The right to regulate subject to due process constraints is a foundation of public utility law. This article examines the extent to which a regulatory agency can restrict and ultimately terminate a utility’s operations based on public policy considerations. This issue has arisen in industries confronted with disruptive technological and regulatory change such as deregulation of wholesale natural gas pricing, termination of the vertical integration of electric utilities, broadcast television displacement by cable television, cable television displacement by satellite and internet video communications, and wire-line telephone displacement by wireless and internet communications. While these changes were disruptive at the time, they also presented new opportunities for utilities nimble enough to take advantage of them. None represented a regulator’s judgment that a utility should cease operations.
The package focuses on material sustainability reporting and disclosure obligations, as the EU looks to direct capital toward sustainable activities.
On 21 April 2021, one day prior to Earth Day and a US-led global climate summit, the European Commission adopted a much-anticipated package of measures as part of its policy to help direct capital towards sustainable initiatives and to help the European Union reduce its greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and reach its 2050 carbon neutrality goal.
The package of measures include:
- A proposed Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements under the Non-Financial Reporting Directive (NFRD) and seek to ensure that companies provide consistent and comparable sustainability information
- The EU Taxonomy Climate Delegated Act, which aims to identify the economic activities that best contribute to climate change mitigation and adaptation
- Six Delegated Acts on fiduciary duties, investment, and insurance advice, which aim to ensure that financial firms (e.g., advisers, asset managers, or insurers) include sustainability in their procedures and investment advice to clients
For market participants pivoting toward ESG and digital assets, weighing the issues at the crossroads of these two megatrends is critical.
The huge rise in popularity of Bitcoin — and the growing interest by mainstream financial institutions in virtual assets as an investable and tradable asset class — has shone a light on the cryptocurrency industry’s environmental, social, and governance (ESG) performance.
The vast majority of the world’s financial institutions manage climate risk and other ESG risks in their own portfolios. As a result, many financial institutions perform related diligence on corporates they look to service, whether by traditional lending, capital markets underwriting, or direct investment. While the focus has primarily been on the ESG performance of cryptocurrency miners (given their role in the creation of cryptocurrencies and the energy requirements associated with that process), the ESG performance of the broader cryptocurrency industry will increasingly need to be considered, particularly as institutional investment in this space is accelerating. Accordingly, investors in cryptocurrency miners, in cryptoasset service providers, and even in companies that put cryptoassets on their balance sheets must now weigh the potential for increased returns against the possible negative impact on their ESG credentials.
While much has been written about the sustainability challenges related to cryptocurrency mining, ESG represents a broad range of considerations. This post explores the ESG-related challenges that cryptocurrency market participants are facing and practical steps to meet them. Continue Reading
The People’s Bank of China announced a collaboration with the European Union to adopt a common taxonomy for green investments.
On 21 March 2021, the People’s Bank of China (PBC) announced that China is working with the European Union to adopt a common green taxonomy across the two markets later this year. PBC Governor Yi Gang, speaking at the China Development Forum, said strengthening the nation’s green finance system was the central bank’s priority for the next five years. He emphasised that, in order for China to meet its 30/60 goal of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060, China needs to engage in collaboration with global partners.
The EU Taxonomy Regulation, which entered into force in July 2020 and will take effect on a phased basis from 1 January 2022, is one of the most significant developments in sustainable finance to date. It creates a classification system for environmentally sustainable economic activities and aims to provide clarity as to what should be considered “green”. The EU Taxonomy Regulation is intended to avoid issues of greenwashing and is considered to be an important tool in implementing the Paris Agreement climate goals. For more details on the EU Taxonomy Regulation, please refer to our blog post on the topic. Continue Reading
Project applicants and agencies alike should think carefully about developing robust analyses that demonstrate the adequacy of water supply.
Mark Twain is often credited with saying, “Whiskey is for drinking; water is for fighting over.” This remains true in California, where drought conditions, climate change, and population growth throughout the state’s history have made water an increasingly valuable and regulated resource. The legal landscape involves complex questions related to water quality, water sustainability, and competing claims to water rights. One notable area of controversy involves the adequacy of water supply for new development projects.
Two decades ago, in 2001, the state legislature enacted Senate Bill (SB) 610 and SB 221 to promote sustainable long-term water planning. Collectively, SB 610 and SB 221 require public agencies to determine whether adequate water supply exists for certain large development projects as part of the environmental review process under the California Environmental Quality Act (CEQA) by, in part, requesting water supply assessments (WSAs) from water service providers. Continue Reading
The CFTC continues to demonstrate a commitment to using its regulatory mandate to combat climate change risks to the US financial system.
On March 17, 2021, the Commodity Futures Trading Commission (CFTC) announced the establishment of an interdivisional Climate Risk Unit (CRU) to assess the risks to US financial stability posed by climate change. The CRU aims to be a catalyst for change by highlighting the derivatives markets’ role in understanding, pricing, and addressing climate-related risks, as well as its role in the transition to a low-carbon economy.
The announcement was made by Acting Chairman Rostin Behnam, whose efforts to steer the CFTC’s focus toward climate-related impacts on the financial system led to the publication of a landmark report by the CFTC’s Climate-Related Market Risk Subcommittee of the Market Risk Advisory Committee in September 2020. The report, titled “Managing Climate Risk in the U.S. Financial System” (the Report), makes 53 recommendations to help mitigate climate risk to financial markets. See Latham’s discussion of the report here. Continue Reading
The program will include a multi-jurisdictional cap-and-invest program and aims to address environmental justice and equity concerns.
On December 21, 2020, the Governors of Massachusetts, Rhode Island, and Connecticut, as well as the Mayor of the District of Columbia, announced that their respective jurisdictions would establish the Transportation & Climate Initiative Program (TCI-P) and released a memorandum of understanding (MOU) describing the agreed-upon principles for adoption and implementation of the TCI-P. While not part of the MOU, the states of New York, New Jersey, Delaware, Maryland, Virginia, Vermont, Pennsylvania, and North Carolina released a statement signaling their desire to work with the states party to the MOU and the Transportation & Climate Initiative (TCI) in general. On March 1, 2021, the TCI released draft Model Rules for public review. Once finalized, the Model Rules are intended to be adapted for use by each TCI-P signatory jurisdiction via state-specific rulemaking processes. Continue Reading
The German government has adopted draft law to ensure corporate compliance with human rights in the supply chain.
On 3 March 2021, the German government adopted the draft Corporate Due Diligence in Supply Chains Act (Gesetz über die unternehmerischen Sorgfaltspflichten in Lieferketten), which is intended to oblige large German companies to better fulfil their responsibilities in the supply chain with regard to internationally recognized human rights by implementing core elements of human rights due diligence.
The draft law will now be introduced in the legislative procedure and is expected to be passed this summer. If passed, the new law will enter into force in January 2023. Continue Reading
The Division of Enforcement’s new Climate and ESG Task Force will use data analysis to mine and evaluate registrant information for possible violations.
On March 4, 2021, the US Securities and Exchange Commission (SEC) announced the creation of a Climate and ESG Task Force in the Division of Enforcement. According to the SEC, the Task Force will develop initiatives to proactively identify ESG-related misconduct in the form of gaps or misstatements of issuer disclosure by means of the Division’s resources, including the collection of tips and whistleblower complaints and the use of data mining and analysis.
The principles are intended to guide the industry’s engagement with policymakers concerning the ongoing economic transition away from carbon.
The US Climate Finance Working Group, a group of leading financial services trade associations, has published “Financing a US Transition to a Sustainable Low-Carbon Economy” — a set of principles for how the financial services industry can play a role in addressing climate change.
The principles, not meant to be exhaustive, are intended to serve as a useful framework for the industry’s engagement with policymakers to find practical, market-based solutions to the challenges and opportunities related to climate risk and the ongoing economic transition away from carbon. The working group noted that while individual institutions can play a significant role in the global effort to address climate change, policy must provide a critical foundation for driving the transition. Continue Reading