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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)
Standardization of ESG reporting continues to be a key area of focus for investors, regulators, and standard–setting bodies, all of which are attempting to coordinate the development of disclosure frameworks, principles, and regulations to create globally consistent climate disclosure rules.
North America Regulatory Updates
U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)
What’s happening? The SEC extended the public comment period on the proposed rulemaking to enhance and standardize climate-related disclosures for investors until June 17, 2022. The Commission also released two other proposed rules to facilitate enhanced disclosures and transparency on ESG issues. One proposal aims to prevent misleading or deceptive fund names by amending and modernizing the Investment Company Act’s “Names Rule,” and the other proposal aims to enhance disclosures by investment advisors and companies about their ESG investment practices. Separately, on May 23, 2022, the SEC Division of Enforcement’s Climate and ESG Task Force charged the investment management arm of BNY Mellon for allegedly misleading claims made about funds that use ESG criteria to pick stocks (aka, “greenwashing”). As part of a settlement with the SEC, the investment adviser agreed to pay a $1.5M fine without admitting or denying the SEC’s findings.
Type: Extension of Comment Period for Proposed Climate Rule; Proposed ESG Rules; ESG Enforcement Action
Timing: Announced 5/09/2022 – Extended to 6/17/2022; Proposed 5/25/2022; Charged and Settled 5/23/2022
What’s happening? The American Rescue Plan Act was an economic stimulus package signed into law by President Biden in March 2021 to provide direct relief to Americans and restore the economy. This month, the Biden-Harris Administration released the “Advancing Equity Through the American Rescue Plan,” which details how the Administration is working to promote an equitable economic recovery via 32 policies representing nearly $900B.
Type: U.S. Government Plan
Timing: Released 5/24/2022
OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC), FEDERAL RESERVE BOARD (FRB), AND FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)
What’s happening? The OCC, FRB, and FDIC released a joint notice of proposed rulemaking to strengthen and modernize the “Community Reinvestment Act” (CRA), which encourages U.S. regulated banks to meet the credit needs of the communities in which they are chartered, including low- and moderate-income (LMI) neighborhoods.
Type: Joint Notice of Proposed Rulemaking; Request for Comment
Timing: Announced 5/05/2022; Comment period through 8/05/2022
LOS ANGELES COUNTY SUPERIOR COURT
What’s happening? A California court ruled in Crest v. Padilla that a state law (S.B. 826) requiring California-based public companies to have one to three women on their boards of directors violated the equal protection clause of the California constitution. This decision followed a similar ruling by the same court invalidating a law (A.B. 979) that required companies to include at least one member of an “underrepresented community” on their boards.
Type: State Court Rulings
Timing: S.B. 826 verdict announced 5/13/2022; A.B. 979 verdict announced 4/01/2022
GOVERNMENT OF CANADA
What’s happening? In its latest step to introduce mandatory corporate climate reporting rules, the Government of Canada announced that the Sustainable Finance Action Council (SFAC) will make climate-related financial disclosures its top priority and has been directed to prepare advice to the finance and environment ministers on the most effective ways to implement mandatory climate disclosures by the end of 2022. SFAC consists of 25 of Canada’s leading financial institutions, insurance companies, and pension funds and was launched to support efforts to mobilize capital and investment necessary to meet Canada’s sustainability goals.
Type: Canadian Government Action
Timing: Announced 5/20/2022
Read more: Here
INITIATIVE CLIMAT INTERNATIONAL (ICI)
What’s happening? iCI, a global climate-focused private equity consortium, released a new report recommending a standard for accounting and reporting greenhouse gas (GHG) emissions for the private equity sector. The report is supported by the Principles for Responsible Investment (PRI) and endorsed by CDP (formerly the Carbon Disclosure Project) and Ceres, a sustainability-focused non-profit.
Type: Proposed GHG Reporting Standard
Timing: Published 5/10/2022
Spotlight Topic – Cryptocurrency (“Crypto”) and ESG
What is it: Cryptocurrency (Crypto) has entered the financial mainstream as a payments method and an investment vehicle. Regulators are increasingly focused on cryptocurrency due to, among other issues, consumer protection, financial stability, and climate change. Additionally, as more investors fund allegedly “ESG-friendly” companies and products, questions have been raised if cryptocurrency should be included or excluded because of its underlying characteristics, how individuals use it, and its overall ESG impacts.
Crypto Regulations and Guidance:
- In May 2022, the Consumer Financial Protection Bureau (CFPB) released a Consumer Financial Protection Circular covering deceptive representations involving the Federal Deposit Insurance Corporation’s (FDIC) name / logo and deposit insurance, in which it highlighted, among others, misrepresentations regarding crypto-assets.
- In April 2022, a bipartisan group of U.S. House members introduced the Digital Commodity Exchange Act of 2022, which grants the SEC and Commodity Futures Trading Commission (CFTC) greater oversight roles in cryptocurrency markets and investing activities. The Act aims to establish a regulatory framework for crypto, which prioritizes consumer protection.
- In March 2022, President Biden issued an Executive Order, which outlines the Federal Government’s approach to addressing the risks, and harnessing the potential benefits, of digital assets and their underlying technology. The Order establishes a national policy for digital assets, including cryptocurrency, across six key priorities: consumer and investor protection, financial stability, illicit finance, U.S. leadership in the global financial system and economic competitiveness, financial inclusion, and responsible innovation.
- In June 2021, the Government of Mexico stated that cryptocurrencies are not legal tender and are not treated as currencies within the country’s current regulatory framework, citing Financial Action Task Force (FATF) regulations and anti-money laundering (AML) considerations.
Other Notable Developments:
- In May 2022, the SEC announced the expansion of its cryptocurrency unit responsible for investor protection in the crypto markets and from cyber-based attacks on consumers. This team, newly renamed “Crypto Assets and Cyber Unit” (formerly known as the Cyber Unit) in the SEC’s Division of Enforcement, will be dedicated to regulatory enforcement for crypto asset offerings across the financial sector.
- In May 2022, global financial regulators, including from Canada, France, Germany, Italy, Japan, the U.K., and the U.S., met at the G7 Summit to discuss a regulatory framework for crypto and urged the Financial Stability Board (FSB) to advance the development and implementation of a comprehensive framework.
- In April 2022, U.S. House Democrats urged the U.S. Environmental Protection Agency (EPA) to investigate the environmental impacts of crypto mining. Among others concerns, Congressional leaders want to confirm that crypto miners adhere to the Clean Air and Clean Water Acts.
- In April 2022, U.S. Secretary of the Treasury Janet Yellen delivered remarks at American University on digital assets policy, innovation, and regulation, including calling for crypto regulations to consider privacy, human rights, and climate change.
- In February 2022, the U.S. Senate Agriculture Committee held a hearing with the CFTC regarding cryptocurrency and its impacts on the climate.