Insights

Following a directive from President Trump,[1] and in the wake of two court decisions concluding the Council on Environmental Quality (“CEQ”) had no authority to promulgate them in the first place, CEQ’s National Environmental Policy Act (“NEPA”) regulations are being removed from the Code of Federal Regulations.

Mandatory climate disclosures for US federal contractors are officially off the table—at least, for the foreseeable future.  On January 10, 2025, the Department of Defense, General Services Administration, and National Aeronautics and Space Administration announced that they are withdrawing a proposed rule, “Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk,” which would have required thousands of federal contractors to inventory and publicly disclose their Scope 1 and Scope 2 greenhouse gas (GHG) emissions and would also have required  “major” contractors to also establish and validate GHG emission-reduction targets tailored to the goals of the Paris Agreement.  The proposed rule, discussed in further detail here, was introduced in November 2022 and resulted in thousands of public comments from the government contractor community and beyond. 

On November 8, 2024 the SEC announced a settled enforcement action against Invesco Advisers, Inc. for making misleading statements about its integration of environmental, social, and governance (ESG) factors into the firm’s investment decisions. Invesco agreed to pay a $17.5 million civil penalty to settle the matter. This enforcement action makes it clear that, even though the SEC dissolved its ESG Task Force, the Commission continues to monitor firms’ statements and representations for misleading statements about ESG.

On September 10, 2024, the U.S. Securities and Exchange Commission (the “SEC”) announced a settlement with Keurig Dr Pepper Inc (“Keurig”).  The SEC alleged that Keurig made incomplete and inaccurate statements in the Company’s annual reports for fiscal years 2019 and 2020 touting the recyclability of its K-Cup products. Keurig agreed to pay a $1.5 million civil penalty. 

The Securities and Exchange Commission (SEC) has reportedly recently dissolved its Climate and ESG Enforcement Task Force (the Task Force). The Task Force was part of SEC Chair Gary Gensler’s broader push to increase investors’ access to environmental, social, and governance (“ESG”) information about public companies and registered investment companies. The dissolution of the Climate and ESG Enforcement Task Force comes after three years marked by industry resistance and a mixed record in the courts. Prior to the Task Force’s dissolution, the agency removed ESG from its annual Examination Priorities Report, which provides areas of particular focus during SEC examinations. While the Task Force has been dissolved, the SEC is still pursuing a number of its proposed ESG and climate-related rules.

On Friday, June 28, 2024, the U.S. Supreme Court overruled Chevron U.S.A. v. Natural Resources Defense Council (“Chevron”)[1] in Loper Bright Enterprises v. Raimondo (No. 22-451) and Relentless v. Dep’t of Commerce (No. 22–1219)[2] (the two cases collectively referred to as “Loper Bright”), bringing an official end to the decades-old and eponymously named “Chevron deference” doctrine. Not content to stop there, the Court returned fresh to work Monday, July 1, to, in Corner Post, Inc. v. Board of Governors of the Federal Reserve System (No. 22-451)[3] (“Corner Post”), effectively extend the limitations period to challenge final agency actions under the Administrative Procedure Act (“APA”).

On June 6, 2024, the General Services Administration (GSA) issued a final rule seeking to minimize the use of single-use plastic (SUP) packaging materials in goods procured through the Federal Supply Schedules (FSS).  Rather than instituting an outright ban on SUP packaging, GSA opted to incentivize FSS contractors to offer SUP-free products through providing a special icon in GSA Advantage for FSS contractors self-certifying that their products are SUP-free.  The final rule explains that the SUP-free icon is intended to act “as an important discriminator when buyers are making purchasing decisions” so that FSS contractors that adopt this voluntary measure will become more marketable in the federal procurement space.  While application of the final rule is limited to purchases from the FSS, GSA believes that the final rule will “also create positive spillovers as non-FSS contracting firms adopt similar policies to compete with FSS contractors in non-FSS markets.”  GSA also explained that the final rule is an “initial step” in providing more sustainable packaging and that the goal is to encourage other federal agencies to eventually adopt these practices into other government contracts.  Importantly, GSA will rely on self-certification that identified products are SUP-free and will not require any third-party verification, as the increased regulatory burden could discourage participation of small businesses.  The final rule is effective starting July 8, 2024.

During the month of April, the Biden administration has continued to leverage federal procurement in pursuit of ambitious environmental sustainability policy goals.  The most recent round of new regulations and initiatives finds the administration seeking to strengthen purchasing mandates of sustainable goods and services, as well as laying the groundwork for significant restrictions on the federal procurement of products containing per- and polyfluoroalkyl substances (PFAS). 

On March 6, 2024, the U.S. Securities and Exchange Commission (SEC) voted to finalize a rule that requires regulated issuers to disclose information regarding their greenhouse gas (GHG) emissions and other climate-related information. First proposed in 2022, the final rule has been scaled back in some significant ways from what was initially proposed. Notably, the final rule requires only large accelerated filers and non-exempted accelerated filers to disclose direct and energy-related (Scope 1 and 2)[1] GHGs—and only if such emissions are material to the business strategy, results of operations, or financial condition of a registrant—with no Scope 3 requirement to report on other indirect emissions (Scope 3). By comparison, the proposed rule would also have required Scope 1 and 2 emissions disclosures for all types of regulated entities regardless of materiality, and Scope 3 disclosures required of certain filers if material. The final rule reflects a heightened focus on materiality regarding disclosures of climate-related risks, and adjusts assurance requirements. It also extends the timing of GHG reporting, when required, to at least 2026 (for FY 2025 data) and phases in the assurance requirements. As soon as the SEC voted to finalize the rule, ten states (West Virginia, Georgia, Alabama, Alaska, Indiana, New Hampshire, Oklahoma, South Carolina, Virginia, and Wyoming) filed a petition for review in the Eleventh Circuit challenging the final rule.

Europe’s biggest online fashion retailer, Zalando, recently agreed to dramatically and rapidly overhaul its sustainability marketing in the face of pressure by the European Commission. This is yet another example of why companies need to be extremely careful when making environmental claims in their advertising. Such claims are facing increasing regulatory scrutiny and activist litigation in the European Union, the United Kingdom, the United States and elsewhere around the globe.

Front of mind for many federal contractors is the proposed FAR rule that would make federal contract awards contingent upon meeting mandatory greenhouse gas (GHG) emissions requirements. But a provision in the recently enacted National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2024 scales back the reach of that potential rule on Department of Defense (DoD) contracts.

On Saturday, October 7, 2023, California Governor Gavin Newsom signed into law two landmark bills—SB 253, the Climate Corporate Data Accountability Act; and SB 261, the Climate-Related Financial Risk Act—that will require large public and privately-held entities doing business in California to comply with sweeping disclosure requirements regarding their direct and indirect greenhouse gas emissions and their climate-related financial risks.

On Wednesday the SEC adopted amendments to the “Names Rule” that are meant to promote “truth in advertising” according to SEC Chair Gary Gensler. Specifically, the amendments require funds with names that reference a thematic investment focus (such as incorporation of Environmental, Social, and Governance (“ESG”) factors), or that suggest an investment portfolio with certain characteristics (such as “growth” or “value”) to invest at least 80% of the value of their assets in those named focus areas.

If the year 2022 was about Executive Branch agencies pursuing ESG (environmental, social, and governance)-related activities—from the Securities and Exchange Commission’s GHG and ESG disclosure proposals, to the Department of Labor’s final reversal of the Trump-era rule discouraging ESG-focused investing by pension funds, and the Federal Acquisition Regulatory Council’s proposal to require government contractors to disclose GHG emissions—then 2023 has seen the 118thCongress taking center stage. Policymakers are questioning how ESG issues impact businesses, workers, and investors; and what role the government should play in encouraging or discouraging ESG considerations.  

On March 8, 2023, the Biden Administration announced a further opportunity for companies to take advantage of significant federal funding intended to promote clean manufacturing and reduce greenhouse gas emissions in federal procurement.  In line with the Biden Administration’s push to implement a clean energy economy (as we have previously covered, for example, here and here), the Department of Energy (DOE) will provide $6 billion in grants through the new Industrial Demonstrations Program to “accelerate decarbonization projects in energy-intensive industries and provide American manufacturers a competitive advantage in the emerging global clean energy economy.”  Funding for these grants will come from the recently passed Infrastructure Investment and Jobs Act and Inflation Reduction Act.

The EPA has issued new guidance on environmental justice that urges regulators to incorporate EJ concerns and communities into the permitting process earlier on, make changes to the process that enable EJ communities to participate more fully, and use existing legal authorities to require would-be permittees to fully address EJ issues.

On December 23, 2022, the Department of Defense (“DoD”), General Services Administration (“GSA”), and National Aeronautics and Space Administration (“NASA”) extended the comment period on the proposed rule, “Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk,” from January 13, 2023 to February 13, 2023.  As we summarized previously, the proposed rule would, if finalized, require thousands of federal contractors to inventory and publicly disclose their Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions, while further requiring “major” contractors to also establish and validate GHG emission-reduction targets tailored to the goals of the Paris Agreement.

In a major and largely unprecedented development for federal contractors, the White House announced on November 10, 2022 that the FAR Council will publish early next week a proposed rule that would, if finalized, require many federal contractors receiving more than $7.5 million in annual federal contracts to inventory and publicly disclose Scope 1 and Scope 2 greenhouse gas (GHG) emissions on an annual basis.  Contractors deemed “major”—those that receive annual federal contracts in excess of $50 million—would be further required to disclose annually their Scope 3 GHG emissions and climate-related financial risk assessment process.  Beyond disclosures, and perhaps more significantly, major contractors would also be required to set emission-reduction targets to meet the goals of the Paris Agreement, and have those targets validated by the Science Based Targets Initiative (SBTi). This last element of the proposal is a notable departure—and escalation—from similar pending proposals from the U.S. Securities and Exchange Commission, which only propose to require GHG disclosures from regulated companies and funds, not substantive goals or changes.

Recent court decisions on government climate policies on both sides of the Atlantic have the potential to impact future efforts to meet these targets and pressure on the private sector to do the same.

Investment companies and advisers would be subject to more stringent standards regarding how investment funds are named; and heightened disclosure requirements regarding Environmental, Social, and Governance (ESG) factors, under two proposals the Securities and Exchange Commission (SEC) issued on May 25, 2022. For example, the SEC proposes to amend the “Names Rule,” first implemented in 2001, to require that any fund using terminology such as “growth,” “value,” or “ESG” in its name must invest at least 80% of its assets in investments matching the name. The SEC also proposes to amend regulations under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 to require investment advisers to disclose information such as the carbon footprint of a fund that advertises that such information is part of the fund’s strategy. This proposal comes just two months after the SEC proposed sweeping disclosure rules related to climate-related risks, as described in a prior alert.