Tag: climate change

Calling All Whistleblowers: Department of Justice Launches Office of Environmental Justice

Last week, the United States Attorney General announced the creation of the Office of Environmental Justice (OEJ) within the Department of Justice. The OEJ will manage DOJ’s environmental justice projects and “serve as the central hub for our efforts to advance our comprehensive environmental justice enforcement strategy” and address the “harm caused by environmental crime, pollution, and climate change.”

In his speech, Attorney General Merrick B. Garland remarked that OEJ will “prioritize the cases that will have the greatest impact on the communities most overburdened by environmental harm” in partnership with the Civil Rights Division, Office for Access to Justice, Office of Tribal Justice, and United States Attorneys’ Offices.
Whistleblowers take note: violations of environmental laws (Clean Air Act, Clean Water Act) can be a basis for a False Claims Act case.

In 2019, the DOJ settled a case against a domestic producer of Omega-3 fish oil supplements, fishmeal, and fish solubles for livestock and aquaculture feed. The producer allegedly falsely certified compliance with federal environmental laws on a loan application. Under the terms of the settlement, the fish oil producer paid $1 million. A former employee blew the whistle on their employer’s fishy business and was rewarded $200,000 as part of a qui tam lawsuit.

False certification of environmental law compliance harms taxpayers, workers, residents, and the environment for generations. The Assistant Attorney General of the DOJ’s Civil Division said about the case, “Companies will face appropriate consequences if they misrepresent their eligibility to participate in federal programs and divert resources from those who should receive federal support.” It’s up to employees of manufacturers, contractors, construction companies, power plants, and others who receive government funds to report environmentally hazardous misconduct, so that, as the U.S. Attorney said, “Businessmen and companies that lie to get their hands on taxpayer money will be held accountable for their actions.”

Article By Eva Gunasekera and Renée Brooker of Tycko & Zavareei LLP

For more whistleblower legal news, click here to visit the National Law Review.

© 2022 by Tycko & Zavareei LLP

ARPA-E: Biden’s Proposed FY 2023 Budget Boosts Investment in Clean Energy Technologies

On March 28, 2022, the Biden-Harris Administration sent the President’s Budget for Fiscal Year (FY) 2023 to the United States Congress (“Congress”). The President’s proposed $5.8 trillion budget for FY 2023 allocates billions of dollars toward combating climate change and boosting clean energy development. Biden’s budget requests $48.2 billion for the Department of Energy (“DOE”), with $700 million of those funds allocated to the DOE’s Advanced Research Projects Agency-Energy program (“ARPA-E”).[1] With these increased funds, the Biden administration plans for ARPA-E to expand its scope beyond energy technology–focused projects to include climate adaptation and resilience innovations.[2]

What Is ARPA-E?

ARPA-E is a United States federal government agency under the purview of the Department of Energy that funds and promotes the research and development of advanced energy technologies. ARPA-E was recommended to Congress in the 2005 National Academies report Rising Above the Gathering Storm: Energizing and Employing America for a Bright Economic Future, which published recommendations for federal government actions to maintain and expand U.S. competitiveness.[3] In 2007, ARPA-E was officially created after Congress implemented a number of the report’s recommendations by enacting the America COMPETES Act.[4] The 2007 Act was superseded by the America COMPETES Reauthorization Act of 2010, which incorporated much of the original language of the 2007 Act but made some modifications to ARPA-E structure.[5] In 2009, ARPA-E officially commenced operations after receiving its first appropriated funds through the American Recovery and Reinvestment Act of 2009 —$400 million to fund the establishment of ARPA-E.[6]

ARPA-E’s mission is statutorily defined as overcoming “the long-term and high-risk technology barriers in the development of energy technologies.”[7] This involves the development of energy technologies that will achieve various goals, including the reduction of fossil fuel imports, the reduction of energy-related emissions, improvements in energy efficiency, and increased resilience and security of energy infrastructure.[8] The statute directs ARPA-E to pursue these objectives through particular means:

  1. Identifying and promoting revolutionary advances in fundamental and applied sciences;
  2. Translating scientific discoveries and cutting-edge inventions into technological innovations; and
  3. Accelerating transformational technological advances in areas industry is unlikely to undertake because of technical and financial uncertainty.[9]

The Impact of ARPA-E

Since 2009, ARPA-E has provided approximately $3 billion in R&D funding for over 1,294 potentially transformational energy technology projects.[10] Publishing annual reports to analyze and catalog its influence, the agency tracks commercial impact with key early indicators, including private-sector follow-on funding, new company formation, partnership with other government agencies, publications, inventions, and patents.[11]

Many ARPA-E project teams have continued to advance their technologies: 129 new companies have been formed, 285 licenses have been issued, 268 teams have partnered with another government agency, and 185 teams have together raised over $9.87 billion in private-sector follow-on funding.[12] In addition, ARPA-E projects fostered technological innovation and advanced scientific knowledge, as evidenced by the 5,497 peer-reviewed journal articles and 829 patents issued by the U.S. Patent and Trademark Office that sprung from the ARPA-E program.[13] ARPA-E recently announced that it is starting to count exits through public listings, mergers, and acquisitions. As of January 2022, ARPA-E has 20 exits with a total reported value of $21.6 billion.[14]

How Does Biden’s FY 2023 Budget Affect ARPA-E?

Biden has requested a 56% increase for ARPA-E, to $700 million.[15] The budget also proposes expansions of ARPA-E’s purview to more fully address innovation gaps around adaptation, mitigation, and resilience to the impacts of climate change.[16] This investment in research and development of high-potential and high-impact technologies aims to help remove technological barriers to advance energy and environmental missions.[17]

The request provides that ARPA-E shall also expand its scope “to invest in climate-related innovations necessary to achieve net zero climate-inducing emissions by 2050.”[18] Given the increasing bipartisan support for alternative energy funding and ARPA-E’s continuing and rising commercial impact, it is likely that ARPA-E’s funding and support of the research and development of early-stage energy technologies will continue to pave the way for the commercialization of advanced energy technologies.

Endnotes

  1. https://www.law360.com/articles/1478133/biden-budget-provides-billions-for-clean-energy
  2. https://www.energy.gov/articles/statement-energy-secretary-granholm-president-bidens-doe-fiscal-year-2023-budget
  3. https://doi.org/10.17226/24778
  4. Id. at 22
  5. Id.
  6. Id.
  7. 42 U.S.C. § 16538(b)
  8. 42 U.S.C. § 16538(c)(1)(A)
  9. 42 U.S.C. § 16538(c)(2)
  10. https://arpa-e.energy.gov/about/our-impact
  11. Id.
  12. Id.
  13. Id.
  14. Id.
  15. https://www.science.org/content/article/biden-s-2023-budget-request-science-aims-high-again
  16. https://www.whitehouse.gov/wp-content/uploads/2022/03/budget_fy2023.pdf
  17. Id.
  18. https://www.science.org/content/article/biden-s-2023-budget-request-science-aims-high-again

Article By Kaoru C. Suzuki of Mintz

For more environmental legal news, click here to visit the National Law Review.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

The SEC’s Proposed Rules on Climate-Related Disclosures – What to Do Now: A Guide for In-House Counsel Facing the Proposed Rules

The U.S. Securities and Exchange Commission’s recently proposed rules governing climate-related disclosures, if adopted as proposed, would represent a sea change to the existing public-company disclosure regime.  The rules would require that public companies include the following, among other disclosures, in reports and registration statements filed with the SEC:

  • disclosure of greenhouse gas (GHG) emissions data covering Scope 1 and Scope 2 emissions for all companies and Scope 3 emissions for companies1 (other than those that qualify as “smaller reporting companies”) for which Scope 3 emissions are material or that have set emissions reduction targets that include Scope 3 emissions, with third-party attestation being required for Scope 1 and Scope 2 data for companies that qualify as “large accelerated filers” or “accelerated filers”;
  • extensive and detailed disclosures regarding climate-related risks, including physical risks and transition-related risks, to a company’s financial statements, business operations or value chain (i.e., upstream and downstream activities of third parties related to the company’s operations);
  • disclosure in the notes to audited financial statements of quantitative and qualitative information regarding financial impacts of climate-related risk, including disaggregated quantitative information with respect to impacts of physical risks or transition activities on specific financial statement line items if the impact is 1% or more of the line item;
  • extensive and detailed disclosures regarding climate-related governance, strategy and risk management; and
  • to the extent relevant to a particular company, disclosures regarding the company’s transition plan, climate-related targets or goals, use of scenario analyses or other analytical tools in evaluating climate-related risk and use of an internal carbon price.

For many companies, the rules would require enterprise-wide changes to how the company collects, assesses and reports climate-related data and other information, as well as changes to their governance structures and systems of controls.  Changes may be driven both by the need to comply with the disclosure requirements and by a company’s view of how its disclosures will be received by investors or the public generally.

The tasks of understanding the implications of the proposed rules for a particular company and preparing for eventually complying with the rules are monumental, and, unfortunately, public companies currently find themselves in the difficult position of possibly needing to act with some urgency in order to be prepared to comply with rules of uncertain substance on an uncertain timeline.  At this point, the proposed rules are just that – proposed and not final.  The period for public comment on the proposed rules will run until May 20 at the earliest and could be extended by the SEC, and public comments are likely to reflect the controversial nature of the proposed rules and strong opinions by both supporters and detractors.  After the comment period, whether and when the SEC releases final rules, and the extent to which any final rules largely follow or reflect significant changes from the proposed rules, will remain to be seen.  Like the proposed rules, any final rules should provide for phase-in periods for compliance.  Further, any final rules are almost certain to face legal challenges that could delay implementation of the rules even if such challenges ultimately are unsuccessful.  It is therefore very difficult to predict when companies will need to comply with new rules and precisely what information they will be required to disclose under new rules.

Despite that uncertainty, it appears very likely that the SEC will adopt final climate-related disclosure rules in the not-too-distant future and that those rules will include in some form most, if not all, of the big buckets of disclosure requirements reflected in the proposed rules.  Because of the significant effort and degree of organizational change that compliance with the rules likely will require, companies may not be able to wait until final rules are released to begin assessing the impacts of the proposed rules on their organizations.  And, if the SEC were to adopt final rules later this year in the proposed form, companies that are large accelerated filers with a calendar fiscal year would be required to include information for 2023, including Scope 1 and 2 emissions data, in their annual reports filed in early 2024, meaning that they would need to have the systems in place to track and record the relevant information by the end of this year.

Assessing the potential impact of the proposed rules on a company and preparing the company for eventually complying with the rules will require participation from many different parts of the organization, but we expect that, at many companies, the task of setting the company on a course to do those things will fall on the general counsel and other in-house counsel with responsibility for relevant substantive areas.  With that in mind, we have prepared the following guide for in-house counsel with respect to near-term actions their companies should be taking or should consider taking, depending on their circumstances.  Bracewell will expand on a number of the topics noted below in future alerts, webinars or other similar communications.

1.   Engage senior management, the board of directors and relevant board committees and begin assessing governance, oversight and management of climate-related risks.

In-house counsel likely will be hearing from their CEOs and board members, if they haven’t already, asking what the proposed rules mean for their company.  In any case, in-house counsel should ensure that top-level management and board members understand the potential challenges and changes their companies may face with the proposed rules and encourage the level of board and senior management oversight and engagement that is appropriate for their situation.  The proposed rules would require companies to provide detailed disclosures concerning their boards’ oversight of climate-related risks and management’s role in assessing and managing those risks. Although many companies already have robust board oversight of ESG matters and include related disclosures in their SEC filings, the proposed rules are far more granular in dictating the type of information that would need to be disclosed.

In that regard, in-house counsel may be asked what changes, if any, should be made to board or committee composition and structure in light of the proposed new disclosure requirements.  Among other matters, consideration should be given to whether the creation of a new ESG committee – or a purely climate-focused committee – is appropriate or whether responsibility reasonably can be shouldered by an existing committee, such as the audit committee.

2.   Establish organizational responsibility for assessing the implications of the proposed rules for your company.

As noted above, this is a huge task that will require input from a multidisciplinary team, including legal, accounting, operations and possibly other personnel.  Identifying the right team and setting clear responsibilities and timelines are critical near-term tasks.

3.   Understand the potential timeline for compliance with the proposed rules as it relates to your organization.

As noted above, there is considerable uncertainty regarding, among other matters, whether final rules will require compliance on the timelines contemplated in the proposed rules, which would have the compliance requirements phased in over several years based on a company’s status as a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  This fact sheet on the proposed rules published by the SEC provides helpful tables (on page 3) detailing the phase-in periods contemplated by the proposed rules for companies with a calendar fiscal year, assuming the proposed rules were adopted as final with an effective date in December 2022.

Despite the uncertainty, it is certainly possible that the SEC could adopt final rules later this year with compliance dates as contemplated by the proposed rules, and companies therefore would be ill-advised to assume that they will have a longer ramp-up period than they would under the proposed rules and the assumption of a December 2022 effective date.

4.   Understand the proposed rules and the disclosures they will require for your company based on its specific circumstances, including with regard to differences between what the company is disclosing now and what would be required by the proposed rules.

The proposed rules are highly prescriptive and are intended to produce consistent and comparable disclosures across the public-company spectrum.  With limited exceptions (e.g., that smaller reporting companies would be exempted from the requirement to disclose Scope 3 emissions), all public companies will need to assess required disclosure under all provisions of the rules.  That assessment, however, will need to be made in light of the company’s specific circumstances, and there will be categories of required disclosures that are very relevant to some industries or companies but of no or limited relevance to other industries or companies.  Additionally, many companies have been voluntarily disclosing information that is similar to some of the information that may be required to be provided under the proposes rules, but there may be gaps between or differences in required disclosures and a company’s current practices.

As companies begin to digest the proposed rules, it will make sense for them to drill down on the specific types of disclosures they would need to make if the proposed rules were adopted as proposed.  Questions that companies might ask themselves include the following:

  • Will we need to disclose Scope 3 emissions data based on materiality or having set targets or goals including Scope 3 emissions?
  • What, if anything, have we done with respect to the following topics such that disclosure regarding those topics would be required?
    • Adoption of a transition plan
    • Setting of climate-related goals or targets
    • Use of carbon offsets or renewable energy credits in setting goals or targets
    • Use of scenario analyses or other analytical tools in evaluating climate risk
    • Use of an internal carbon price
      • Note that, with respect to goals or targets, the proposed rules refer to a company’s having “set” such goals or targets and not to its having publicly disclosed them.  Similarly, with respect to all of these topics, it is not clear that the related disclosure would be triggered only by some level of formality or organizational scope in the adoption, setting or use of the applicable item.  Companies therefore should assess the relevance of these topics broadly, including informal use or discussion within the organization.
  • What information that we are not currently disclosing would the proposed rules require us to disclose?
  • For information that we are currently disclosing, would the proposed rules require that information to be established, assembled or disclosed differently, or disclosed more expansively or granularly, from how we are doing it now?  If so, how?
  • Which required disclosures might be particularly challenging for our company, such that they might merit special or prioritized focus?

5.   Begin to evaluate existing systems and resources related to climate-related information and identify changes that will need to be made.

Companies in some industries, such as energy or manufacturing, likely already have systems in place to collect much of the data called for by the proposed rules, and many public companies have been publishing voluntary disclosures in the form of ESG reports for years.  However, smaller companies in such industries may not currently have the resources necessary to devote to compliance with the new rules.  Likewise, companies in non-GHG intensive industries, such as financial services, previously may not have had the need, or a more limited need, for such systems.  And even those companies that are experienced in collecting and disclosing climate-related data and other information likely would, under the proposed rules, need to expand their systems to cover a much broader universe of information and ensure that controls and procedures meet standards for disclosures in SEC-filed documents and are appropriate for enhanced scrutiny and potential liability that will come with including such disclosures in SEC-filed documents.  Companies may need to invest significantly in new personnel with appropriate expertise and in new technology, and they will need to expand their disclosure controls and procedures and internal control over financial reporting to cover new sets of information that are wide-ranging, voluminous and highly detailed.  Accordingly, public companies should begin to assess their existing capabilities and identify the changes they would need to make to comply with proposed rules to ensure that the changes can be effected in time to comply with new rules.

Additionally, the climate-related risk disclosures contemplated by the proposed rules may require that companies devote significant resources to expanding the process by which they identify and assess climate-related risk.  Further, the need for companies to evaluate climate-related risks to upstream and downstream – value chain – activities, and potentially to disclose Scope 3 emissions associated with those activities, may pose significant challenges and likely will require many companies to develop new processes to address disclosure requirements that relate to matters that are largely outside of the company’s control and access.  These are areas that companies may want to focus on in the near term.

6.   Evaluate needs and strategy for retaining third parties to assist with disclosures, including for attestation of GHG emissions data.

As noted above, for large accelerated filers and accelerated filers, the proposed rules would require attestation regarding Scope 1 and Scope 2 GHG emissions data by an independent third party meeting certain minimum qualifications, which may be a public accounting firm if it meets the minimum qualifications but need not be an accounting firm.  The market for providing these attestation services is evolving and will continue to evolve as accounting firms and others develop their ability to provide these services.  Some observers have raised concerns that the supply of emission-attestation services may not initially meet the demand for such services that the proposed rules would create.  Companies may wish to begin thinking about their options for third-parties to handle the attestation, particularly large accelerated filers who could be subject to the attestation requirements as soon as in their 2024 annual reports filed in early 2025. Additionally, it is important for companies to have conversations around attestation ahead of their information gathering efforts to ensure that the disclosure information being developed and gathered will be sufficient for attestors to provide the required assurance.

In addition to attestation services, companies should consider their potential need for and access to other third-party advisors with the necessary expertise and experience, including attorneys, accountants/auditors and firms providing consulting and other services to assist companies with climate-related disclosures.

7.   Consider whether the disclosures contemplated by the proposed rules warrant any changes to your current, planned or contemplated climate-related activities, such as setting or disclosing of climate-related goals or targets.

As noted above, the proposed rules contemplate detailed disclosures regarding several matters that may or may not be relevant to a particular company depending on things that the company may or may not have done in advance of the initial compliance date for the proposed rules.  These include whether a company has:

  • adopted a climate transition plan,
  • set climate-related goals or targets,
  • included Scope 3 emissions in its goals or targets,
  • used carbon offsets or renewable energy credits in setting its goals or targets,
  • used scenario analyses or other analytical tools in assessing climate-related risk, or
  • used an internal carbon price.

Companies may wish to reassess their existing, planned or contemplated activities in these areas in view of the proposed rules.  It may be the case that a company would want to modify its activities in one or more of these areas when viewed through the lens of what the company’s disclosures regarding such activities would look like under the proposed rules.  For example, if your company is planning to set or announce new GHG emissions goals, should the company modify the goals as they relate to Scope 3 emissions or otherwise before doing so, or would it be preferable for the company to delay any such setting or announcement of goals until there is clarity on the content of final rules?

8.   Determine whether to submit comments on the proposed rules.

The proposed rule release includes over 200 requests for comment.  Comments are due by the later of 30 days after the date the proposing release is published in the Federal Register (which had not happened as of the date of this update) or May 20, 2022.  (As noted above, it is possible that the comment period could be extended beyond that date, but, unless and until the SEC actually does that, parties desiring to submit comments should proceed with the expectation that they will need to submit them by the applicable current deadline.)  Although the SEC will not agree with all comments received and may adopt final rules despite strong and widely-held opposing views reflected in the comments, the SEC and its staff will consider the comments received in adopting final rules and likely will make at least some changes to the proposed rules based on comments.  If your company would like to have its voice heard on the proposed rules, you may consider doing so by submitting comments directly or through an industry association or similar group.

9.   Monitor developments.

As noted above, we are in the early stages of the process through which the proposed rules could, in their current form or with changes, become final rules with which public companies actually would need to comply.  In-house lawyers should continue to monitor developments and advise others in their organizations of such developments as appropriate so that preparations for compliance with new climate-related disclosure rules can be adjusted as necessary.

10. Don’t forget that climate-related disclosures may be required under existing SEC rules and interpretations.

With the anticipation of a massive new disclosure regime for climate-related matters and preparation for compliance with that regime, it might be easy to overlook that fact the existing SEC rules and interpretations may require climate-related disclosures in SEC filings, and the SEC staff may issue comments on climate-related disclosures, or the absence thereof, in a company’s SEC filings, as they did for a number companies in the fall of 2021 with respect to the companies’ 2020 annual reports on Form 10-K.  Pending the adoption and implementation of final new rules, companies should continue to assess their disclosures in view of the SEC’s 2010 guidance on climate-related disclosures.

_______________________________________

1. Scope 1 emissions are direct GHG emissions from operations that are owned or controlled by a company.  Scope 2 emissions are indirect GHG emissions from the generation of purchased or acquired energy that is consumed by a company’s operations.  Scope 3 emissions are all indirect GHG emissions not otherwise included in a company’s Scope 2 emissions, which occur in the upstream and downstream activities of a company’s value chain.

© 2022 Bracewell LLP
For more about SEC disclosures, please visit the NLR Financial, Securities & Banking section.

The Gensler SEC: What to Expect in 2022

Since Gary Gensler became chair of the U.S. Securities and Exchange Commission in April 2021, his agency has signaled an active agenda that many expect will be aggressively enforced. Cornerstone Research recently brought together distinguished experts with SEC experience to share what they expect the SEC will focus on in 2022. The expert forum, “The Gensler SEC: Policy, Progress, and Problems,” featured Joseph Grundfest, a former commissioner of the SEC and currently serving as the W. A. Franke Professor of Law and Business at Stanford Law School; and Mary Jo White, senior chair, litigation partner, and leader of Debevoise & Plimpton’s Strategic Crisis Response and Solutions Group who previously served as chair of the SEC and as U.S. Attorney for the Southern District of New York. Moderated by Jennifer Marietta-Westberg of Cornerstone Research, the forum was held before an audience of attorneys and economists and explored the major regulatory and enforcement themes expected to take center stage in the coming year.

ESG Disclosures and Materiality

In its Unified Regulatory Agenda first released in June of last year, the SEC indicated that it will propose disclosure requirements in the environmental, social, and governance (ESG) space, particularly on climate-related risks and human capital management. However, as documented by the numerous comments received as a result of the SEC’s March 15, 2021, request for input on climate change disclosures, there is substantial debate as to whether these disclosures must, or should, require disclosure only of material information. During the expert forum, Grundfest and White agreed that ESG disclosures should call for material information only. However, they have different predictions on whether ESG disclosures actually will be qualified by a materiality requirement.

White emphasized that materiality is a legal touchstone in securities laws. “If the SEC strays far from materiality, the risk is that a rule gets overturned,” she said. “Not every single rule needs to satisfy the materiality requirement, but it would be a mistake for the SEC not to explain what its basis for materiality is in this space.”

Grundfest added, “There is a spectrum of ESG issues, and while some are within the SEC’s traditional purview, others are new and further away from it. For example, to better ensure robust greenhouse emissions disclosure, the Environmental Protection Agency should be the one to require disclosure rules that would not be overturned.”

Gensler has indicated that investors want ESG disclosures in order to make investment and voting decisions. For instance, in his remarks before the Principles for Responsible Investment in July 2021, Gensler stated that “[i]nvestors are looking for consistent, comparable, and decision-useful disclosures so they can put their money in companies that fit their needs.” White predicts that some but not all ESG disclosure requirements in the proposed rules the SEC is working on will call for material information.

Grundfest, however, believes that the rules the SEC eventually adopts will require disclosure only of material information. “The SEC’s proposal on ESG disclosures will ask for everything, from the moon to the stars,” he said. “But public comments will sober the rules. The SEC staff will take into account the Supreme Court standard and the Chevron risk. It will settle on adopting materiality-based disclosure rules.”

There is also debate over the potential definition of materiality in the context of any proposed ESG disclosures. The panelists were asked whether the fact that large institutional investors assert various forms of ESG information are important to their investment decisions is a sufficient basis upon which to conclude that the information is material. Neither White nor Grundfest believes the Supreme Court as currently composed would accept this argument, but they differ on the reasons.

Grundfest believes the Supreme Court will stick with its approach of a hypothetical reasonable investor. “The fact that these institutional investors ask for this information doesn’t necessarily mean that it’s material,” he said. “If the SEC wants to have something done in this space, it has to work within the law.”

White said an important aspect of the rule will be the economic analysis, though she, too, does not think materiality can be “decided by an opinion poll among institutional investors.” For example, a shareholder proposal requesting certain information that has not received support does not necessarily make the information immaterial. “The Supreme Court will be tough on the survey approach,” she said.

Digital Assets and Crypto Exchanges

In several statements and testimonies, Gensler has declared the need for robust enforcement and better investor protection in the markets for digital currencies. He has publicly called the cryptocurrency space “a Wild West.” In addition to bringing enforcement actions against token issuers and other market participants on the theory that the tokens constitute securities, the SEC under his leadership has brought enforcement actions against at least one unregistered digital asset exchange on the theory that the exchange traded securities and should therefore register as securities exchange.

“The crypto space is the SEC’s most problematic area,” Grundfest said. “Franz Kafka’s most famous novel is The Trial. It’s about a person arrested and prosecuted for a crime that is never explained based on evidence that he never sees. Some recent SEC enforcement proceedings make me wonder whether Kafka is actually still alive and well, and working deep in the bowels of the SEC’s Enforcement Division.” In support of this literary reference, Professor Grundfest  noted that, in bringing enforcement actions against crypto exchanges alleging that they traded tokens that were unregistered securities, the SEC never specified which tokens traded on these exchanges were securities. “This is almost beyond regulation by enforcement. It’s regulation by FUD—fear, uncertainty, and doubt,” Grundfest said.

White predicted that, of the 311 active crypto exchanges listed by CoinMarketCap as of December 1, 2021, the SEC will bring cases against at least four in the coming year.

Gensler has publicly argued for bringing the cryptocurrency-related industry under his agency’s oversight. “We need additional congressional authorities to prevent transactions, products, and platforms from falling between regulatory cracks,” he said in August at the Aspen Security Forum. But neither White nor Grundfest believes the current Congress will enact legislation giving the SEC authority to regulate crypto transactions that do not meet the definition of an investment contract under the Howey test.

In November 2021, a federal jury in Audet v. Fraser at the District Court of Connecticut decided that certain cryptocurrency products that investors purchased were not securities under Howey. Neither Grundfest nor White believes this finding will cause the SEC to become more cautious about asserting that some forms of crypto are securities.

“One jury verdict is hardly a precedent,” White said. “The facts of the case didn’t have many of the nuances under Howey that other cases have. It will not deter the SEC.”

The panelists agreed that SEC enforcement activity will be aggressive in the crypto space. A report by Cornerstone Research, titled SEC Cryptocurrency Enforcement: 2021 Update, found that, under the new administration, the SEC has continued its role as one of the main regulators in the cryptocurrency space. In 2021, the SEC brought 20 enforcement actions against digital asset market participants, including first-of-their-kind actions against a crypto lending platform, an unregistered digital asset exchange, and a decentralized finance (DeFi) lender.

Proxy Voting

With the 2022 proxy season on the horizon, people will be watching the SEC closely, as Gensler’s Commission recently adopted new rules for universal proxy cards, and it has revisited amendments adopted under the former chair of the SEC, Jay Clayton.

Last November, the SEC adopted universal proxy rules that now allow shareholders to vote for their preferred mix of board candidates in contested elections, similar to voting in person.  These rules would put investors voting in person and by proxy on equal footing. “Universal proxy was proposed at the time when I was the chair of the SEC, and the logic for the rule is overpowering,” White said. “In adoption, some commissioners had reservations on the thresholds of voting power a dissident would be required to solicit, but voted in favor anyway based on its logic. It was a 4 to 1 vote.”

Grundfest and White expect the number of proxy contests that proceed to a vote will go up as a result. From 2019 to 2020, the incidence of proxy contests increased from 6 to 13. Looking ahead to the coming year, Grundfest predicts the rule change will increase the incidence of proxy contests by somewhere between 50% and 100%. White predicts a more modest increase of about 50%.

Regarding rules on proxy voting advice, the SEC issued Staff Legal Bulletin No. 14L (CF) last November to address Rule 14a-8(i)(7), which permits exclusion of a shareholder proposal that “deals with a matter relating to the company’s ordinary business operations.”

The bulletin puts forth a new Staff position that now denies no-action relief to registrants seeking to exclude shareholder proposals that transcend the company’s day-to-day business matters. “This exception is essential for preserving shareholders’ right to bring important issues before other shareholders by means of the company’s proxy statement, while also recognizing the board’s authority over most day-to-day business matters,” the bulletin said.

Both White and Grundfest believe a modest number of issuers will go to court in the 2022 proxy season seeking to exclude Rule 14a-8 shareholder proposals as “transcending” day-to-day operations. “I think companies will challenge shareholder proposals in court but not a lot,” White said. “It depends on the shareholder proposal.”

Grundfest believes any such cases would be driven as much by CEOs as by any other factor. “Companies may challenge a shareholder proposal in court if they have a CEO who is offended by a certain proposal or for First Amendment reasons,” he said. Grundfest cited a hypothetical example of a software company in Texas with a shareholder proposal on gun rights or abortion rights, which have nothing to do with the cybersecurity software the company produces. “It would be hard to force a company to put forth a politically charged proposal that is not related to that company’s business,” he said. “If it’s a First Amendment right, the company will go to court.”

Article By Jennifer Marietta-Westberg and Simona Mola of Cornerstone Research

For more SEC and securities legal news, click here to visit the National Law Review.

Copyright ©2022 Cornerstone Research

EV Buses: Arriving Now and Here to Stay

In the words of Miss Frizzle, “Okay bus—do your stuff!”1 A favorable regulatory environment, direct subsidy, private investment, and customer demand are driving an acceleration in electric vehicle (EV) bus adoption and the lane of busiest traffic is filling with school buses. The United States has over 480,000 school buses, but currently, less than one percent are EVs. Industry watchers expect that EV buses will eventually become the leading mode for student transportation. School districts and municipalities are embracing EV buses because they are perceived as cleaner, requiring less maintenance, and predicted to operate more reliably than current fossil fuel consuming alternatives. EV bus technology has improved in recent years, with today’s models performing better in cold weather than their predecessors, with increased ranges on a single charge, and requiring very little special training for drivers.2 Moreover, EV buses can serve as components in micro-grid developments (more on that in a future post).

The Investment Incline

Even if the expected operational advantages of EV buses deliver, the upfront cost to purchase vehicles or to retrofit existing fleets remains an obstacle to expansion.  New EV buses price out significantly more than traditional diesel buses and also require accompanying new infrastructure, such as charging stations.  Retrofitting drive systems in existing buses comparatively reduces some of that cost, but also requires significant investment.3

To detour around these financial obstacles, federal, state, and local governments have made funding available to encourage the transition to EV buses.4 In addition to such policy-based subsidies, private investment from both financial and strategic quarters has increased.  Market participants who take advantage of such funding earlier than their competitors have a forward seat to position themselves as leaders.

You kids pipe down back there, I’ve got my eyes on a pile of cash up ahead!

Government funding incentives for electrification are available for new EV buses and for repowering existing vehicles.5 Notably, the Infrastructure Investment and Jobs Act committed $5 billion over five years to replace existing diesel buses with EV buses. Additionally, the Diesel Emissions Reduction Act provided $18.7 million in rebates for fiscal year 2021 through an ongoing program.

In 2021, New York City announced its commitment to transition school buses to electric by 2035.  Toward that goal, the New York Truck Voucher Incentive Program provides vouchers to eligible fleets towards electric conversions and covers up to 80% of those associated costs.6  California’s School Bus Replacement Program had already set aside over $94 million, available to districts, counties, and joint power authorities, to support replacing diesel buses with EVs, and the state’s proposed budget for 2022-23 includes a $1.5 billion grant program to support purchase of EV buses and charging stations.

While substantial growth in EV bus sales will continue in the years ahead, it will be important to keep an eye out for renewal, increase or sunset of these significant subsidies.

Market Players and Market Trends, OEMs, and Retrofitters

The U.S is a leader in EV school bus production:  two of the largest manufacturers, Blue Bird and Thomas Built (part of Daimler Truck North America), are located domestically, and Lion Electric (based in Canada) expects to begin delivering vehicles from a large facility in northern Illinois during the second half of 2022.  GM has teamed up with Lighting eMotors on a medium duty truck platform project that includes models prominent in many fleets, and Ford’s Super Duty lines of vehicles (which provide the platform for numerous vans and shuttle vehicles) pop up in its promotion of a broader electric future. Navistar’s IC Bus now features an electric version of its flagship CE series.

Additionally, companies are looking to a turn-key approach to deliver complete energy ecosystems, encompassing vehicles, charging infrastructure, financing, operations, maintenance, and energy optimization. In 2021, Highland Electric Transportation raised $253 million from Vision Ridge Partners, Fontinalis Partners (co-founded by Bill Ford) and existing investors to help accelerate its growth, premised on a turn-key fleet approach.7

Retrofitting is also on the move.  SEA Electric (SEA), a provider of electric commercial vehicles, recently partnered with Midwest Transit Equipment (MTE) to convert 10,000 existing school buses to EVs over the next five years.8 MTE will provide the frame for the school uses and SEA will provide its SEA-drive propulsion system to convert the buses to EV.9 In a major local project, Logan Bus Company announced its collaboration with AMPLY Power and Unique Electric Solutions (UES) to deploy New York City’s first Type-C (conventional) school bus.10

Industry followers should expect further collaborations, because simplifying the route to adopting an EV fleet makes it more likely EV products will reach customers.

Opportunities Going Forward

Over the long haul, EV buses should do well. Scaling up investments and competition on the production side should facilitate making fleet modernization more affordable for school districts while supporting profit margins for manufacturers. EVs aren’t leaving town, so manufacturers, fleet operators, school districts and municipalities will either get on board or risk being left at the curb.

Article By Michael J. Small and Samantha Ruppenthal at Foley & Lardner LLP

For more utilities and transportation legal news, click here to visit the National Law Review.

 

 

1https://shop.scholastic.com/parent-ecommerce/series-and-characters/magic-school-bus.html

2https://www.busboss.com/blog/having-an-electric-school-bus-fleet-is-easier-than-many-people-think

3https://thehill.com/opinion/energy-environment/570326-electric-school-bus-investments-could-drive-us-vehicle

4https://info.burnsmcd.com/white-paper/electrifying-the-nations-mass-transit-bus-fleets

5https://stnonline.com/partner-updates/electric-repower-the-cheaper-faster-and-easier-path-to-electric-buses/

6https://www1.nyc.gov/office-of-the-mayor/news/296-21/recovery-all-us-mayor-de-blasio-commits-100-electric-school-bus-fleet-2035

7https://www.bloomberg.com/press-releases/2021-02-16/highland-electric-transportation-raises-253-million-from-vision-ridge-partners-fontinalis-partners-and-existing-investors

8https://www.electrive.com/2021/12/07/sea-electric-to-convert-10k-us-school-buses/#:~:text=SEA%20Electric%20and%20Midwest%20Transit,become%20purely%20electric%20school%20buses.

9 Id.

10https://stnonline.com/news/new-york-city-deploys-first-type-c-electric-school-bus/

© 2022 Foley & Lardner LLP

Red States Move to Penalize Companies That Consider Climate Change When Making Investments

A number of conservative-leaning states, particularly those with a significant fossil fuel industry (e.g., Texas, West Virginia), have begun implementing polices and enacting laws that penalize companies which “pull away from the fossil fuel industry.”  Most of these laws focus on precluding state governmental entities, including pension funds, from doing business with companies that have adopted policies that take climate change into account, whether divesting from fossil fuels or simply considering climate change metrics when evaluating investments.

This trend is a troubling development for the American economy.  Irrespective of the merits of the policy, or fossil fuel investments generally, there are now an array of state governments and associated entities, reflecting a significant portion of the economy, that have adopted policies explicitly designed to remove climate change or other similar concerns from consideration when companies decide upon a course of action.  But there are other states (typically coastal “blue” states) that have enacted diametrically opposed policies, including mandatory divestments from fossil fuel investments (e.g., Maine).  This patchwork of contradictory state regulation has created a labyrinth of different concerns for companies to navigate.  And these same companies are also facing pressure from significant institutional investors, such as BlackRock, to consider ESG concerns when making investments.

Likely the most effective way to resolve these inconsistent regulations and guidance, and to alleviate the impact on the American economy, would be for the federal government to issue a clear set of policy guidelines and regulatory requirements.  (Even if these were subject to legal challenge, it would at least set a benchmark and provide general guidance.)  But the SEC, the most likely source of such regulations, has failed to meet its own deadlines for promulgating such regulations, and it is unclear when such guidance will be issued.

In the absence of a clear federal mandate, the contradictory policies adopted by different state governments will only apply additional burdens to companies doing business across multiple state jurisdictions, and by extension, to the economy of the United States.

“Republicans and right-leaning groups fighting climate-conscious policies that target fossil fuel companies are increasingly taking their battle to state capitals. Texas, West Virginia and Oklahoma are among states moving to bar officials from dealing with businesses that are moving to ditch fossil fuels or considering climate change in their own investments. Those steps come as major financial firms and other corporations adopt policies aligned with efforts to reduce greenhouse gas emissions.”

Article By Jacob H. Hupart of Mintz

For more environmental legal news, click here to visit the National Law Review.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Greenwashing and the SEC: the 2022 ESG Target

A recent wave of greenwashing lawsuits against the cosmetics industry drew the attention of many in the corporate, financial and insurance sectors. Attacks on corporate marketing and language used to allegedly deceive consumers will take on a much bigger life in 2022, not only due to our prediction that such lawsuits will increase, but also from Securities & Exchange Commission (SEC) investigations and penalties related to greenwashing. 2022 is sure to see an intense uptick in activity focused on greenwashing and the SEC is going to be the agency to lead that charge. Companies of all types that are advertising, marketing, drafting ESG statements, or disclosing information as required to the SEC must pay extremely close attention to the language used in all of these types of documents, or else run the risk of SEC scrutiny.

SEC and ESG

In March 2021, the SEC formed the Climate and Environmental, Social and Governance Task Force (ESG Task Force) within its Division of Enforcement. Hand in hand with the legal world’s attention on greenwashing in 2021, the SEC’s ESG Task Force was created for the sole purpose of investigating ESG-related violations. The SEC’s actions were well-timed, as 2021 saw an enormous increase in investor demand for ESG-related and ESG-driven portfolios. There is considerable market demand for ESG portfolios, and whether this demand is driven by institute influencers or simple environmental and social consciousness among consumers is of little importance to the SEC – it simply wants to ensure that ESG activity is being done properly, transparently and accurately.

Greenwashing and the SEC

The SEC has stated that in 2022, it will be taking direct aim at greenwashing issues on many different levels in the investment world. As corporations and investment funds alike increasingly put forth ESG-friendly statements pertaining to their actions or portfolio content, the law has thus far failed to keep pace with the increasing ESG statement activity. It is into this gap that the SEC sees itself fitting and attempting to ensure that the public is not subject to greenwashing. In order to tackle this objective, expect the SEC to focus on the wording used to describe investments or portfolios, what issuers say in filings, and the statements made by investment houses and advisors related to ESG.

From this stem several topics that the SEC’s ESG Task Force will scrutinize, such as: whether “ESG investments” are truly comprised of companies that have accurate and forthright ESG plans; the level of due diligence conducted by investment houses in determining whether an investment or portfolio is “ESG friendly”; how investment world internal statements differ from external public-facing statements related to the level of ESG considerations taken into account in an investment or portfolio; selling “ESG friendly” investments with no set method for ensuring that the investment continues to uphold those principles; and many others.

2022, the SEC, and ESG

Given the SEC’s specific targeting of ESG-related issues beginning in 2021, we predict that 2022 will see a great degree of SEC enforcement action seeking to curb over zealous marketing language or statements that it sees as greenwashing. Whether these efforts will intertwine with the potential for increased Department of Justice criminal investigation and prosecution of egregious violators over greenwashing remains to be seen, but it is nevertheless something that issuers and investment firms alike must closely consider.

While there are numerous avenues to examine to ensure that ESG principles are being upheld and accurately conveyed to the public, the underlying compliance program for minimizing greenwashing allegation risks is absolutely critical for all players putting forth ESG-related statements. These compliance checks should not merely be one-time pre-issuance programs; rather, they should be ongoing and constant to ensure that with  ever-evolving corporate practices, a focused interest by the SEC on ESG, and increasing attention by the legal world on greenwashing claims, all statement put forth are truly “ESG friendly” and not misleading in any way.

Article By John Gardella of CMBG3 Law

For more environmental legal news, click here to visit the National Law Review.

©2022 CMBG3 Law, LLC. All rights reserved.

EPA’s Stormwater General Permit is Safe. Does it Matter?

A Colorado-based NGO has dropped its 9th Circuit lawsuit challenging EPA’s Multi-Sector General Permit for stormwater discharges associated with industrial facilities.

On one hand, this is a victory for EPA which apparently offered nothing to settle the case before the NGO threw up its hands.

On the other hand, the General Permit is only applicable in Massachusetts, New Hampshire and New Mexico, the three states that have not been delegated the authority to issue such a permit (as well as tribal lands and other lands not subject to state jurisdiction).

Why did the NGO bring this suit to begin with?  Did it hope that the Biden Administration EPA would, when push came to shove, do something dramatically different than the Trump Administration EPA?

Whatever the reason, the NGO has apparently concluded that the current law and permit give it plenty of grounds to bring suits over stormwater discharges in the 9th Circuit and elsewhere.  There are already several such imaginative suits pending on the west coast.

Are the regulators in Massachusetts less able to issue and enforce stormwater permits than than their colleagues in 47 other states?  The answer is of course not.  They are completely able and more able than most.  And they already have authority under state laws and regulations that are broader in their reach than the federal law.

But the Massachusetts legislature has stood in the way, apparently because it doesn’t want to bear the costs of regulating in this area borne by 47 other states.  Uncertainty and the threat, if not the actuality, of litigation has been the unfortunate result of this dereliction for the regulated community, including the municipalities in which we live.

We deserve better.

“The Center for Biological Diversity (CBD) is dropping its legal challenge to EPA’s industrial stormwater general permit that sought stricter regulation of plastics pollution after settlement discussions were unfruitful, according to an attorney familiar with the litigation.“

Article By Jeffrey R. Porter of Mintz

For more environmental legal news, click here to visit the National Law Review.

©1994-2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Game Changing Reform to NSW Environment Protection Laws

The NSW Government has introduced the Environment Legislation Amendment Bill 2021 (NSW) (Bill) which proposes wide ranging reforms to NSW environmental laws to enable the NSW Environment Protection Authority (EPA) to “crack down” on environmental offenders.

The Bill makes good on Minister Matt Kean’s commitment to ensure that “the book [is] thrown at anyone who has done the wrong thing”. While the EPA has made it clear that the reforms are “aimed solely at those who deliberately choose to circumvent the law”, the amendments proposed by the Bill will materially increase environmental liabilities for all NSW operators.

This article outlines the key reforms proposed by the Bill which will amend a raft of environmental legislation, including the Protection of the Environment Operations Act 1997 (NSW) (POEO Act) and Contaminated Land Management Act 1997 (NSW) (CLM Act) and include:

  • the creation of new environmental offences;
  • increasing the penalties for a number of existing offences;
  • increasing the powers of the EPA and other environment regulators to hold to account those perceived to be responsible for pollution or contamination and to enforce environment protection licence conditions;
  • enabling the EPA to recover profits arising from the commission of environmental offences and the cost of remediating contaminated land from related bodies corporate and directors and managers of offending corporations; and
  • making it easier for the EPA to prove certain environmental offences.

The Bill is expected to be debated by Parliament in early 2022 and, if passed, will result in the largest overhaul of NSW environmental laws in over five years.

KEY REFORMS

Description Analysis
Greater Liability for Directors, Managers and Related Bodies Corporate
  • New power for the EPA and other environment regulators to issue clean-up notices and prevention notices to:
    • current and former directors and persons concerned in management; and
    • related bodies corporate, of companies responsible pollution or contamination, if the company does not comply with notices issued to it.
  • Making it an offence for a:
    • director or person concerned in management;
    • related body corporate; or
    • director or person concerned in management of a related body corporate,

to receive or accrue a monetary benefit as a result of certain proven environmental offences by a company.

  • New and expanded powers for the EPA and other prosecutors to obtain monetary benefit orders requiring:
    • directors or persons concerned in management;
    • related bodies corporate; and
    • directors or persons concerned in management of related bodies corporate,

to repay monetary benefits accrued as a result of certain proven environmental offences by a company.

If passed, the Bill will significantly increase potential liability of those concerned in the management of companies (including related bodies corporate) who commit environmental offences or fail to comply with environment protection notices in NSW.

Managers, directors and related bodies corporate could be put on the hook:

  • to clean up pollution or contamination caused by a company;
  • to carry out works required by a prevention notice to ensure that activities of the corporation are carried on in future in an environmentally satisfactory manner; and
  • to repay “monetary benefits” received as a result of any proven offence.

The proposed measures are not entirely unique to NSW. Queensland passed “chain of responsibility” environment legislation in 2016 and put it to use in the long-running Linc Energy matter.

However, the proposal for directors and related bodies corporate to be automatically liable for an offence if they profit from a proven offence of a corporation under environment protection legislation is likely to be the source of significant concern. This is especially the case as the Bill does not propose any defences. This means that a director or person concerned in management could potentially be liable even if they have taken all due diligence to prevent the commission of the offence by the company, although the EPA is unlikely to commence a prosecution in such circumstances.
New EPA Powers to Regulate Contaminated Land
  • New powers for the EPA to issue clean-up notices and prevention notices as soon as the EPA is notified of contamination of land, even before the EPA has determined that the land is “significantly contaminated”.
  • New power for the EPA to require financial assurances to ensure compliance with under ongoing maintenance orders, restrictions and public positive covenants.
 The new reforms demonstrate the importance on engaging with the EPA at an early stage and on an ongoing basis in relation to contaminated land.

If passed, the Bill would enable the EPA to take strong and proactive action without agreement even before it determines that the land is “significantly contaminated” and warrants contamination.
New Offence of Giving False or Misleading Information to the EPA
  • The Bill includes a new general offence of giving information to the EPA that is false or misleading in a material respect.
  • A defence applies where the person took all reasonable steps to ensure the information was not false or misleading in a material respect.
  • Greater penalties apply where the false or misleading information is provided knowingly.
  • Directors and other persons involved in the management of the corporation will be liable for any offence committed by the company under the new provision if they ought reasonably to know that the offence would be committed and failed to take all reasonable steps to prevent the provision of false and misleading information.

This new false and misleading information offence is significant because it applies regardless of whether the information was provided:

  1. voluntarily; or
  2. in circumstances where the information was known to be false or misleading.

The new offence is an apparent response to the decision in Environment Protection Authority v Eastern Creek Operations Pty Limited [2020] NSWLEC 182, where the defendant successfully resisted an EPA prosecution which alleged that the provision of false or misleading information by establishing that the notice in response to which the information was provided was legally invalid.

The new offence would create material new risks for entities regulated by the EPA, and highlights the need to take great care in taking “all reasonable steps” to ensure that information provided to the EPA is not false or misleading.
Higher Maximum Penalties for Some Environmental Offences
  • Substantial increases to some maximum penalties for offences under environment protection legislation, including the CLM Act, to more than double the current maximum penalties.
 The Second Reading Speech states that maximum penalties have been increased so that “they reflect the true cost of the crime”
Increased Liability for Suspected “Contributors” to Pollution
  • New power for the EPA and other environmental regulators to issue a clean-up notice to persons who is “reasonably suspected of contributing”, to any extent, to a pollution incident.
  • New powers for public authorities to recover costs and expenses of taking clean-up action from persons the authority “reasonably suspects contributed” to the pollution incident, in addition to occupiers and persons the authority reasonably suspects caused the pollution incident.
  • New right for person issued a clean-up notice to recover costs from others who caused or contributed to pollution incidents as a debt.

These new provisions are likely to be of significant concern, as they enable the EPA to issue clean-up notices requiring alleged contributors to pollution incidents to clean-up all of the pollution, at its cost. This has the potential to lead to the unintended result that:

  •  suspected contributors could be made liable for clean-up costs far exceeding their actual contribution; and
  • the EPA may seek to regulate the potential contributor with the “deepest pockets” – rather than the person most directly responsible.

While the Bill includes a right for a contributor to recover costs from others who caused or contributed to the pollution incident as a debt, this offers very limited protection to suspected contributors issued a clean-up notice, particularly if the person responsible or other persons responsible have limited financial capacity.
Expanded Environmental Licensing Powers
  • The Bill includes a new power for the EPA to require restrictions on the use of land or pubic positive covenants to enforcing environment protection licence conditions (including conditions imposed on the suspension, revocation or surrender of the licence). In line with this, the Bill also includes new provisions to enable a person other than the holder, or former holder, of a licence, to apply to vary the conditions of the suspension, revocation or surrender of the licence.
  • New ability for the EPA to deny environment protection licences to corporations where current or former directors of the corporation, related bodies corporate or for current or former directors of related bodies corporate have contravened relevant legislation.
 The proposed power to impose restrictions on use and public positive covenants to enforce licence conditions is material as, currently, licence condition only bind the holder of the environment protection licence. The changes proposed will enable the EPA to legally enforce conditions against land owners or occupiers, even if the activity regulated by the environment protection licence was conducted by a former land owner or tenant.

The EPA will now be able to take a deeper look at the overall environmental compliance history of an entity in licensing decisions, meaning that it will be even more important for corporations, directors and managers to maintain a strong environmental compliance history.
Consistent Court Powers including for Cost Recovery
  • Additional powers for public authorities including the EPA or other persons to recover costs, expenses and compensation from offenders in the Land and Environment Court.
  • Additional powers for the Land and Environment Court to make specific kinds of orders where environment offences are proven.
 The Bill proposes to have more consistent provisions across environment protection legislation in terms of the orders a court can make in relation to offenders, and the cost recovery that the EPA can seek from the Court.
New Offence to Delay Authorised Officers
  • The Bill contains a new offence of delaying, obstructing, assaulting, threatening or intimidating an authorised officer in the exercise of the officer’s powers, in addition to the existing offence of wilfully delaying or obstructing an authorised office.

This is an apparent response to the McClelland and Turnbull matters which involved the assault or delay of environment protection officers. The new offence is significant because the EPA would not be required to prove that the relevant delay or obstruction was willful, and so a person could be held liable for unintentional delays or obstructions.
Expanded Prohibition Notice Powers
  • Expanded power for the Minister to issue prohibition notices to occupiers of a class of premises or to a class of persons.
  • Expanded power to issue prohibition notices to directors, former directors or related bodies corporate of a corporation who has not complied with a prohibition notice.
 Currently, the Minister can only issue prohibition notices requiring occupiers or persons to cease carrying on an activity.

The Bill proposes to enable the Minister to prohibit occupiers of a class of premises or a class of persons from carrying on an activity. This would enable the Minister to shut down all of the premises of so-called “rogue operators”, if recommended to do so by the EPA. While it is likely to be rarely (if ever) used, the expanded power could potentially be relied on by the Minister where a pattern of non-compliance is identified across a specific industry or across multiple premises of one organisation.
Administrative Reforms to EPA
  • The Bill also proposes a range of administrative The most notable reform is to considerably reduce the Minister’s control of the EPA so that the EPA is no longer subject to the control or direction of the Minister, and that the Minister only has a limited power to issue directions of a general nature to the EPA.
 The EPA is generally regarded as an “independent” regulator, and the proposed reform formally reduces Ministerial control of the EPA thereby increasing its independence.

The Bill also includes some additional measures regarding board appointments to achieve greater diversity of collective skills, including expertise in human health and Aboriginal cultural values.

PUBLIC CONSULTATION ON POEO ACT REGULATIONS

In addition to the reforms contemplated by the Bill, the EPA is currently consulting on the following regulations under the POEO Act:

  • Protection of the Environment Operations (Clean Air) Regulation 2021 (NSW); and
  • Protection of the Environment Operations (General) Regulation 2021 (NSW).

Each of these regulations:

  • were remade with only minor amendments earlier this year, to avoid automatic repeal under the Subordinate Legislation Act 1989 (NSW); and
  • will be substantively amended in 2022. The EPA has committed to carrying out consultation on the proposed changes in 2022.

IMPLICATIONS

The reforms contained in the Bill demonstrate how important it is for all businesses which operate in NSW, and their related bodies corporate, directors and managers to:

  • take environmental compliance very seriously; and
  • work effectively with the EPA to address any pollution and contamination issues.

Copyright 2021 K & L Gates

Article by Kirstie Richards and Luke Salem with K&L Gates.

For more articles on climate change initiatives, visit the NLR Environmental & Energy section.

New Report Highlights Need for Coordinated and Consistent U.S. Policy to Address Possible Impacts to Financial Stability Due to Climate Change

“Climate change is an emerging threat to the financial stability of the United States.” So begins a recently issued Financial Stability Oversight Council (FSOC) Report, identifying climate change as a financial risk and threat to U.S. financial stability and highlighting a need for coordinated, stable, and clearly communicated policy objectives and actions in order to avoid a disorderly transition to a net-zero economy.

The FSOC’s members are the top regulators of the financial system in the United States, including the heads of the Federal Reserve, the Securities and Exchange Commission (SEC), and the Consumer Financial Protection Bureau. Their charge is to identify risks facing the country’s financial system and respond to them. This new Report supports steps being taken by various financial regulators in the U.S.

The Report suggests four steps necessary to facilitate an orderly transition to a net-zero economy.

  1. Regulators must develop and use better tools to help policymakers. “Council members recognize that the need for better data and tools cannot justify inaction, as climate-related financial risks will become more acute if not addressed promptly.” The FSOC Report highlights the tool of scenario analysis, “a forward-looking projection of risk outcomes that provides a structured approach for considering potential future risks associated with climate change.” The FSOC recommends the use of sector- and economy-wide scenario analysis as particularly important because of the interrelated and unpredictable development of climate impacts and technologies necessary to address them. Each of these technologies may have an unexpected impact on a part of the economy.
  2. Climate-related financial risk data and methodologies for filling gaps must be addressed.  The FSOC Report noted that its members lacked the ability to effectively access and use data that may be present in the financial system. The FSOC Report also noted potential risks to lenders, insurers, infrastructure, and fund managers caused by physical and transitional risks of climate change and the need to develop tools to better understand those risks.
  3. As has been highlighted by the environmental, social, and governance (ESG) movement, disclosure by companies of their climate-related risks is a key piece of data not only for investors but also for regulators and policymakers. Disclosure regimes that promote comparable, consistent, or decision-useful data and impacts of climate change are necessary, according to the Report, and also regimes that cover both public and private entities. The Report highlights various ongoing discussions on this topic, including possible regulations by the SEC.
  4. To assess and mitigate climate-related risks on the financial system, methods of analyzing the interrelated aspects of climate change are necessary. The Report details the developing thoughts around scenario analysis as a tool to help predict the many aspects of climate change on the financial system but notes that clearly defined objectives and planning are essential for decision-useful analysis.