April 2023 – Sustainability, Resiliency and Risk Mitigation

April 27, 2023 by Brad A. Molotsky

Plastic Bag Bans – Do They Work?

According to an article in the Philadelphia Inquirer per a report issued by the City of Philadelphia (the “City”), the City’s 2019 plastic bag ban has resulted in a significant reduction in the use of plastic bags – i.e., the equivalent of filling Philadelphia City Hall with plastic bags every 8 months which would be approximately 200 Million less plastic bags. The City’s report – “Evaluating the Ban: Philadelphia’s Plastic Bag Ban and Changes in Bag Usage in the City” (the “Report”) focused on 2021 to 2022, was conducted by the University of Pittsburgh and Swarthmore College and, concluded that the ban significantly reduced plastic bag use in the City.

Click on this link for a copy of the Report. extension://elhekieabhbkpmcefcoobjddigjcaadp/https://www.phila.gov/media/20230426164234/PlasticBagBanReport-1.pdf#:~:text=We%20used%20a%20difference-in-difference%20approach%20to%20estimate%20the,clear%20boundary%20between%20the%20regulated%20and%20unregulated%20areas.

The City’s ban was passed by City Council in 2019 and took effect on July 1, 2021. It prohibits retailer from providing single use plastic bags and paper bags not made of at least 40% recycled material.

Per the Inquirer, 16 other municipalities in Pennsylvania have some sort of plastic bag ban, including Cheltenham, Radnor, Haverford, Media and Pittsburgh. Cheltenham’s ordinance was recently adopted earlier this week and regulates single use plastic bags, including restaurants’ use of such bags.

The Report concluded that in each category improvement was shown in both the City and the suburbs by way of reusable bag use and reduction of plastic bag use (i.e., proportion using any plastic bag (down), proportion using any paper bag (up) , proportion using any recycled bag (up), proportion using no bag (up), number of plastic bags used per customer (down), number of paper bags used per customer (up) and number of reusable bags used per customer (up)).

As hoped for, the ban resulted in a 53% reduction in the likelihood of a consumer using a plastic bag.

Across the bridge in New Jersey, the State enacted the Single Use Waste Reduction Act in May, 2022 which banned plastic bags and foam food containers and built off of an earlier plastic straw ban which went into effect in 2021. Bags in NJ used to wrap uncooked meat, fish or poultry; bags used to package loose items; and bags used to carry live animals are all exempt from the ban. Residents continue to be frustrated, per recent polling, with the inclusion of a ban on paper bags which are not permitted to be handed out or sold at big box stores and grocery stores larger than 2,500 feet in size. The NJ ban also includes carry out and to go styrofoam cups, plates and to go containers .

Take Aways – it appears pretty clear that behavior can be changed via regulation and that the ban on the use of single use plastic bags and similar products is, in fact, reducing the among of these bags in the waste stream and in common usage without a real negative effect other than some convenience by consumers. Like many things these days, not all municipalities or States will pursue this avenue as a means to reduce dependence on plastics which tend to find their way into our water ways and waste streams, but those that do pass such bans are seeing a marked decrease in the use of these products.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. For more information or if you have any questions about this post, please contact Brad A. Molotsky, David Amerikaner, Sheila Rafferty-Wiggins, Alice Shanahan, Jeff Hamera, Nanette Heide, Joel Ephross, Jolie-Anne Ansley, Robert Montejo, Seth Cooley, or the attorney in the firm with whom you are regularly in contact.

April 17, 2023 by Brad A. Molotsky

The SEC and its continued focus and enforcement of “Greenwashing” by Alek Smolij

The U.S. Securities and Exchange Commission (SEC) has positioned itself as one of the United States’ leading government regulators on environmental, social, and governance (ESG) issues and in 2023 has continued a pattern of active enforcement actions focusing on their perceived view of ESG misconduct.

The underpinning of these actions has its roots in various places, including those that occurred on March 4, 2021, when the SEC announced the creation of a “Climate and ESG Task Force” in its Division of Enforcement, to focus on ESG-related gaps and misstatements in disclosures by publicly-traded companies, mutual funds, and other investment vehicles.

One of the SEC’s main enforcement focuses is “greenwashing,” a term that describes when a publicly-traded company, mutual fund, or other public investment vehicle makes a misleading claim about its ESG policies or credentials. For instance, some mutual funds may market themselves as an “environmentally-friendly” energy fund but have a relatively small amount of investor funds invested in renewable energy sources. Critics of the current regulation regime have asserted that many investment vehicles mislead investors with terms like “green,” “carbon-neutral,” and “environmentally-friendly.” These broad terms, critics say, are not adequately defined and may convince investors to direct their money to funds that the investors believe align with ESG values when the funds themselves are not actually evaluating whether their investments are in line with such values.

In late March 2022, the SEC’s Division of Examinations used the term “greenwashing” in its 2022 Examination Priorities to describe certain activities that the SEC would be paying particular attention to in the coming months The SEC noted that it would focus on whether public investment vehicles are “overstating or misrepresenting the ESG factors considered or incorporated into portfolio selection (e.g., greenwashing), such as in their performance advertising and marketing.”

The SEC proposed new greenwashing-focused rules in 2022 that would strengthen the Division of Enforcement’s ability to fight against misleading ESG disclosures. In August 2022, after a public comment period, the SEC’s commissioners voted 3-to-1 to move forward with proposed climate disclosure ESG-focused rules. These rules focus on both publicly-traded companies and investment advisors and funds. Under these climate disclosure rules (expected to be made final in April, 2023), publicly-traded companies are required to include certain climate-related disclosures in their public filings. Further, these rules will require investment advisors and funds who associate their investments with ESG to provide specific disclosures about how they pursue ESG strategies in their investments.

While these rules are still pending and have not yet been finalized, the Division of Enforcement has continued its focus on greenwashing enforcement efforts without even having the benefit of these proposed rules.

The SEC has publicly announced various settlements in the banking space and in the manufacturing space involving tens of millions of dollars in agreed-upon penalties in multiple enforcement actions focused on greenwashing. These actions have focused on SEC investigations of internal policies governing mutual funds and investment strategies branded as ESG investments.

The ESG task force has also investigated and charged companies whom the SEC found were not adequately disclosing environmental-related risks. The SEC has, for instance, settled a charge with a mining company related to failure to disclose the financial risks of mercury contamination of a river located near a Brazilian mine.

Through these actions, the SEC has indicated that it will target companies whose policies do not adequately ensure that these investment products align with stated goals of investing in ESG-focused products. Further, the SEC is keeping a close eye on required disclosures by public companies as these disclosures relate to ESG risks and issues that companies may be required to communicate to investors. The SEC undertook these enforcement efforts under existing securities laws and regulations without final passage of the proposed ESG-focused climate disclosure rules mentioned above.

Clearly, the SEC is not waiting for final climate disclosure rules to hone in on greenwashing practices, and the proposed climate disclosure rules will only strengthen the SEC’s ability to engage in similar investigations and enforcement actions.

The Division of Examination’s 2023 Examination Priorities do not explicitly use the term “greenwashing,” but they indicate that the SEC will continue to focus on enforcement actions against companies that engage in this practice. The 2023 Priorities state that the SEC will examine “whether ESG products are appropriately labeled and whether recommendations of such products for retail investors are made in investors’ best interests.” This language indicates that greenwashing-focused enforcement is clearly still a priority for the SEC, especially when paired with the SEC’s proposed new rules requiring ESG climate disclosures.

The SEC’s focus on greenwashing means that organizations associating themselves or their investments with ESG objectives should assess whether their actions line up with their stated ESG efforts and whether their disclosure matches what their records show and whether they are measurable, verifiable and provable statistics and data. Regular auditing of ESG programs, company disclosure, ESG reporting and comprehensive ESG strategy planning could help avoid a costly SEC enforcement action.

Note, we have also published on the Federal Drug Administrations renewed focus on “Greenwashing” in an early post on our blog where we documented the renewed FDA focus in the area of cosmetics and other products and issued additional guidance on greenwashing in the context of utilization of words such as “natural”, “free (of)”, “eco-friendly”, “Cruelty Free”, “renewable” and “sustainable”.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. For more information or if you have any questions about this post, please contact Alek Smolij (the author), Brad A. Molotsky, David Amerikaner, Sheila Rafferty-Wiggins, Alice Shanahan, Jeff Hamera, Nanette Heide, Joel Ephross, Jolie-Anne Ansley, Robert Montejo, Seth Cooley, or the attorney in the firm with whom you are regularly in contact.

April 12, 2023 by Duane Morris

Two Proposed EPA Rules Could Dramatically Increase Electric Vehicle Sales

On April 12, 2023, the EPA announced two proposed vehicle emission rules aimed to accelerate the transition to electric passenger and commercial vehicles.

The proposed standards do not require that manufacturers produce a certain number of electric vehicles, but instead set forth limits on greenhouse gas emissions that manufacturers must comply with for particular vehicle fleets. The EPA predicts such standards will result in a dramatic increase in new electric vehicle sales.

Read the full story on the Duane Morris LLP website.

April 12, 2023 by Brad A. Molotsky

NJ Legislature Passes Flood Warning Requirements for Leases and the Sales of Real Property – Applies to both Commercial and Residential Property

Earlier this week, New Jersey lawmakers passed SB 3110, a bill (the “Bill”) that would require Landlords and Seller of commercial and residential Real Estate to warn prospective tenants and buyers about previous flooding on various types of properties.

SB 3110 has been sent to NJ Governor Murphy for review and execution and will need implementing regulations from the New Jersey Department of Community Affairs (NJDCA) that are anticipated within 90 days of passage of the Bill.

SB 3110 requires that both Sellers and Landlords disclose whether a property is located in a 100-year floodplain or 500-year floodplain, as determined by the Federal Emergency Management Agency (FEMA).

The Bill mandates that NJ Department of Environmental Protection (NJDEP) create a user-friendly website where landlords, owners, tenants and buyers can check whether a property is in a flood zone or at risk of flooding in the future.

NJDCA will also be charged with developing a standard notice for landlords and owners to fill out to disclose whether a flood risks exist.

Note, that, under SB 3110, a tenant who experiences “substantial flood damage” but whom wasn’t properly notified by a landlord of the risk of such a flood, could terminate a lease and sue to recover damages,. “Substantial Flood Damage” is defined as damages of at least 5 months rent worth of damage.

Some of the questions the disclosure form will likely address include:

Is any or all of the property located wholly or partially in the Special Flood Hazard Area (“100-year floodplain”) according to FEMA’s current flood insurance rate maps for your area?
Is any or all of the property located wholly or partially in a Moderate Risk Flood Hazard Area (“500-year floodplain”) according to FEMA’s current flood insurance rate maps for your area?
Is the property subject to any requirement under federal law to obtain and maintain flood insurance on the property?
Have you ever received assistance, or are you aware of any previous owners receiving assistance, from FEMA, the U.S. Small Business Administration, or any other federal disaster flood assistance for flood damage to the property?
Is there flood insurance on the property?
Is there a FEMA elevation certificate available for the property? If so, the elevation certificate must be shared with the buyer.
Have you ever filed a claim for flood damage to the property with any insurance provider, including the National Flood Insurance Program? If the claim was approved, what was the amount received?
Is any or all of the property located in a designated wetland?
Has the property experienced any flood damage, water seepage, or pooled water due to a natural flood event, such as heavy rainfall, costal storm surge, tidal inundation, or river overflow? If so, how many times?

Some of these questions are contained within the Bill and others are likely the subject of DCA’s form creation to address the disclosure obligation if SB 3110 is signed into law.

Parting Thoughts – Given New Jersey’s past history in the last decade with hurricanes and increasing flooding and given that New Jersey has been assigned a grade of an F by the NRDC in connection with its flood disclosure policies, it should come as no real surprise that the legislature is moving to attempt to address this type of tenant and buyer of real property risk and provide for a more informed purchase/leasing process.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG questions, planning and initiatives. We would be happy to discussion your proposed project and how this DOE funding prize might apply to you. For more information or if you have any questions about this post, please contact Brad A. Molotsky, Alice Shanahan, Jeff Hamera, Nanette Heide, Jolie-Anne Ansley, Robert Montejo, Seth Cooley or David Amerikaner or the attorney in the firm with whom you in regular contact or the attorney in the firm with whom you are regularly in contact.

April 5, 2023 by Brad A. Molotsky

5th Circuit Court of Appeals – Dismissal and Vacation of Lower Court Ruling – the Social Cost of Greenhouse Gas is Back in Action

In January, 2021, the Biden Administration issued Executive Order 13990 (“EO”) which re-established an interagency working group (the “Working Group”) in order to formulate guidance on the “social cost of greenhouse gases“. The EO directed the Working Group to publish dollar estimates quantifying changes in carbon, methane and nitrous oxide emissions for consideration by all federal agencies when policy making.

Since 2021, the working group has published their Interim Estimates which were based largely on findings of their predecessor Working Group which was established during the Obama Administration.

Various State Attorneys General from Louisiana, Alabama, Florida, Georgia, Kentucky, Mississippi, South Dakota, Texas, West Virginia and Wyoming (the “Plaintiff States“) challenged the EO and the Interim Estimates as procedurally invalid, arbitrary and capricious and obtained a preliminary injunction in the Western District Court of Louisiana.

The 5th Circuit concluded that the Plaintiff States did NOT establish standing to bring such a claim, and, as such, dismissed their action for lack of jurisdiction and vacated the lower courts preliminary injunction. The court indicated that the Plaintiff States failed to meet their burden to prove standing as they did not show an injury in fact. With this ruling, the Working Group and the Interim Estimates may now be used by various federal agencies as part of their analysis and policymaking.

For more than a decade, federal agencies have considered the effect of greenhouse gas emissions (along with a host of other variables) in their cost benefit analysis in determining whether to and the cost of implement various regulations. As the Court pointed out, before proposing any significant action, federal agencies are required to assess the costs and benefits of the regulation and submit to the Office of Management and Budget their assessment for review.

In 2009, the Obama Administration established the original working group to develop a transparent and defensible method, designed for the federal rulemaking process, to quantify the social costs of greenhouse gases. In 2017, after years of work and research, this group derived estimates from peer-reviewed models for translating emissions into dollar costs. Their findings were the subject of public notices and comments and were peer reviewed by the National Academies of Science, Engineering and Medicine.

Later in 2017, the Trump Administration disbanded the prior working group and its work product withdrawn from federal agencies, but these federal agencies were not barred from “monetizing the value of changes in greenhouse gas emissions resulting from proposed regulations.” In ohter words, the agencies were not mandated to include the Interim Estimates BUT they were still permitted to include greenhouse gas emissions and their impact in the agencies’ recommendations. The result of the disbanding of the working group was that instead of utilizing a coordinated approach across all agencies, each agency was left to its own devices in determining how and whether to score green house gas emissions in preparing its cost benefit analysis for a given regulation.

In early 2021, under the Biden Administration, the Working Group was reconvened under EO 13990 and re-tasked with developing Interim Estimates that would be “appropriate and consistent with applicable law.” When the applicable federal agency relies on the Interim Estimates to justify a final action, the court noted that the agency “must respond to any significant comment on those estimates and ensure it analysis” is “not arbitrary or capricious”.

Although some could characterize the Court’s ruling as a bit of legal “in the weeds” arguments over standing and injury, the crux of the court’s ruling hinged on the fact that the “EO 13990 does NOT require any action from federal agencies”. Agencies are required to exercise discretion in conducting their cost benefit analysis and deciding whether or not to use the Interim Estimates. If used, “the Interim Estimates are required by the EO to be appropriate and consistent with applicable law.” The Court further noted that “nothing in EO 13990 requires States to implement the Interim Estimates.”

Parting Thoughts – activism by the Plaintiff States Attorneys’ General is on the rise in the ESG arena and is evident in various articles and actions being taken to oppose various ESG and environmentally focused regulations. It is likely that this activism continues and that further ESG focused programs in investments arena and in disclosure of the impacts of climate change (like the proposed SEC Rules on Climate Change Disclosure which are supposed to be announces as final this month) continue to be called into question by these Plaintiff States. We will continue to monitor and report on these developments as they occur and are here if we can be helpful to you in your analysis on how they might affect your operations, your businesses or you.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. We would be happy to discussion your proposed project and how this DOE funding prize might apply to you. For more information or if you have any questions about this post, please contact Brad A. Molotsky, Alice Shanahan, Jeff Hamera, Nanette Heide, Jolie-Anne Ansley, Robert Montejo, Seth Cooley or David Amerikaner or the attorney in the firm with whom you in regular contact or the attorney in the firm with whom you are regularly in contact.

April 4, 2023 by Brad A. Molotsky

The Biden Administration and the ESG Investment Rule Congressional Veto

In late March, 2023, President Biden issued the first veto of his Administration. The veto overturned a Republican led measure that was seeking to overturn a Department of Labor retirement plan rule.

Pretty wonky stuff you say?

The Republican measure was designed to overturn a Labor Department rule that would allow (note the word allow, NOT mandate) retirement plan managers to consider climate change in making their investment decisions.

Sounds like some double speak there doesn’t it? The Department of Labor rule was enacted to “permit” investment managers to consider climate change in making decisions. The rules did NOT require this consideration, rather, it permitted it at the discretion of the investment manager.

Congress (in a House vote of 216-204 mostly along party lines and a Senate vote of 50-46 with Democratic Senators Manchin and Tester voting with their Republican colleagues,) voted to overturn the Department of Labor Rule – effectively saying, investment managers should NOT be permitted to consider what some view as relevant information in making an informed decision (e.g., if an area floods daily, should one invest in an asset located there or instead invest where there is not a flooding risk; alternatively, if an area is prone to forest fire risk vs. an area that is not prone to this type of risk, should a manager be able to consider this if they think it relevant?).

The Administration took issue with the overturned Labor Department rule and opted to veto the Congressional restriction on being able to consider climate change in investment manager decisions. Again, as noted above, the Labor Department Rule does NOT require every or any investment manager to consider climate change in their investment decisions, instead it enables these managers to choose how they view climate change, and if they believe climate change to be a relevant factor in making an investment decision, to take it into account when making their decision.

This is likely the first of many such skirmishes to come on the ESG front and its use as a tool or a hammer, depending on your perspective, in making decisions.

Parting Thoughts – if you are an investor looking to deploy your investment dollars, the question is whether you think your investment advisor should be able to (without being required to) take into account climate factors when making investment suggestions to you or not. How and whether resiliency, climate factors, resource allocation and applicable risk mitigation is permitted or mandated into future investment decisions are some of the areas where it is highly likely that additional political party skirmishes will occur.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your Sustainability and ESG planning and initiatives. We would be happy to discussion your proposed project and how this DOE funding prize might apply to you. For more information or if you have any questions about this post, please contact Brad A. Molotsky, Alice Shanahan, Jeff Hamera, Nanette Heide, Jolie-Anne Ansley, Robert Montejo, Seth Cooley or David Amerikaner or the attorney in the firm with whom you in regular contact or the attorney in the firm with whom you are regularly in contact.