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What Would a U.S. Supreme Court Confirmation of Judge Kavanaugh Mean for Environmental Regulation?

Over the next several weeks, the U.S. Senate will consider President Trump’s nominee, Judge Brett Kavanaugh, to fill the currently vacant seat on the U.S. Supreme Court.  Because Judge Kavanaugh is being considered to replace Justice Kennedy, who was often the swing vote in environmental decisions, a Kavanaugh confirmation could significantly affect the trajectory of environmental law.  This memo will discuss how Judge Kavanaugh’s views, and in particular his stance on deference to administrative agencies such as the U.S. Environmental Protection Agency, will likely tip the balance in environmental cases in a more conservative direction if he is confirmed.
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ESG Treatise Part 2 – United Nations Global Compact – Whether to Join or Not?

Davis Polk’s series on environmental, social and governance (“ESG”) standards continues with a discussion of the UN Global Compact, an internationally recognized principles-based ESG corporate disclosure and values framework. The UN Global Compact, launched in 2000, is one of the most relevant ESG frameworks as the largest corporate sustainability initiative in the world with over 9,500 company members in over 160 developed and developing countries.  Many corporations, particularly in the financial services industry, are often urged to join the UN Global Compact. This article provides an overview of the UN Global Compact and discusses potential implications for businesses that agree to sign onto it.
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EPA’s New Greenhouse Gas Emissions Rule for U.S. Power Sector – Legal Considerations and Business Impacts

On August 21, 2018, the United States Environmental Protection Agency (“EPA”) proposed the Affordable Clean Energy Rule (the “ACE Rule”) which would replace its 2015 Clean Power Plan (the “CPP”) in its entirety, both of which were designed to regulate the greenhouse gas (“GHG”) emissions of fossil fuel–fired power plants pursuant to EPA’s authority under Section 111(d) of the Clean Air Act. The ACE Rule dramatically scales back the ambitious sweep of the Obama administration’s CPP. Whereas the CPP proposed to limit GHG emissions by shifting the nation’s electricity generation away from fossil fuel–fired sources towards natural gas and renewables, the ACE Rule is limited to measures aimed at improving the efficiency and prolonging the lifespan of coal–fired power plants.
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FSB’s Task Force for Climate Disclosure to Release Updated List of Supporters

The Task Force on Climate-related Financial Disclosures (“TCFD”), an entity formed by the Financial Sustainability Board (“FSB”) focused on how climate change impacts the finances of global corporations, will publish its latest list of supporters on September 26, 2018.  The current list of over 300 supporters, includes major financial institutions, corporations, central banks and national governments, and is available here.  Corporations have been cautious in the past to sign on as supporters, but in an August 8, 2018 webinar, the TCFD stated that there is no current monetary or other commitment attendant to becoming a supporter, and no formal timeline to start disclosing against the TCFD’s disclosure principles.  
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ESG in Private Equity Part 1: UN PRI & Related ESG Reports and Ratings

Davis Polk is following the development and evolution of environmental, social and governance (“ESG”) frameworks by various organizations that are being employed by private equity general partners and limited partners. This article, covering the Principles for Responsible Investment’s ESG Guidance for Private Equity trilogy issued in full on June 13, 2018, is the first item in our series. Our next article will describe the related United Nations Global Compact ESG principles and its use and relevance in private equity. Our third article will discuss the United Nations Sustainable Development Goals, seventeen cutting-edge principles which the investment community is beginning to incorporate.
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Two Recent Climate Change Disclosure Initiatives Affecting Banks and Greenhouse Gas Emitting Companies

Sixteen banks from four continents commit to furthering the Financial Stability Board’s Task Force on Climate-Related Financial Disclosure push for improved climate risk disclosure.  In addition, Climate Action 100+ invigorates its push on 161 large companies with either high greenhouse gas emissions or the potential to impact clean energy to improve their climate change disclosures and governance.  More details as follows:

16 Banks From Four Continents Commit to TCFD Pilot Project

Sixteen banks (Australia and New Zealand Banking Group (ANZ), Barclays, Banco Bilbao Vizcaya Argentaria (BBVA), BNP Paribas, Bradesco, Citi, DNB, Itaú Unibanco, National Australia Bank, Rabobank, Royal Bank of Canada, Santander, Société Générale, Standard Chartered, TD Bank Group and UBS) have joined a United Nations Environment Programme – Finance Initiative pilot project to help banks disclose their climate related financial risks in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (“TCFD”).
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New Coalition Condemns Lack of Retail Investor Influence and Criticizes Current Investor Focus

The Main Street Investors Coalition wants retail investors to have more influence in combating the rise of passive investors.  Retail investors own about 30% of stock issued by U.S. companies, where holdings are dominated by major institutional investors.

The group includes the National Association of Manufacturers, the American Council for Capital Formation, the Equity Dealers of America, the Savings and Retirement Foundation and the Small Business and Entrepreneurship Council and is led by George David Banks, who recently served in the White House as a special assistant to the current administration on both the National Economic Council and National Security Council.
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FSB Task Force Releases Tool to Propel Climate Change Scenario Disclosure

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (“TCFD”), an industry-led group formed at the request of the G20, and the Climate Disclosure Standards Board (“CDSB”) announced today at TCFD’s first U.S. Scenario Analysis Conference the launch of the TCFD Knowledge Hub (“Hub”). The Hub is an online platform with peer-to-peer resources to assist organizations in implementing TCFD’s recommendations to public companies on the use of scenario analysis to disclose climate-related risks and opportunities. Our prior posts describing TCFD’s recommendations can be found here and here. The Hub can be accessed at Over 250 organizations have expressed their support for TCFD as of April 2018.
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Are the Reports that the DOL Guidance Will Lead to the Demise of ESG-Focused Plans Greatly Exaggerated?

Last week the U.S. Department of Labor (DOL) issued a bulletin (the Bulletin) on its prior interpretations related to considerations of ESG factors by ERISA plan fiduciaries.  Since then there has been some speculation that perhaps the positions outlined in the Bulletin would act as a speed bump to the increasing focus by investors on ESG matters at public companies.

As background, ERISA requires plan fiduciaries to act solely in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits to such persons and to discharge their fiduciary duties with the care, skill, prudence and diligence a prudent person would use under similar circumstances. 
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What You Should Know About Engaging with BlackRock on Human Capital Management

BlackRock has recently elaborated on what companies can expect when engaging with them on human capital management (HCM) matters, which BlackRock defines as including “employee development, diversity and a commitment to equal employment opportunity, health and safety, labor relations, and supply chain labor-standards, amongst other things.”

For industries and markets where talent is limited or constrained, BlackRock believes corporate strategies must address topics such as “how [companies] are establishing themselves as the employer of choice for the workers on whom they depend.” In these types of business environments, strong HCM can be viewed as a competitive advantage and a contributing factor to a company’s business continuity and success.
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Corporate Sustainability Disclosure is Not the Primary Driver of MSCI ESG Ratings

The topic of corporate ESG disclosure is among the ESG trends to watch in 2018, according to a recent report from MSCI.

Companies are increasingly providing voluntary information about their sustainability practices, and since MSCI ESG Research is among one of largest groups that review and rate corporate ESG disclosures and practices, grading companies from AAA to CCC, MSCI is “one of the world’s largest consumers” of corporate sustainability disclosure.

As the report explains, companies are providing more information given that investors are overwhelmingly supportive of efforts by various standard setters to encourage disclosure, with an alphabet soup of requests and choices that companies can follow, including CDP, GRI, SASB, IIRC and FSB. 
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ESG in Private Equity: What Every GP Needs to Know About Public Pension Fund Requirements

Public pension funds have long been outspoken advocates of environmental, social & governance (ESG) principles in investing. As quasi-public institutions uniquely sensitive to public opinion and the political process, public pension funds have begun to incorporate ESG considerations into all asset classes in their portfolio, including their private equity investments. With public pension fund limited partner (LP) investments constituting 44% of total worldwide private funding by the top 100 LPs in private equity, the largest category of private equity LP type by far among this group, it is important that private equity firms understand the ESG expectations of public pension funds and assess on an ongoing basis whether their ESG policies and practices, and those of their portfolio companies, are responsive.
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SASB Releases ESG Disclosure Standards: Public Companies and Private Equity Industry Take Note

The Sustainability Accounting Standards Board (SASB) released this Monday its draft standards for Environmental, Social and Governance (ESG) disclosure, launching a 90-day public comment period which ends on December 31, 2017. These standards set forth ESG topics covering 11 different sectors and 79 industries for public companies to disclose annually.

The draft standards, over four years in the making, were created by SASB working groups open to the public, including registrants, investors and service providers to public companies. The 90-day public comment period provides registrants and other stakeholders another opportunity to shape these disclosure frameworks before they are finalized. This opportunity is important as certain observers expect these standards will have some meaningful uptake.
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Environmental & Social Standards in Project Finance: Overview, Current State of Play

Global development banks and other financial institutions have been imposing environmental and social (E&S) requirements on borrowers in project finance matters since the 1990s. Cultural considerations, reputation, stakeholder pressure and, in the case of development banks, a desire to protect and support the communities and natural resources in their relevant geographic areas, all drive these requirements, but the ultimate goal is sustainable development.

This memorandum provides an overview and summary of seven existing E&S frameworks. It is important for both borrowers and these financial institutions to be familiar and have a facility with the varying E&S standards found in these and other similar frameworks.
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ESG Reports and Ratings: What They Are, Why They Matter

Institutional investors, asset managers, financial institutions and other stakeholders are increasingly relying on third party environmental, social and governance (ESG) reports and ratings to assess and measure company ESG performance over time and as compared to peers. This assessment and measurement often forms the basis of informal and shareholder proposal-related investor engagement with companies on ESG matters.  This client memorandum provides an overview and analysis of seven ESG report and rating providers, as well as information on ESG-related funds and portfolios offered by nine asset managers that are based in part on these ESG reports and ratings.
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Financial Stability Board Task Force Releases Final Climate-Related Financial Risk Disclosure Recommendations

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (“TCFD”), an industry-led group formed at the request of the G20, released yesterday its Final Recommendations Report for “voluntary” climate-related financial disclosure. The TCFD’s mandate is to ensure sufficient climate risk disclosure is available to avoid catastrophic financial market disruption due to climate change impacts.

Why Important?  While a variety of climate change disclosure frameworks already exist, such as those of SASB, GRI and CDP, as noted in our previous post summarizing the TCFD’s December 2016 draft recommendations, these recommendations are particularly relevant because of the FSB’s status as an international body founded by the G7 which coordinates national financial authorities and international standard-setting bodies, including the U.S.
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U.S. Supreme Court Confirmation of Justice Neil Gorsuch and Potential Future Impacts on Environmental Laws and Regulations

On April 10, 2017, Justice Neil Gorsuch assumed the seat on the U.S. Supreme Court previously held by Justice Antonin Scalia. Justice Gorsuch, who was appointed by President George W. Bush to the United States Court of Appeals for the Tenth Circuit in 2006, has generally espoused conservative views on most legal issues throughout his 24-year career as a lawyer and judge. His nomination was supported by conservative groups such as the Federalist Society and the Heritage Foundation, which presumably believe his approach to interpreting the law aligns closely with that of the late Justice Scalia. Justice Gorsuch was confirmed in spite of a filibuster by Senate Democrats to prevent his appointment; by employing the “nuclear option,” a majority vote in the Senate was used to change Senate debate rules to eliminate the filibuster for U.S.
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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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Mr. Clayton Goes to Washington

SEC Chair nominee Jay Clayton’s March 23rd hearing before the Senate Banking Committee covered much of the expected ground. In a series of responses designed to avoid controversy, Clayton repeatedly returned to the three core mandates of the SEC – capital formation, investor protection and efficient markets – as touchstones for his future leadership of the Commission, should he be confirmed. Beyond these general areas, Clayton offered few specifics or signals as to how he might steer the Commission during his term as Chair. He did, however, discuss concerns about growing companies finding the U.S. public markets unattractive due to the burdens of being a public company.
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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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State Street Stewardship Report Highlights the Investor’s Approach to Targeted Engagement

In its annual stewardship report covering 2015, State Street Global Advisors (SSGA) indicated that it had voted at 15,471 meetings in 81 countries.  The investor voted against management proposals 12% of the time and in favor of shareholder proposals 14% of the time.

In light of the difficulty for passive index managers that are invested in thousands of companies globally to actively oversee their holdings, SSGA develops an annual stewardship program based on its strategic priorities by focusing on specific sectors and environmental, social and governance (ESG) themes.  For 2015, SSGA’s sector focus led them to engage with 48 pharmaceuticals and 95 consumer discretionary companies. 
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