved during the theatrical release in Hong Kong, the publicity efforts conducted before and during theatrical release, the number of films played on authorized video websites, the degree of continuous media coverage of the movie, and the involvement of the relevant public in the evaluation of the movie, among other factors, it could be fully proved that the titles of the movie involved had a certain degree of influence. The acts of Zhengkai Company and Li XX constituted the act of imitating and confusing the film name and false publicity with a certain degree of influence, and Zhengkai Company and Li XX shall bear the legal liabilities for unfair competition according to law.

[Typical Significance] In this case, the Anti-Unfair Competition Law is applied to protect the names of movies screened in Hong Kong in accordance with the law, and in light of the dissemination characteristics of film works, the essential requirements and considerations for determining the names of audiovisual works “having a certain impact” as prescribed in Article 6 of the Anti-Unfair Competition Law are clarified, which are of positive significance in strengthening the protection of film works, and are conducive to creating a sound market environment for the development and prosperity of the film industry.

The original announcement is available here (Chinese only).

© 2023 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.
For more news on China Intellectual Property Laws, visit the NLR Intellectual Property section.

Is ‘Freedom-Washing’ the New Greenwashing, and What Are Its Legal Consequences?

Companies will often make representations about modern slavery as part of their environmental, social and governance (ESG) measures.

In this article, we consider whether potentially false or misleading claims about modern slavery (i.e., freedom-washing) may be further called out by Australian regulatory bodies.

‘Freedom-washing’ is a term that can be used to describe a false or misleading claim by an organisation about the positive work being done to identify, assess and combat its modern slavery risks.

Even an understatement or nonstatement of an organisation’s modern slavery risks in its supply chains and operations may be considered ‘freedom-washing’ if it has the intent or effect to mislead the reader (for example, if the organisation’s responses appear overall to be more positive than they would otherwise appear in that light).

‘Freedom-washing’ will not necessarily involve an overtly false action. In some circumstances, a claim may not be entirely accurate despite being partly accurate.

An organisation required to report under the Modern Slavery Act 2018 (Cth) (Modern Slavery Act) needs to carefully consider the information it releases about its modern slavery risks and responses and whether it is potentially engaging in ‘freedom-washing.’

Importantly for all current and future reporting organisations, the scrutiny continues to mount around the legislative framework combatting modern slavery (including in terms of reporting, offences and penalties).

This scrutiny is highlighted by the release of the following recent important reports and studies:

  • The statutory report of the Modern Slavery Act (see here);
  • The targeted review of Divisions 270 and 271 of the Criminal Code 1995 (Cth) (see here); and
  • The Modern Slavery Index (see here).

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION (ACCC) / AUSTRALIAN CONSUMER LAW

As previously reported by K&L Gates, the ACCC has released long-anticipated guidance on environmental and sustainability claims (Guidance—see here), which sets out eight principles that businesses should follow when making environmental and sustainability claims and to comply with the Australian Consumer Law (ACL).

Although the Guidance was issued in the context of making environmental and sustainability claims, in our view, its eight principles can be applied equally to guide businesses in making ‘modern slavery’ claims without breaching the ACL. The Guidance encourages businesses to:

  • Make accurate and truthful claims.
  • Have evidence to back up claims.
  • Not leave out or hide important information.
  • Explain any conditions or qualifications on claims.
  • Avoid broad and unqualified claims.
  • Use clear and easy to understand language.
  • Remember visual elements should not give a wrong impression.
  • Be direct and open.

The ACL contains a broad prohibition against businesses engaging in misleading or deceptive conduct and prohibits the making of false or misleading representations about specific aspects of goods or services. As a result, claims that overstate an organisation’s modern slavery commitments generally, or inaccurately portray the working conditions within certain supply chains, may contravene the ACL.

We therefore recommend that organisations should also reflect on the Guidance when preparing a modern slavery statement or releasing information on modern slavery practices.

Breaches of the ACL incur very significant penalties. For corporations, the maximum pecuniary penalty per breach is the greater of:

  • AU$50 million;
  • Three times the value of the ‘reasonably attributable’ benefit obtained from the conduct; or
  • If this benefit cannot be determined, 30% of the corporation’s adjusted turnover during the breach turnover period (being a minimum of 12 months).

The ACCC will consider whether the following factors apply when determining whether to take enforcement action for a breach of the ACL:

  • The conduct is of significant public interest or concern;
  • The conduct results in substantial harm to consumers and detriment to business competitors;
  • Large businesses are making claims on a national scale;
  • The conduct involves a significant new or emerging market issue, or compliance or enforcement action is likely to have an educative or deterrent effect; or
  • ACCC action will help clarify aspects of the law, especially newer provisions of the ACL.

Furthermore, the ACCC will take into account the genuine efforts and appropriate steps that were taken by the business to verify the accuracy of any information they relied on.

But is there actually any appetite in the ACCC to seek to enforce the ACL with respect to ‘modern slavery’ claims?

To date, it has not given any indication that ‘modern slavery’ claims will be an enforcement priority. However, the ACCC has demonstrated a willingness to crack down on businesses that have sought to take advantage of increasingly environmentally and socially conscious consumers (e.g. greenwashing). Combined with growing scrutiny and broadening calls for tougher responses to be taken by government and business in combatting modern slavery, the possibility of ACCC action does appear to exist, if not now, then in the not too distant future.

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (ASIC) / FINANCIAL PRODUCTS AND DISCLOSURE OBLIGATIONS

General Provisions

The Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) both contain general prohibitions against companies:

  • Making statements or circulating information that is false or misleading; or
  • Engaging in dishonest, misleading or deceptive conduct in relation to a financial product or financial service.1

ASIC released Report 763 earlier in the year (read it here), which expanded on its approach to ‘greenwashing’ outlined in Information Sheet 271 (read it here). It detailed ASIC’s recent interventions in response to growing claims from companies, managed funds and superannuation funds about their ESG credentials.

ASIC has expanded both its surveillance and enforcement activities in regards to ‘greenwashing.’ ASIC has pursued civil penalty proceedings and issued infringement notices to companies that are making statements that are false or misleading about ESG ‘greenwashing’ claims.

In light of these actions in the ESG space, we recommend companies be vigilant about the information they include in their modern slavery statements and be careful about the modern slavery disclosures they make in relation to a financial product or service.

Product Disclosure Statements

Under section 1013D(1)(l) of the Corporations Act, if a financial product has an investment component, its issuer must include in the product disclosure statement the extent to which labour standards or environmental, social or ethical considerations are taken into account in selecting, retaining or realising an investment. This is relevant in the modern slavery context where companies are releasing product disclosure statements that refer to modern slavery ESG considerations or make reference to previous market disclosures on modern slavery practices.

ASIC has undertaken reactive and proactive surveillance of product disclosure statements, advertisements, website and other market disclosures. ASIC is also progressing surveillance of the superannuation fund sector on ESG claims.

International Sustainability Standards Board (ISSB) Standards for Disclosure

In addition to ASIC’s enforcement powers, the ISSB has introduced two new standards, IFRS S1 and S2. The standards are likely to be substantially aligned to the mandatory climate-related disclosures in Australia being prepared by the Australian Accounting Standards Board and the Treasury.

Relevant to modern slavery, the new standard IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information requires an entity to disclose information about its sustainability-related risks and opportunities in its general purpose financial reports (read it here).

To achieve the required fair presentation of sustainability-related financial information, an entity is required to provide a complete, neutral and accurate depiction of those sustainability-related risks and opportunities. Additionally, any material information must be disclosed. Information can be material where it omits, misstates or obscures information that could reasonably be expected to influence the decision making of readers of such reports.

‘Sustainability-related risks and opportunities’ are broadly defined as risks and opportunities that could reasonably be expected to affect an entity’s cash flows or access to finance. Anything that impacts an entity’s value chain will be an opportunity or risk to its cash flows. The entity’s work force is an example of a sustainability-related risk and opportunity. Therefore, reporting entities may have to report modern slavery in their supply chains as a material risk to their value chain, particularly if they are operating in a sector where the risk of modern slavery is heightened (for example, renewable energy projects or garment manufacturing).

While compliance with the ISSB standards remains voluntary until codified under Australian law, it is expected that the standards will be widely adopted by companies internationally.

OTHER CONSEQUENCES OF FREEDOM-WASHING

There are many other potential legal consequences of freedom-washing. These include:

  • Criminal liability under section 137.1 of the Criminal Code Act 1995 (Cth): This offence applies where a person knowingly gives information that is false or misleading or omits any matter or thing without which the information is misleading, and the information is given to a Commonwealth entity;
  • Breach of directors duties: If directors are not appropriately managing and disclosing the company’s modern slavery risks, then they could be in breach of the duty to exercise skill, care and diligence;
  • Requisition resolutions: Shareholders may requisition a resolution at the company’s annual general meeting in regards to modern slavery and the company’s supply chain practices; and
  • Shareholder class action: Shareholders may start a class action if the company has breached continuous disclosure laws by not reporting a modern slavery issue correctly or accurately.

INTRODUCTION OF PENALTIES UNDER THE MODERN SLAVERY ACT

The report on the statutory review of the Modern Slavery Act was released on 25 May 2023.

Its recommendations included that the Modern Slavery Act be amended to provide that it is an offence for a reporting entity to:

  • Fail, without reasonable excuse, to give the minister a modern slavery statement within a reporting period for that entity;
  • Give the minister a modern slavery statement that knowingly includes materially false information;
  • Fail to comply with a request given by the minister to the entity to take specified remedial action to comply with the reporting requirements of the Modern Slavery Act; and
  • Fail to have a due diligence system in place that meets the requirements set out in rules made under section 25 of the Modern Slavery Act.

The Australian Government has signaled it will now consider Professor John McMillan’s review and will consult across government and with stakeholders in formulating its response to the recommendations. Companies operating business in Australia should watch this space carefully.

We acknowledge the contributions to this publication from our graduate Harrison Langsford.

FOOTNOTES

1 See sections 1041E, 1041G and 1041H of the Corporations Act 2001 (Cth), and sections 12DA and 12DB of the Australian Securities and Investments Commission Act 2001 (Cth).

Copyright 2023 K & L Gates
Article by Michael Hain , Ayman Guirguis , Clive Cachia of K&L Gates
For more articles on ESG, visit the NLR Environmental, Energy & Resources section.

European Commission Action on Climate Taxonomy and ESG Rating Provider Regulation

On June 13, 2023, the European Commission published “a new package of measures to build on and strengthen the foundations of the EU sustainable finance framework.” The aim is to ensure that the EU sustainable finance framework continues to support companies and the financial sector in connection with climate transition, including making the framework “easier to use” and providing guidance on climate-related disclosure, while encouraging the private funding of transition projects and technologies. These measures are summarized in a publication, “A sustainable finance framework that works on the ground.” Overall, according to the Commission, the package “is another step towards a globally leading legal framework facilitating the financing of the transition.”

The sustainable finance package includes the following measures:

  • EU Taxonomy Climate Delegated Act: amendments include (i) new criteria for economic activities that make a substantial contribution to one or more non-climate environmental objectives, namely, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems; and (ii) changes expanding on economic activities that contribute to climate change mitigation and adaptation “not included so far – in particular in the manufacturing and transport sectors.” The EU Taxonomy Climate Delegated Act has been operative since January 2022 and includes 107 economic activities that are responsible for 64% of greenhouse gas emissions in the EU. In addition, “new economic sectors and activities will be added, and existing ones refined and updated, where needed in line with regulatory and technological developments.” “For large non-financial undertakings, disclosure of the degree of taxonomy alignment regarding climate objectives began in 2023. Disclosures will be phased-in over the coming years for other actors and environmental objectives.”
  • Proposed Regulation of ESG Rating Providers: the Commission adopted a proposed regulation, which was based on 2021 recommendations from the International Organization of Securities Commissioners, aimed at promoting operational integrity and increased transparency in the ESG ratings market through organizational principles and clear rules addressing conflicts of interest. Ratings providers would be authorized and supervised by the European Securities and Markets Authority. The regulation “provides requirements on disclosures around” ratings methodologies and objectives, and “introduces principle-based organizational requirements on” ratings providers activities. The Commission is also seeking advice from ESMA on the presentation of credit ratings, with the aim being to address shortcomings related to “how ESG factors are incorporated into methodologies and disclosures of how ESG factors impact credit ratings.”
  • Enhancing Usability: the Commission set out an overview of the measures and tools aimed at enhancing the usability of relevant rules and providing implementation guidance to stakeholders. The Commission Staff Working Document “Enhancing the usability of the EU Taxonomy and the overall EU sustainable finance framework” summarizes the Commission’s most recent initiatives and measures. The Commission also published a new FAQ document that provides guidance on the interpretation and implementation of certain legal provisions of the EU Taxonomy Regulation and on the interactions between the concepts of “taxonomy-aligned investment” and “sustainable investment” under the SFDR.

Taking the Temperature: As previously discussed, the Commission is increasingly taking steps to achieve the goal of reducing net greenhouse gas emissions by at least 55% by 2030, known as Fit for 55. Recent initiatives include the adoption of a carbon sinks goal, the launch of the greenwashing-focused Green Claims Directive, and now, the sustainable finance package.

Another objective of these regulatory initiatives is to provide increased transparency for investors as they assess sustainability and transition-related claims made by issuers. In this regard, the legislative proposal relating to the regulation of ESG rating agencies is significant. As noted in our longer survey, there is little consistency among ESG ratings providers and few established industry norms relating to disclosure, measurement methodologies, transparency and quality of underlying data. That has led to a number of jurisdictions proposing regulation, including (in addition to the EU) the UK, as well as to government inquiries to ratings providers in the U.S.

© Copyright 2023 Cadwalader, Wickersham & Taft LLP

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CFIUS Determines it Lacks Jurisdiction to Review Chinese Land Acquisition

In 2022, Fufeng USA, a subsidiary of Chinese company Fufeng Group, purchased 370 acres near Grand Forks, North Dakota, with the intention of developing the land to build a plant for wet corn milling and biofermentation,[1] prompting opposition from federal and state politicians.[2] North Dakota Senators, North Dakota’s Governor, and Senator Marco Rubio urged the Committee on Foreign Investment in the United States (CFIUS) to review the acquisition as a potential national security risk for being located within 12 miles from the Grand Forks Air Force Base, which is home to military drone technology and a space networking center.[3] Following CFIUS’ review of Fufeng’s notice submission, CFIUS determined that it lacked jurisdiction over the transaction. This post summarizes the public information about that CFIUS case and provides observations about the responses by North Dakota and CFIUS in the wake of Fufeng’s proposed investment.

CFIUS Review and Determination

1. Procedural History

In conjunction with rising public opposition to its land acquisition, public reports show that Fufeng USA submitted a declaration to CFIUS on July 27, 2022.[4] North Dakota local news outlet Valley News Live obtained a copy of the CFIUS closing letter to that declaration filing, which stated that CFIUS determined on August 31, 2022 that it lacked sufficient information to assess the transaction and requested that the parties file a full notice.[5] (CFIUS has the option under the regulations to request a full notice filing at the conclusion of the abbreviated 30-day review of a declaration filing.) Based on the CFIUS closing letter to that subsequent notice filing, which was likewise obtained and published by Valley News Live, Fufeng USA submitted a notice on October 17, 2022, and CFIUS subsequently concluded that it lacked jurisdiction to review the transaction in December 2022.[6]

2. Why CFIUS did not Review under its Part 802 Covered Real Estate Authority

According the CFIUS Letter released by Fufeng to Valley News Live, Fufeng submitted its notice pursuant to 31 C.F.R. Part 800 (“Part 800”), which pertains to covered transaction involving existing U.S. businesses.[7] The closing letter made no reference to the transaction being reviewed as a “covered real estate transaction” under 31 C.F.R. Part 802 (“Part 802”).[8] A reason for this could be that, at the time the case was before CFIUS, the land acquisition by Fufeng USA was not within any of the requisite proximity thresholds and, thus, did not fall within Part 802 authority. Under Part 802, CFIUS has authority over certain real estate transactions involving property in specific maritime ports or airports, or within defined proximity thresholds to identified “military installations” listed in Appendix A to Part 802. Grand Forks Air Force Base was not included in Appendix A at that time, nor was the acquired land within the defined proximity of any other listed military installation. Accordingly, the only way for CFIUS to extend authority would be under its Part 800 authority relating to certain acquisitions of U.S. businesses.

3. CFIUS Determined It Lacked Jurisdiction Under its Part 800 Covered Transaction Authority

CFIUS’ closing letter to Fufeng stated that “CFIUS has concluded that the Transaction is not a covered transaction and therefore CFIUS does not have jurisdiction under 31 C.F.R. Part 800.”[9] Part 800 provides CFIUS with authority to review covered control transactions (i.e., those transactions that could result in control of a U.S. business by a foreign person) or covered investment transactions (i.e., certain non-controlling investments directly or indirectly by a foreign person in U.S. businesses involved with critical technology, critical infrastructure, or the collection and maintaining of US citizen personal data). Greenfield investments, however, inherently do not involve an existing U.S. business. As such, greenfield investments would be outside of CFIUS’ jurisdiction under Part 800. Although the justification underlying CFIUS’ determination regarding Fufeng’s acquisition is not publicly available, CFIUS might have determined that it lacked authority under Part 800 because Fufeng’s purchase of undeveloped land was not an acquisition of a U.S. business, but more likely a greenfield investment.

State and Federal Response

Under state and federal pressure, the City of Grand Forks, which initially approved Fufeng’s development of the corn milling facility, “officially decided to terminate the development agreement between the city and Fufeng USA Inc.” on April 20, 2023.[10] This decision was largely impacted by the U.S. Air Force’s determination that “the proposed project presents a significant threat to national security with both near- and long-term risks of significant impacts to our operations in the area.”[11] As of today, the land appears to still be under the ownership of Fufeng USA.[12]

CFIUS’ determination that it lacked authority drew sharp criticism from state and federal politicians. North Dakota Senator Cramer purported that CFIUS may have determined the jurisdictional question too narrowly and indicated that the determination may prompt federal legislative action.[13] Senator Marco Rubio (R-Florida) concurred, issuing a statement that permitting the transaction was “dangerous and dumb.”[14] In response to the determination, the Governor of South Dakota announced plans for “legislation potentially limiting foreign purchases of agricultural land” by investigating “proposed purchases of ag land by foreign interests and recommend either approval or denial to the Governor.”[15]

On April 29, 2023, North Dakota Governor Doug Burgum signed Senate Bill No. 2371 into law, which prohibits local development and ownership of real property by foreign adversaries and related entities, effective August 1, 2023. Notably, these entities include businesses with a principal executive offices located in China, as well as businesses with a controlling Chinese interest or certain non-controlling Chinese interest.

On May 5, 2023, the U.S. Department of Treasury, the agency tasked with administering CFIUS, also took steps to expand its authority to cover more real property acquisitions. It published a Proposed Rule that would expand CFIUS covered real estate transaction authority over real restate located with 99 miles of the Grand Forks Air Force Base and seven other facilities located in Arizona, California, Iowa, and North Dakota. See a summary of that Proposed Rule and related implications at this TradePractition.com blog post.

FOOTNOTES

[1] See, Alix Larsen, CFIUS requesting Fufeng USA give more information on corn mill development, Valley News Live (Sep. 1, 2022), https://www.valleynewslive.com/2022/09/01/cfius-requesting-fufeng-usa-give-more-information-corn-mill-development/.

[2] See Letter from Gov. Doug Burgum to Secretaries Janet Yellen and Lloyd Austin (Jul. 25, 2022), https://www.governor.nd.gov/sites/www/files/documents/Gov.%20Burgum%20letter%20urging%20expedited%20CFIUS%20review%2007.25.2022.pdf; Letter from Senators Marco rubio, John Hoeven, and Kevin Cramer to Secretaries Janet Yellen and Lloyd Austin (Jul. 14, 2022), https://senatorkevincramer.app.box.com/s/2462nafbszk2u6yosy77chz9rpojlwtl.

[3] See id; Eamon Javers, Chinese Company’s Purchase of North Dakota Farmland Raises National Security Concerns in Washington, CNBC, July 1, 2022, https://www.cnbc.com/2022/07/01/chinese-purchase-of-north-dakota-farmland-raises-national-security-concerns-in-washington.html.

[4] See, Alix Larsen, CFIUS requesting Fufeng USA give more information on corn mill development (Sep. 1, 2022), https://www.valleynewslive.com/2022/09/01/cfius-requesting-fufeng-usa-give-more-information-corn-mill-development/.

[5] See id.

[6] See Stacie Van Dyke, Fufeng moving forward with corn milling plant in Grand Forks (Dec. 13, 2022), https://www.valleynewslive.com/2022/12/14/fufeng-moving-forward-with-corn-milling-plant-grand-forks/.

[7] See id.

[8] Id.

[9] See id.

[10] Bobby Falat, Grand Forks officially terminates Fufeng Deal (Apr. 20, 2023), https://www.valleynewslive.com/2023/04/20/grand-forks-officially-terminates-fufeng-deal/.

[11] News Release, Senator John Hoeven, Hoeven, Cramer: Air Force Provides Official Position on Fufeng Project in Grand Forks, (Jan. 31, 2023), https://www.hoeven.senate.gov/news/news-releases/hoeven-cramer-air-force-provides-official-position-on-fufeng-project-in-grand-forks.

[12] See, Meghan Arbegast, Fufeng Group owes Grand Forks County more than $2,000 in taxes for first half of 2022 (Apr. 5, 2023), https://www.grandforksherald.com/news/local/fufeng-group-owes-grand-forks-county-more-than-2-000-in-taxes-for-first-half-of-2022.

[13] See Josh Meny, Senator Cramer discusses latest on Fufeng in Grand Forks (Dec. 27, 2022), https://www.kxnet.com/news/kx-conversation/senator-cramer-discusses-latest-on-fufeng-in-grand-forks/.

[14] Press Release, Senator Marco Rubio, Rubio Slams CFIUS’s Refusal to Take Action Regarding Fufeng Farmland Purchase (Dec. 14, 2022) https://www.rubio.senate.gov/public/index.cfm/2022/12/rubio-slams-cfius-s-refusal-to-take-action-regarding-fufeng-farmland-purchase.

[15] Jason Harward, Gov. Kristi Noem takes aim at potential Chinese land purchases in South Dakota (Dec. 13, 2022),https://www.grandforksherald.com/news/south-dakota/gov-kristi-noem-takes-aim-at-potential-chinese-land-purchases-in-south-dakota.

© Copyright 2023 Squire Patton Boggs (US) LLP

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Diving Into SECURE 2.0: Changes for Small Employer Retirement Plans

International arbitration provides a binding, neutral, and consensual process for resolving contractual disputes between parties, often resulting in resolutions that are quicker, cheaper, more private, and more controllable than litigation in a court of law. Accordingly, arbitration for the resolution of international disputes between contracting parties from different legal jurisdictions has emerged as a fundamental method for resolving complex disputes in an ever-increasingly interconnected world. Multinational companies should make sure they stay up to date on the fundamentals of international arbitration, and it all starts with ensuring any arbitration clause included in an international agreement is drafted in a way that is enforceable and provides contracting parties a clear path toward the resolution of their dispute.

Why Should You Care about What Your Arbitration Clause Says?

An arbitration clause is the starting point for determining the parties’ intent in resolving their dispute outside a court of law. It is an independent agreement within the broader contract, likely enforceable even if the remainder of the contract is procured by fraud, and sits at the apex of what a court or arbitrator will look for to determine the parties’ intent with respect to how a dispute between contracting parties should be resolved.

A clear arbitration clause results in a meaningful, enforceable outcome, minimizes the intervention of U.S. or foreign judiciaries in what should be a private dispute resolution process, grants the third-party administrator and/or the arbitrator the powers necessary to resolve the dispute, and is conducted in accordance with procedures that help guarantee a fair, efficient proceeding.

In contrast, if an arbitration clause is ambiguous, there may be a finding that there is no dispute resolution agreement to enforce. This can result in challenges to the arbitration clause’s enforceability and potential litigation in unfavorable and less-than-ideal judicial systems. Of course, such ambiguity and challenges will create higher costs, longer windows of time to resolve disputes, greater risks that your claims in the dispute will be vulnerable to collateral attacks, and other unintended and unexpected consequences.

What Are the Hallmarks of a Clear Arbitration Clause?

For purposes of clarity, you should ensure your contract’s arbitration clause identifies:

  • Applicable Law. Which country’s (or state’s) law applies?
  • Forum and Rules. There are any number of arbitral forums, each with its own nuances in terms of procedure. Knowing the business and potential disputes that could arise will assist in selecting a good fit in terms of applicable rules.
  • Seat of Arbitration. The seat of the arbitration is more than just the place where the final hearing will take place. It provides a significant backbone to the proceeding and is as important as the selection of the forum and applicable rules.
  • Number of Arbitrators. The more arbitrators, the larger the cost, but a three-member tribunal has its place in certain disputes.
  • Language. Selecting the language (or languages) of the arbitration can greatly affect the cost of the proceeding.

Why Does Selecting the Seat of Arbitration Matter?

More than just the physical place where the arbitration will take place, the seat of arbitration is a legal construct that determines the lex arbitri — the procedural law of the arbitration.

Where the contract between the parties or the rules selected by the parties do not provide for certain procedures, the procedural laws of the seat of arbitration will be applied. Among the important aspects of a proceeding that the seat of the arbitration determines is:

  • Which courts will have supervisory jurisdiction over the arbitration;
  • Definitions and form of an agreement to arbitrate;
  • The arbitrability of the dispute;
  • The constitution of the arbitral tribunal and any grounds for challenge;
  • The equality of treatment of the parties;
  • The freedom to agree on detailed rules of procedure;
  • Interim measures of protection and court assistance;
  • Default proceedings;
  • The validity of the arbitration award; and
  • The finality of the arbitration award, including which courts will hear challenges to the award.

If not clearly identified by the parties, the seat of arbitration — and the procedural laws of that seat — will be selected by the arbitral tribunal.

What Do the Rules You Picked Say About Interim Measures?

A major consideration in selecting the applicable arbitral rules is the availability of interim measures. These are measures of relief, which can include injunctive relief, obtained prior to the commencement of, or during, an arbitral proceeding.

One of the most interesting forms of interim measures is an award of security. An interim award of security in arbitration is a payment of an amount of monies (usually tied to damages) pre-hearing for the conservation of, and enforcement of, a judgment so as to not render a judgment in the future a Pyrrhic victory. These securities prevent the dissipation of assets before it is too late to reach those assets. As such, it is an extremely powerful tool, and determining whether the rules you select, and/or the seat of the arbitration, allows for such an interim award should be a key consideration in drafting your arbitration clause.

What Are the Abilities and Liabilities of Third Parties?

Depending on the circumstances, jurisdiction chosen, governing law, and seat of the arbitration, a third party (a non-signatory to the agreement) can compel arbitration and be compelled to arbitration, the latter being the rarer occurrence. Knowing if there is potential exposure to such parties, which can include directors, officers, employees, beneficiaries, and others, should be assessed prior to entering into an arbitration agreement.

On What Basis Are Arbitral Awards Enforceable?

Arbitral awards, because of the adherence by more than 160 countries to the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards (“New York Convention”), are the most enforceable award anywhere in the world. Under the New York Convention:

  • A written agreement to arbitrate, including as contained in a contractual arbitration clause, is generally enforceable.
  • Subject to very narrow exceptions, an arbitral award may be recognized and enforced as a final judgment in each contracting country.

In contrast, no treaty requires that the judgments of a country’s court system be recognized; these enforcement decisions are made on an ad hoc basis according to principles of comity and public policy. The Hague Judgments Convention on the Recognition and Enforcement of Foreign Judgments, a treaty similar to the New York Convention, may become the relevant applicable framework in the future but is still in its infancy.

How Can Legal Counsel Help My Multinational Company Address International Arbitration Issues?

The best way to ensure a reliable and enforceable arbitration agreement is a careful examination of the structure and purpose of the contract as well as the company’s unique business profile based on how and where it does business.

Adequate legal counsel should provide clients with practical guidance in drafting and enforcing international arbitration agreements. Services provided should include:

  • Counseling: Counseling companies to understand how international arbitration clauses apply to their multinational operations, how they may benefit from such clauses, and/or how such clauses may not be in their best interest.
  • Drafting: Working with clients to ensure enforceable and clearly understood arbitration clauses are prepared for the specific contractual relationship, considering the myriad factors that go into preparing such a clause.
  • Risk Assessments: Working with companies to conduct risk assessments in the event of contract disputes with arbitration clauses.
  • Arbitration: Arbitrating before tribunals to secure interim securities and/or enforceable arbitral awards in the event of a contract dispute anywhere in the world.

© 2023 Foley & Lardner LLP

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Is Biodiversity Emerging As A Unifying Concept That Can Help Ease The Political Polarization Surrounding ESG?

Highlights

    • In addition to global initiatives by the United Nations, G7, and the U.S., the need for protection against biodiversity loss has become a central focus of the business and investment communities
    • Biodiversity protection is emerging worldwide as a unifying concept that can mitigate the political polarization surrounding ESG and promote constructive dialogue about sustainability
    • A number of steps can be taken to capitalize on the unique attributes and appeal of biodiversity and leverage its potential to serve as a unifying concept

International Biodiversity Day, May 22, 2023, with its theme “From Agreement to Action: Build Back Biodiversity” was a powerful reminder that momentum for biodiversity conservation is accelerating globally. Biodiversity is increasingly being recognized as a potential unifying concept that can help alleviate some of the extreme political divergence over the term ESG.

ESG, which encompasses a broad range of environmental, social, and governance factors, has become politically charged and the subject of intense debate and varying interpretations. Biodiversity, on the other hand, is widely recognized as a critical aspect of environmental sustainability and it is increasingly acknowledged as a pressing issue by virtually all stakeholders, including scientists, policymakers, businesses, and communities.

Biodiversity represents the variety of life on Earth, including ecosystems, species, and genetic diversity. It is a tangible and universally valued concept that resonates with people from various backgrounds and ideologies. The preservation, protection and conservation of biodiversity are essential for the health and resilience of ecosystems, as well as for addressing climate change and ensuring the well-being of future generations.

By emphasizing biodiversity within sustainability discussions, stakeholders can find common ground and rally around a shared objective: protecting and restoring the Earth’s natural diversity. Biodiversity provides a unifying language and focus that transcends political divisions, as it highlights the interconnectedness of all life forms. It allows for a more tangible and universally valued point of reference, which can facilitate collaboration and drive collective action towards conservation efforts.

In addition to global initiatives by the United Nations, the Group of Seven (G7), and the U.S., the need for protection against biodiversity loss has also become a central focus of business and investment communities, and appears to be receiving a more favorable reception in the U.S. than the broader concepts associated with and motives attributed to ESG investing. This increased attention has, in turn, opened up a number of practical opportunities for action to leverage the potential of biodiversity as a unifying concept.

International Support for Biodiversity Protection

The United Nations formed the Convention on Biological Diversity (CBD) to promote nature and human well-being. The first draft was proposed on May 22, 1992, which was then designated as International Biodiversity Day. Since the Rio Earth Summit in 1992, nearly 200 countries have signed onto this treaty, which is a legally binding commitment to conserve biological diversity, to sustainably use its components and to share equitably the benefits arising from the use of genetic resources.

In December 2022, at the 15th UN Biodiversity Conference (COP15), the CBD adopted the Kunming-Montreal Global Biodiversity Framework that calls for protecting 30 percent of the planet’s land, ocean, and inland waters and includes 23 other targets to help restore and protect ecosystems and endangered species worldwide, and ensure that big businesses disclose biodiversity risks and impacts from their operations. The Kunming-Montreal framework also focused on increasing funding for biodiversity by at least $200 billion per year (with at least $30 billion per year to developing countries by 2030).

The U.S. is one of just a few countries worldwide that has not yet formally approved the CBD. While President Clinton signed the CBD in 1993, the Senate did not ratify it. Although the U.S. was on the sidelines at COP15 in late 2022, in parallel with the CBD approval of the Kunming-Montreal framework, the U.S. reiterated its support for an ambitious and transformative Global Diversity Framework, outlined in this State Department press release.

In addition to committing to conserve at least 30 percent of U.S. lands and waters by 2030, other U.S. leadership initiatives to mainstream and conserve nature that were announced or reaffirmed at that time include:

    • Conserving forests and combatting global deforestation
    • Prioritizing nature-based solutions to address climate change, nature loss, and inequity
    • Incorporating nature into national economic statistics and accounts to support decision-making
    • Recognizing and including indigenous knowledge in federal research, policy, and decision-making, including protections for the knowledge holder
    • Knowing nature with a national nature assessment that will build on the wealth of existing data, scientific evidence, and Indigenous Knowledge to create a holistic picture of America’s lands, waters, wildlife, ecosystems and the benefits they provide
    • Strengthening action for nature deprived communities by expanding access to local parks, tree canopy cover, conservation areas, open space and water-based recreation, public gardens, beaches, and waterways
    • Conserving arctic ecosystems through increased research on marine ecosystems, fisheries, and wildlife, including through co-production and co-management with Indigenous Peoples

The U.S. also spearheaded efforts to reverse the decline in biodiversity globally by advancing land and water conservation, combating drivers of nature loss, protecting species, and supporting sustainable use, while also enabling healthy and prosperous communities through sustainable development. The U.S. also affirmed its financial commitment to and support for international development assistance to protect biodiversity. Additionally, the U.S. made major policy and financial commitments to protect oceans and advance marine conservation and a sustainable ocean economy.

Of particular importance, the U.S. reaffirmed its commitment to advancing science-based decision making and its support for the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services.

Most recently, the G7 Hiroshima Leaders’ Communique issued at the close of their meeting on May 20 on the cusp of International Biodiversity Day, affirmed that G7 leadership (including the U.S.) welcomed “the adoption of the historic Kunming-Montreal Global Biodiversity Framework (GBF) to halt and reverse biodiversity loss by 2030, which is fundamental to human well-being, a healthy planet and economic prosperity, and commit to its swift and full implementation and to achievement of each of its goals and targets.”
G7 leadership also reaffirmed their commitment “to substantially increase our national and international funding for nature by 2025,” and “to supporting and advancing a transition to nature positive economies.” Notably, they also pressed companies to do so as well while at the same time voicing support for TNFD’s market framework for corporate nature related disclosures:

“We call on businesses to progressively reduce negative and increase positive impacts on biodiversity. We look forward to the publication of the Taskforce on Nature-related Financial Disclosures’ (TNFD’s) market framework and urge market participants, governments and regulators to support its development.”

Similarly, multilateral development banks (MDBs) were urged by the leaders of G7 to increase their support for biodiversity by leveraging financial resources from all sources and “deploying a full suite of instruments.”

Increasing Focus On Biodiversity By The Financial Sector

The financial sector has taken note of the growing international support for biodiversity conservation and protection. A 2023 study by PwC found that “55% of global GDP—equivalent to about US $58 trillion—is moderately or highly dependent on nature.” In its report The Economic Case for Nature, the World Bank found that a partial collapse of ecosystem services would cost 2.3 percent of global GDP ($2.7 trillion) in 2030. Conversely, the report found that implementing policies beneficial to nature and biodiversity conservation (including achieving the “30×30” goal subsequently approved by the CBD in the Kunming-Montreal framework and by Executive Order in the U.S.) could result in a substantial increase in global real GDP by 2030.

According to a 2020 report by the World Economic Forum, protecting nature and increasing biodiversity could generate business opportunities of $10 trillion a year and create nearly 400 million new jobs by 2030. Given this economic potential, it comes as no surprise that a growing number of investors are focusing on deploying capital for nature-based opportunities, and trying to assess whether and to what extent companies are susceptible to biodiversity related risks.

Toward those ends, the financial sector has been monitoring and supporting the development of TNFD’s market framework for nature related disclosures that was most recently endorsed by G7. That private global effort was launched in 2021 in response to the growing need to factor nature into financial and business decisions. The fourth and final beta version was issued in March 2023:

“The TNFD is a market-led, science-based and government supported initiative to help respond to this imperative. The Taskforce is nearing the end of its two-year framework design and development phase to provide market participants with a risk management and disclosure framework to identify, assess, respond and, where appropriate, disclose their nature-related issues. The TNFD framework, including TCFD-aligned recommended disclosures, will be published in September 2023 ready for market adoption.”

While the TNFD framework is not legally binding, the final version will be coming on line just in time for use as a guide for compliance with the EU’s Corporate Sustainability Reporting Directive (CSRD), which was effective in April 2023. It will require a substantial number of European companies and others operating in the EU, to start making disclosures regarding biodiversity and nature in coming years.

One of the more significant catalysts for investment in the protection of biodiversity and nature was the establishment of the Natural Capital Investment Alliance as part of the United Kingdom’s Sustainable Markets Initiative announced in 2020 and the Terra Carta sustainability charter launched by King Charles a year later. The Alliance is a public/private venture that aims to invest $10 billion in natural capital assets. Speaking at the One Planet Summit on biodiversity where the Alliance was announced in January 2021, King Charles stated “… I have created a Natural Capital Investment Alliance to help us arrive at a common language on Natural Capital Investment so that we can start putting money to work and improve the flow of capital.”

According to research by Environmental Finance, total assets held in thematic biodiversity funds more than tripled in 2022, and it is anticipated that momentum and growth will accelerate in response to COP 15 in December 2023, and approval of the Kunming-Montreal framework.

Positioning Biodiversity As A Unifying Concept

While biodiversity is not replacing ESG, it is gaining more attention within the broader ESG framework. Biodiversity conservation is supported by a vast body of scientific research and has a broad consensus among stakeholders. Many companies are incorporating biodiversity considerations into their sustainability strategies, and setting goals for conservation, habitat restoration, and responsible land use. Investors are also factoring biodiversity into their decision-making processes, looking for companies that demonstrate strong biodiversity conservation efforts.

Given the universal importance of biodiversity, it can serve as a focal point for mutual understanding for stakeholders with varying perspectives. Biodiversity conservation provides a unifying language that encourages collaborative efforts towards shared goals of environmental stewardship and the preservation of natural resources. Protection against biodiversity loss is not an ideological issue. To the contrary, it is fundamental, practical, and existential: the need to preserve the natural systems that support life on Earth. Emphasizing the importance of biodiversity shifts the focus to concrete and tangible actions required globally and locally, such as species preservation, and ecosystem protection, which can garner broader support and participation and help bridge political divides.

While biodiversity protection is by no means a panacea, there are further steps that can be taken to capitalize on its unique attributes and appeal that can improve the potential for biodiversity to serve as a unifying concept that can help reduce the current political polarization in the U.S. over ESG and promote more constructive dialogue around sustainability:

    • Universal concern – Biodiversity loss affects every individual and society, regardless of political affiliation. It is a shared concern that is oblivious to political boundaries, as the preservation of nature’s diversity is vital for the well-being of all life on Earth. By emphasizing biodiversity as a unifying concept, stakeholders can find mutuality and work together towards its conservation.
    • Inclusivity – Biodiversity requires inclusive engagement by diverse stakeholders and technical and scientific support from local communities, indigenous groups, governments, businesses, civil society organizations and the public. Such engagement fosters dialogue, understanding, and collaboration, breaking down political barriers.
    • Tangible and relatable – Biodiversity is a concrete and tangible concept that people can relate to, unlike some of the more complex ESG concepts, like Scope 3 greenhouse gas (GHG) emissions and Net Zero. It encompasses the variety of species, ecosystems, and genetic diversity, which are easily understandable and relatable to everyday experiences. This relatability can bridge political divides and foster broader support for conservation efforts.
    • Interconnectedness – Biodiversity underscores the interconnectedness of ecosystems and species emphasizing that actions in one area can have cascading far-reaching consequences on others, including ecological, social, and economic effects. Recognizing this interconnectedness can encourage stakeholders to collaborate across sectors and ideologies to address biodiversity loss collectively.
    • Co-benefits and shared values – Biodiversity conservation often aligns with other societal values and goals, such as climate change mitigation, sustainable development, and human well-being. By emphasizing the co-benefits that arise from biodiversity conservation, such as ecosystem services and resilience, stakeholders can rally around shared values and work towards a common vision.
    • Economic implications – Biodiversity loss can have significant economic implications for industries like agriculture, tourism, and pharmaceuticals. It can also have impacts on supply chains and market access. Recognizing the economic value of biodiversity and the potential risks associated with its decline can bring together diverse stakeholders, including businesses and investors, who recognize the importance of integrating biodiversity considerations into their strategies and decision-making processes.
    • Science-based approach – Biodiversity conservation relies on scientific knowledge and research. Emphasizing the scientific evidence on the importance of biodiversity helps build consensus and transcends political biases, providing a foundation for constructive discussions.
    • Local and global perspectives – Biodiversity conservation is relevant at both local and global scales. It allows for discussions that incorporate local knowledge, values, and practices, while recognizing the need for global cooperation to address biodiversity loss and protect shared resources.

To leverage biodiversity as a unifying concept, it is crucial to promote open dialogue, knowledge sharing, and collaboration. Stakeholders should engage in inclusive decision-making processes that respect diverse perspectives and prioritize equitable and sustainable outcomes.

Takeaways

Biodiversity is emerging as a potential unifying concept that can help mitigate the political polarization surrounding the term ESG. While ESG has become a politically charged and debated topic, biodiversity is widely recognized as a critical aspect of environmental sustainability and has broad support across different stakeholders.

By focusing on biodiversity, stakeholders can find common ground in recognizing the importance of preserving nature’s diversity and ensuring the long-term sustainability of ecosystems. Biodiversity loss is a global challenge that affects everyone, irrespective of political affiliation, and it is increasingly acknowledged as a pressing issue by scientists, policymakers, businesses, and communities.

It is important to note that while biodiversity can be a unifying concept, there will still be debates and differing opinions on specific approaches and trade-offs involved in biodiversity conservation. Different stakeholders may have differing priorities, perspectives, and proposed means and methods to address biodiversity loss. The complexity of biodiversity issues, such as balancing conservation with economic development or navigating conflicts between different stakeholder interests, requires careful consideration and dialogue.

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European Commission Aims to Tackle Greenwashing in Latest Proposal

On March 22, the European Commission unveiled a proposal, the Green Claims Directive (Proposal), aimed at combating greenwashing and misleading environmental claims. By virtue of the Proposal, the EC is attempting to implement measures designed to provide “reliable, comparable and verifiable information” to consumers, with the overall high-level goal to create a level playing field in the EU, wherein companies that make a genuine effort to improve their environmental sustainability can be easily recognized and rewarded by consumers. The Proposal follows a 2020 sweep that found nearly half of environmental claims examined in the EU may be false or deceptive. Following the ordinary legislative procedure, the Proposal will now be subject to the approval of the European Parliament and the Council. There is no set date for entry into force at this time.

The Proposal complements a March 2022 proposal to amend the Consumer Rights Directive to provide consumers with information on products’ durability and repairability, as well as to amend the Unfair Commercial Practices Directive by, among other things, banning “generic, vague environmental claims” and “displaying a voluntary sustainability label which was not based on a third-party verification scheme or established by public authorities.” The Proposal builds on these measures to provide “more specific requirements on unregulated claims, be it for specific product groups, specific sectors or for specific environmental impacts or aspects.” It would require companies that make “green claims to respect minimum standards on how they substantiate and communicate those claims.” Businesses based outside the EU that make environmental claims directed at EU consumers will also have to respect the requirements set out in the Proposal. The criteria target explicit claims, such as “T-shirt made of recycled plastic bottles” and “packaging made of 30% recycled plastic.”

Pursuant to Article 3 of the Proposal, “environmental claims shall be based on an assessment that meets the selected minimum criteria to prevent claims from being misleading,” including, among other things, that the claim “relies on recognised scientific evidence and state of the art technical knowledge,” considers “all significant aspects and impacts to assess the performance,” demonstrates whether the claim is accurate for the whole product or only parts of it, provides information on whether the product performs better than “common practice,” identifies any negative impacts resulting from positive product achievements, and reports greenhouse gas offsets.

Article 4 of the Proposal outlines requirements for comparative claims related to environmental impacts, including disclosure of equivalent data for assessments, use of consistent assumptions for comparisons and use of data sourced in an equivalent manner. The level of substantiation needed will vary based on the type of claim, but all assessments should consider the product’s life-cycle to identify relevant impacts.

Pursuant to Article 10, all environmental claims and labels must be verified and certified by a third-party verifier before being used in commercial communications. An officially accredited body will carry out the verification process and issue a certificate of conformity, which will be recognized across the EU and shared among Member States via the Internal Market Information System. The verifier is required to be an officially accredited, independent body with the necessary expertise, equipment, and infrastructure to carry out the verifications and maintain professional secrecy.

The Proposal is part of a broader trend of governmental regulators, self-regulatory organizations, and standard setters across industries adopting a more formalized approach toward greenwashing. For example, as we recently reported, the UK’s Advertising Standards Authority (ASA) published rules on making carbon neutral and net-zero claims. Instances of enforcement actions over greenwashing allegations have also been on the rise. The Securities and Exchange Board of India recently launched a consultation paper seeking public comment on rules to prevent greenwashing by ESG investment funds, and the European Council and the European Parliament reached an agreement regarding European Green Bonds Standards aimed at, among other things, avoiding greenwashing.

Article By Sukhvir Basran and Rachel Rodman of Cadwalader, Wickersham & Taft LLP

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The EU’s New Green Claims Directive – It’s Not Easy Being Green

Highlights

  • On March 22, 2023, the European Commission proposed the Green Claims Directive, which is intended to make green claims reliable, comparable and verifiable across the EU and protect consumers from greenwashing
  • Adding to the momentum generated by other EU green initiatives, this directive could be the catalyst that also spurs the U.S. to approve stronger regulatory enforcement mechanisms to crackdown on greenwashing
  • This proposed directive overlaps the FTC’s request for comments on its Green Guides, including whether the agency should initiate a rulemaking to establish enforceable requirements related to unfair and deceptive environmental claims. The deadline for comments has been extended to April 24, 2023

The European Commission (EC) proposed the Green Claims Directive (GCD) on March 22, 2023, to crack down on greenwashing and prevent businesses from misleading customers about the environmental characteristics of their products and services. This action was in response, at least in part, to a 2020 commission study that found more than 50 percent of green labels made environmental claims that were “vague, misleading or unfounded,” and 40 percent of these claims were “unsubstantiated.”

 

This definitive action by the European Union (EU) comes at a time when the U.S. is also considering options to curb greenwashing and could inspire the U.S. to implement stronger regulatory enforcement mechanisms, including promulgation of new enforceable rules by the Federal Trade Commission (FTC) defining and prohibiting unfair and deceptive environmental claims.

According to the EC, under this proposal, consumers “will have more clarity, stronger reassurance that when something is sold as green, it actually is green, and better quality information to choose environment-friendly products and services.”

Scope of the Green Claims Directive

The EC’s objectives in the proposed GCD are to:

  • Make green claims reliable, comparable and verifiable across the EU
  • Protect consumers from greenwashing
  • Contribute to creating a circular and green EU economy by enabling consumers to make informed purchasing decisions
  • Help establish a level playing field when it comes to environmental performance of products

The related proposal for a directive on empowering consumers for the green transition and annex, referenced in the proposed GCD, defines the green claims to be regulated as follows:

“any message or representation, which is not mandatory under Union law or national law, including text, pictorial, graphic or symbolic representation, in any form, including labels, brand names, company names or product names, in the context of a commercial communication, which states or implies that a product or trader has a positive or no impact on the environment or is less damaging to the environment than other products or traders, respectively, or has improved their impact over time.”

The GCD provides minimum requirements for valid, comparable and verifiable information about the environmental impacts of products that make green claims. The proposal sets clear criteria for companies to prove their environmental claims: “As part of the scientific analysis, companies will identify the environmental impacts that are actually relevant to their product, as well as identifying any possible trade-offs to give a full and accurate picture.” Businesses will be required to provide consumers information on the green claim, either with the product or online. The new rule will require verification by independent auditors before claims can be made and put on the market.

The GCD will also regulate environmental labels. The GCD is proposing to establish standard criteria for the more than 230 voluntary sustainability labels used across the EU, which are currently “subject to different levels of robustness, supervision and transparency.” The GCD will require environmental labels to be reliable, transparent, independently verified and regularly reviewed. Under the new proposal, adding an environmental label on products is still voluntary. The EU’s official EU Ecolabel is exempt from the new rules since it already adheres to a third-party verification standard.

Companies based outside the EU that make green claims or utilize environmental labels that target the consumers of the 27 member states also would be required to comply with the GCD. It will be up to member states to set up the substantiation process for products and labels’ green claims using independent and accredited auditors. The GCD has established the following process criteria:

  • Claims must be substantiated with scientific evidence that is widely recognised, identifying the relevant environmental impacts and any trade-offs between them
  • If products or organisations are compared with other products and organisations, these comparisons must be fair and based on equivalent information and data
  • Claims or labels that use aggregate scoring of the product’s overall environmental impact on, for example, biodiversity, climate, water consumption, soil, etc., shall not be permitted, unless set in EU rules
  • Environmental labelling schemes should be solid and reliable, and their proliferation must be controlled. EU level schemes should be encouraged, new public schemes, unless developed at EU level, will not be allowed, and new private schemes are only allowed if they can show higher environmental ambition than existing ones and get a pre-approval
  • Environmental labels must be transparent, verified by a third party, and regularly reviewed

Enforcement of the GCD will take place at the member state level, subject to the proviso in the GCD that “penalties must be ‘effective, proportionate and dissuasive.’” Penalties for violation range from fines to confiscation of revenues and temporary exclusion from public procurement processes and public funding. The directive requires that consumers should be able to bring an action as well.

The EC’s intent is for the GCD to work with the Directive on Empowering the Consumers for the Green Transition, which encourages sustainable consumption by providing understandable information about the environmental impact of products, and identifying the types of claims that are deemed unfair commercial practices. Together these new rules are intended to provide a clear regime for environmental claims and labels. According to the EC, the adoption of this proposed legislation will not only protect consumers and the environment but also give a competitive edge to companies committed to increasing their environmental sustainability.

Initial Public Reaction to the GCD and Next Steps

While some organizations, such as the International Chamber of Commerce, offered support, several interest groups quickly issued public critiques of the proposed GCD. The Sustainable Apparel Coalition asserted that: “The Directive does not mandate a standardized and clearly defined framework based on scientific foundations and fails to provide the legal certainty for companies and clarity to consumers.”

ECOS lamented that “After months of intense lobbying, what could have been legislation contributing to providing reliable environmental information to consumers was substantially watered down,” and added that “In order for claims to be robust and comparable, harmonised methodologies at the EU level will be crucial.” Carbon Market Watch was disappointed that “The draft directive fails to outlaw vague and disingenuous terms like ‘carbon neutrality’, which are a favoured marketing strategy for companies seeking to give their image a green makeover while continuing to pollute with impunity.”

The EC’s proposal will now go to the European Parliament and Council for consideration. This process usually takes about 18 months, during which there will be a public consultation process that will solicit comments, and amendments may be introduced. If the GCD is approved, each of the 27 member states will have 18 months after entry of the GCD to adopt national laws, and those laws will become effective six months after that. As a result, there is a reasonably good prospect that there will be variants in the final laws enacted.

Will the GCD Influence the U.S.’s Approach to Regulation of Greenwashing?

The timing and scope of the GCD is of no small interest in the U.S., where regulation of greenwashing has been ramping up as well. In May 2022, the Securities and Exchange Commission (SEC) issued the proposed Names Rule and ESG Disclosure Rule targeting greenwashing in the naming and purpose of claimed ESG funds. The SEC is expected to take final action on the Names Rule in April 2023.

Additionally, as part of a review process that occurs every 10 years, the FTC is receiving comments on its Green Guides for the Use of Environmental Claims, which also target greenwashing. However, the Green Guides are just that – guides that do not currently have the force of law that are used to help interpret what is “unfair and deceptive.”

It is particularly noteworthy that the FTC has asked the public to comment, for the first time, on whether the agency should initiate a rulemaking under the FTC Act to establish independently enforceable requirements related to unfair and deceptive environmental claims. If the FTC promulgates such a rule, it will have new enforcement authority to impose substantial penalties.

The deadline for comments on the Green Guides was recently extended to April 24, 2023. It is anticipated that there will be a substantial number of comments and it will take some time for the FTC to digest them. It will be interesting to watch the process unfold as the GCD moves toward finalization and the FTC decides whether to commence rulemaking in connection with its Green Guide updates. Once again there is a reasonable prospect that the European initiatives and momentum on green matters, including the GCD, could be a catalyst for the US to step up as well – in this case to implement stronger regulatory enforcement mechanisms to crackdown on greenwashing.

Article By Bruce White of Barnes & Thornburg LLP

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