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President Trump’s Climate Change Executive Order: Legal Impacts and Business Implications

On March 28, 2017, President Trump signed a sweeping executive order aimed at rolling back signature portions of the Obama administration’s climate change agenda. Framed as a series of measures to bolster American energy independence, economic growth and job creation, the executive order takes steps to undo nearly two dozen Obama-era regulations, executive actions, policies and guidance documents. Some of the most prominent regulations affected include those governing greenhouse gas emissions from the power sector, notably the Clean Power Plan, as well as methane and other air emissions from oil and natural gas operations, including hydraulic fracturing.

The process of rescinding or revising regulations is lengthy, complex, and often the subject of vigorous legal challenges.
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Trump Executive Order Targets EPA Waters of the United States Rule

Yesterday, President Trump signed an executive order aimed at reversing the controversial Clean Water Rule, also known as the Waters of the United States (WOTUS) Rule, implemented under the Obama Administration. The executive order calls on the Environmental Protection Agency (EPA) and Army Corps of Engineers to begin the lengthy administrative process of rescinding or revising the rule. The WOTUS Rule was one of several Obama-era environmental regulations specifically criticized by President Trump during the presidential campaign.

Read the Full Memo >
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Federal Coal Mining Stream Protection Rule Nullified

On February 16, 2017, President Trump approved a joint resolution of Congress nullifying the U.S. Department of the Interior’s Office of Surface Mining and Reclamation Enforcement’s (OSMRE) controversial Stream Protection Rule. The joint resolution was passed pursuant to the 1996 Congressional Review Act (CRA), which allows a new Congress to use special fast-track procedures to invalidate federal agency rules submitted in the last 60 session or legislative days of the previous session of Congress. This marks the second time that President Trump has approved a CRA joint resolution, and the third time ever that the CRA has been utilized successfully.

Read the Full Memo >
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Financial Stability Board’s Task Force Releases Climate Risk Disclosure Recommendations

The FSB’s Task Force on Climate-Related Financial Disclosure (Task Force) released on Wednesday its Recommendations Report for voluntary climate change disclosure. The Task Force is an industry-led group formed in 2015 by the FSB at the request of the G20. Its goal is to ensure sufficient climate risk disclosure is available to enable informed financial decisions to help avert climate change-based financial market disruption.

The Task Force recommendations, based in part on certain existing disclosure frameworks, call for four categories of disclosure: (i) governance of climate risk; (ii) climate risk management; (iii) climate risk metrics and targets; and (iv) impacts of climate risk on business strategy and planning (strategy).
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The Trump Transition – Potential Environmental Regulatory and Legal Outcomes and Business Implications

President-elect Trump has promised to undo a number of environmental policies and regulations issued by the Obama administration, to promote increased fossil fuel exploration and production and to invest in energy and infrastructure projects while easing applicable permitting requirements.  While President-elect Trump’s ultimate environmental agenda is only just taking shape, the areas or industries that are likely to be most significantly impacted under his administration based on his existing statements are: (i) climate change regulation; (ii) coal, oil and gas exploration and production; (iii) what constitutes “waters of the United States” for purposes of the federal Clean Water Act; and (iv) renewable energy.
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SEC Sustainability Disclosure Search Tool Released This Week

Ceres, an environmental nonprofit organization, released this week an SEC Sustainability Disclosure Search Tool. This tool, available here, is the next step in Ceres’s campaign for increased, and more transparent and comparable, climate change and other sustainability disclosure. (See prior blog posts on this topic available here, here, and here.

The search tool allows registered users to access summary reports which reproduce the climate change, carbon asset risk, hydraulic fracking and water disclosure filed with the SEC by 5,300 public companies, spanning various industries (such as Banks & Financial Services, Mining and Oil & Gas) and indices (S&P 500, Russell 3000 and FT Global 500).
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ESG (Environmental, Social and Governance) in Focus by Stock Exchanges and in Investment Decisions

A global trade association of 64 stock exchanges, the World Federation of Exchanges (WFG), has recommended that its member exchanges voluntarily incorporate a set of 34 ESG factors into listed company disclosure standards.

The WFG, which includes the NYSE and NASDAQ, highlights 34 key performance indicators that the group believes demonstrate the best sustainability practices, such as energy consumption, water management, CEO pay ratio, gender diversity, human rights, child and forced labor, temporary worker rate, corruption and anti-bribery, tax transparency, supplier code of conduct and codes of ethics. The purpose and methodology is explained here and the full list of indicators is set forth here.
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Recent Developments in Climate Change Regulation

In recent years, there has been an increasing amount of attention paid to climate change, both in the media and on the part of “green groups” such as Sierra Club, and regulators in the U.S. and other countries have proposed or finalized rules intended to limit greenhouse gases such as carbon dioxide, methane and ozone-depleting substances. These regulations affect various industries, including coal and oil and gas, as well as industries reliant upon them, such as the power generation and auto industries.

In addition, certain countries, including the U.S., China, India and Brazil, have made public pronouncements of ambitious plans to reduce carbon emissions during the next few decades.
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BlackRock and Ceres Release Investor Guide on Environmental, Social and Governance Corporate Engagement

Late last week, BlackRock and Ceres released a detailed investor guide (the “Guide”) outlining various strategies and questions for engaging effectively with companies on environmental, social and governance (“ESG”) risks.

The Guide includes short articles from nearly 30 different institutional investors (including BlackRock, CalPERS, CalSTRS, T. Rowe Price and Breckinridge Capital Advisors) describing their priorities and strategies they use to engage with companies across different asset classes, both internationally and domestically, on ESG matters.

The Guide also includes sector-by-sector questions for investors and Wall Street analysts to ask, including during stock calls, with companies in the following nine industries: (i) Oil, Gas and Mining, (ii) Banking and Finance, (iii) Insurance, (iv) Information Technology, (v) Electric Utilities, (vi) Apparel and Retail, (vii) Transportation, (viii) Food and Beverage and (ix) Healthcare and Pharmaceuticals.
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Environmental Groups Warn Directors and Executives of Possible Personal Liability for Opposing Climate Change

Greenpeace International, WWF International and the Center for International Environmental Law sent letters to executives and directors of 32 major oil, gas and energy companies, warning them that they may ultimately face personal liability related to climate change issues.  

According to the NGOs, the targeted companies are “working to defeat action on climate change and clean energy by funding climate denial and disseminating false or misleading information on climate risks.” Beyond this general yet inflammatory allegation, there are no specific examples or references cited other than a list of news stories and other publications about corporate influence and “lobbying” activities.
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Global Stock Exchanges Considering Adopting Sustainability Disclosure Listing Requirements

A group of investors representing over $13 trillion in assets and led by Ceres’s Investor Network on Climate Risk recently submitted recommendations to various global stock exchanges for a uniform mandatory stock exchange standard on corporate environmental, social and governance (ESG) reporting. These recommendations follow Ceres’s April 2013 consultation paper on this topic. The investors recommend exchanges consider adopting, and capturing in a global listing rule, the following three company requirements:

  • First:  Listed companies are to disclose in their annual financial filings a “materiality” assessment where management will discuss its approach to determining what ESG issues are material to their companies.

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Ceres Continues Its Campaign to Improve Climate Change Disclosure in SEC Filings

Ceres, a leading sustainability nonprofit representing institutional investors with over $11 trillion in assets under management, is calling again on the SEC and registrants to do more to improve climate change disclosure in SEC filings. Dissatisfied with the SEC’s perceived lack of follow-through on its own February 2010 Climate Change Disclosure Guidance, Ceres released a report earlier this month, Cool Response: The SEC & Corporate Climate Change Reporting  – SEC Climate Guidance & S&P 500 Reporting – 2010 to 2013, directing the SEC to prioritize climate change disclosure by issuing more comment letters to companies with “inadequate” disclosure. Ceres cites the SEC’s three climate change comments from 2012 to 2013 out of the thousands it issued each year as evidence of the SEC’s poor enforcement of its 2010 disclosure guidance, which Ceres spent several years petitioning the SEC to adopt.
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Investor Group with $3 Trillion under Management Launches Latest Carbon Risk Initiative against Oil & Gas, Coal and Utility Companies Focused on the Value of Fossil Fuel Reserves

A coalition of over 70 international investors has sent letters to 45 of the world’s top oil & gas, coal and electric power companies requesting that the companies assess and disclose potential reduced demand for their products or services due to current and probable future greenhouse gas reduction policies and/or the physical impacts of climate change.  This campaign, the Carbon Asset Risk Initiative (or CARI) led by Ceres and the Carbon Tracker Initiative, is yet another institutional investor and not-for-profit campaign seeking to highlight risks inherent in carbon-intensive industries with the ultimate goal of moving toward renewable energy.  CARI’s main target appears to be oil & gas companies, particularly those with holdings in the carbon-intensive Canadian oil sands.
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Sustainability Accounting Standards Board Develops Industry Standards of Sustainability Disclosure for SEC Filings

Following up on our earlier report, yet another group is determined to require public companies to disclose sustainability issues in SEC filings. The Sustainability Accounting Standards Board (SASB) held a conference recently to discuss its standard-setting process. While its name invokes an immediate similarity to FASB, SASB has no official designation, although its advisory council includes an impressive list of industry, sustainability and financial professionals affiliated with Deutsche Bank, ISS, J.P. Morgan, Goldman Sachs, Morgan Stanley, BlackRock, AllianceBernstein, CalPERS, Ernst & Young, PwC and McKinsey, among others.

After being informed by the SEC of its reluctance to consider a separate line item requirement for environmental, social and governance (ESG) disclosure because of differences among industry sectors, SASB has begun drafting, and plans to adopt by the second quarter of 2015, ESG disclosure standards for 88 different industries in 10 sectors: (i) health care; (ii) financials; (iii) technology & communications; (iv) non-renewable resources; (v) transportation; (vi) services; (vii) resource transformation; (viii) consumption; (ix) renewable resources & alternative energy; and (x) infrastructure.
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Environmental Disclosure in SEC Filings – 2011 Update

This memorandum, which updates our January 2009 and February 2010 memoranda on this topic, summarizes the key developments in the past year relating to environmental disclosure and provides practical guidance on how to comply with the complex SEC rules relevant to environmental matters. In particular, the memorandum discusses (i) updates regarding SEC climate change disclosure; (ii) potential revisions to the SEC’s risk factor disclosure standards; (iii) an update on the New York Attorney General’s climate risk disclosure subpoenas; and (iv) FASB’s ongoing efforts to expand its requirements governing loss contingency disclosures.
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