Welcome to the North America ESG Regulatory Newsletter! The goal of this newsletter is to inform practitioners about current and upcoming ESG regulations, and to provide other information helpful to navigating the rapidly evolving ESG regulatory landscape.

Trending Topics (in Collaboration with Fintech Studios, Inc.)

On March 21, 2022, the U.S. Securities and Exchange Commission (SEC) proposed new rules for climate-related disclosures. Accenture has published a summary of the disclosures required by the SEC’s proposed rules.  Please see below and contact Aaron Mendelsohn and Amanda Gordon for more information. 

North America Regulatory Updates

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) 

What’s happening? The FDIC issued a request for comment on its draft principles to provide a high-level framework focused on managing exposures to climate-related financial risks.  The principles are targeted to large financial institutions (>$1B in total consolidated assets) and are consistent with existing FDIC rules and guidance. 

Type: Request for Comment 

Timing: Announced 3/30/2022 

Read more: Here | or Here 

ENVIRONMENT AND CLIMATE CHANGE CANADA (ECCC) 

What’s happening? ECCC, the Government of Canada’s department responsible for coordinating environmental policies and programs, is seeking input on key topics, including emission reduction technologies and costs, design approaches for future regulations, as well as options for methane measurement, monitoring, reporting, and verification.  Its discussion paper aims to inform the development of new federal regulations and other measures needed to achieve Canada’s methane reduction targets. 

Type: Discussion Paper 

Timing: Announced 3/25/2022 

Read more: Here | or Here 

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) FOUNDATION AND GLOBAL REPORTING INITIATIVE (GRI) 

What’s happening? The IFRS Foundation and GRI announced a collaboration agreement to align their capital market and multi-stakeholder standards for sustainability disclosure. The agreement is the latest step toward the development of a cohesive approach to sustainability reporting. 

Type: Memorandum of Understanding (MoU) 

Timing: Announced 3/24/2022 

Read more: Here | or Here 

U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) 

What’s happening? The SEC proposed new climate-related disclosure rules for publicly traded companies in the U.S., including foreign private issuers.  The proposal mandates, among other requirements, that companies report in their public filings and financial statements: (1) greenhouse-gas emissions (Scopes 1, 2, and in some cases, 3), climate-related risk oversight and governance, and climate-related risks that impact the company’s strategy, business model, and outlook; (2) climate-related financial risks and metrics; and (3) in some cases, obtain independent third-party assurances for certain climate-related data. 

Type: Proposed Rule 

Timing: Announced 3/21/2022 

Read more: Here | or Here 

U.S. DEPARTMENT OF LABOR (DOL) 

What’s happening? The DOL’s Office of Federal Contract Compliance Programs (OFCCP) issued a proposed rule to streamline the procedures and standards DOL follows when issuing pre-enforcement notices, allowing DOL to efficiently resolve cases and strengthen enforcement to facilitate equal employment opportunities.  

Type: Proposed Rule 

Timing: Announced 3/21/2022  

Read more: Proposed Rule: Here | or Here | or Here 

THE TASKFORCE ON NATURE-RELATED FINANCIAL DISCLOSURES (TNFD) 

What’s happening? The TNFD published an initial draft of its nature-related risk and opportunity management and disclosure framework.  The draft kicks-off an 18-month consultation and development process, with the final framework recommendations expected in Q3 2023.  The TNFD framework, like the Taskforce on Climate-Related Financial Disclosures (TCFD), is intended for use by a wide range of global market participants. 

Type: Framework 

Timing: Announced 3/15/2022 

Read more: Here | or Here

Spotlight Topic – Diversity, Equity, and Inclusion (DEI)

What is DEI: As detailed in Accenture’s recent blog, Don’t Ignore the SG in ESG, global leaders and companies have focused primarily on the Environmental (“E”) branch of ESG.  It is important, however, not to ignore the Social (“S”) and Governance (“G”) branches.  DEI falls under the “S” branch of ESG and, if overlooked, has the potential to expose companies to significant financial, reputational, and other regulatory risks. 

  • Diversity – The presence of social, physical, and psychological differences that make each individual unique. 
  • Equity – A system that acknowledges the different needs, experiences, and opportunities of individuals. 
  • Inclusion – An environment in which individuals are treated fairly and respectfully and have equal access. 

Investors and regulators are taking notice: Numerous stakeholders, including investors, regulators, employees, and the public are increasingly pushing companies for more diverse boards, as well as enhanced and more transparent disclosures regarding human capital management.  According to a survey from Morgan Stanley Wealth Management, investors said it is important that companies have policies to promote DEI (67%), hire and promote diverse employees (66%), and have people of diverse backgrounds in leadership positions (63%) (read more here).  Furthermore, leaders in Canada and the U.S., and regulators such as the Office of the Comptroller of the Currency (OCC), the SEC, and the U.S. Department of the Treasury have stated that DEI is a top priority (read more – Trudeau, Biden, OCC, SEC, Treasury). 

Examples of recent DEI regulations and codes: 

  • In February 2022, the CFA Institute published a voluntary DEI Code for investment companies in the U.S. and Canada to promote DEI within their practices by committing to furthering DEI across pipeline, talent acquisition, promotion and retention, leadership, influence, and measurement. 
  • In January 2022, the NY Fashion Sustainability & Social Accountability Act was referred to the NY State Senate’s Consumer Affairs and Protection Committee.  If passed, the Act would require qualifying fashion companies doing business in NY to disclose median wages for workers in addition to other environmental disclosures. 
  • In February 2021, the Equality Act was passed by the U.S. House of Representatives.  If passed by the U.S. Senate, the Act would amend the Civil Rights Act of 1964 and, among other provisions, allow the U.S. Department of Justice to intervene in cases of discrimination based on sexual orientation or gender identity in public accommodations and facilities, education, federal funding, employment, housing, and credit. 
  • Between September 2020 and August 2021, both the NASDAQ Stock Exchange and the State of California passed rules / laws requiring companies to have at least one woman and one person from an underrepresented minority or from the LGBTQ community on their Boards of Directors.  Other states including Illinois, Maryland, and New York have also passed legislation requiring disclosures of Board diversity. 
  • In August 2019, the Impact Assessment Act replaced the 2012 Canadian Environmental Assessment Act, outlining a process for assessing the social, economic, and environmental impacts of Canadian public policy. 

For additional information on ESG regulations, please contact Aaron Mendelsohn, Amanda Gordon, and Sarah Johnson 

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