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California Imposes Climate Risk Disclosure Requirements on the U.S.’s Two Largest Pension Funds

Citing concerns of climate change’s impact on the financial sector, California passed SB 964 last week requiring the country’s two biggest pension funds to publicly disclose and analyze their climate-related investment risks. Under the new law, The California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) must review and report “climate related financial risks” that are “material” to the stability of their public market portfolios. Such “climate-related financial risks” include “intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial and transition risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries.” SB 964’s obligations, which will take effect on January 1, 2020 and continue every three years until 2035, also require the funds to report on their alignment to the Paris climate agreement, California climate policy goals, and any long-term climate-related financial risks.
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Investors Petition the SEC to Develop ESG Reporting Requirements

A group of investors representing more than $5 trillion in assets under management petitioned the U.S. Securities and Exchange Commission on October 1, 2018 to develop a comprehensive framework that would require public companies to disclose environmental, social and governance (ESG) aspects relating to their operations.  Petitioners include CalPERS, the New York State Comptroller and the U.N. Principles for Responsible Investment.  The 19-page petition, available here, cites increasing demands by certain investors for information to better understand the long-term performance and risk management strategies of public companies. The petition notes that the voluntary “sustainability reports” that some companies have produced in response to these demands are insufficient and instead, an SEC-mandated comprehensive framework for clearer, more consistent and more fulsome, reliable and decision-useful ESG disclosure (above and beyond existing SEC disclosure requirements) would meet this demand. 
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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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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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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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