ESG – Sustainability, Resiliency and Risk Mitigation

July 2, 2024 by Brad A. Molotsky

Vermont passes the first of its kind Climate Superfund Cost Recovery Program – Polluters to be held Strict Liability

As of July 1, 2024, Vermont’s Climate Superfund Recovery Program (the “CSRP”) has now officially taken effect. After the Legislature passed the CSRP, Governor Phil Scott (R) did NOT veto it, rather he allowed it to become law without his signature.

The new law, which can be found at https://legislature.vermont.gov/bill/status/2024/S.259, and requires the State Treasurer along with the Agency of Natural Resources, to report, by January 2026, on the costs to residents and the State from greenhouse gas emissions that occurred between January 1, 1995 and December 31, 2024. This comprehensive assessment is intended to include impacts on public health, natural resources, agriculture, economic development, and housing, using federal data to attribute emissions to specific fossil fuel companies.

The law creates a polluter-pays model, targeting companies involved in fossil fuel extraction or crude oil refining linked to over 1 billion metric tons of greenhouse gas emissions during the 1995 to 2024 specified period. Companies that have exceeded the 1 billion metric ton mark are required to pay for their pro rata share of climate adaption measures needed by the State.  The funds collected will then be specifically allocated to infrastructure improvements such as roads and bridge upgrades, storm water management and drainage systems, sewer treatment plant upgrades and retrofits and energy-efficient building enhancements. 
The CSRP takes the position, much like the Federal Superfund laws, that the polluter in this case is strictly liable for its applicable share of costs incurred for climate change adaptation projects. Entities that are part of a controlled group are jointly and severally liable for the applicable costs.

The theory behind the approach to the CSRP is that the companies whom have specifically contributed to greenhouse gas impacts are the ones required to fund necessary upgrades to existing or necessary resiliency infrastructure and other “climate change adaptation projects” as defined under the CSRP. The State Treasurer’s report is required to measure and provide a summary of various costs that have been incurred due to the greenhouse gases that were emitted during the relevant time period and costs that are projected to be incurred in the future within the State to abate the effects of covered greenhouse gas emissions from 1-1-95 through 12-31-25.

Green Spouts: The CSRP is the first of its kind state law that attempts to hold a polluter strictly liable for past acts that have created a negative impact on the State’s infrastructure and climate adaptability. The CSRP makes any entity or successor company that engaged in the trade or business of fossil fuel extraction or refining crude oil between 1-1-95 and 12-31-24 strictly liable for its share of costs incurred by the State. The emitters are being held responsible for their respective portion of green house gas emissions above the 1 billion metric tons noted above. Interestingly, Vermont is NOT alone here, as New York, Maryland and Massachusetts are considering similar legislation as well. Whether this type of State Superfund strict liability law gets traction and passage by other states remains to be seen but it is surely an interesting development and one which bears watching, especially in light of the upcoming election.

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, please contact Brad A. Molotsky, David Amerikaner, Sheila Rafferty-Wiggins, Alice Shanahan, Jeff Hamera, Nanette Heide, Jolie-Anne Ansley, Robert Montejo or the attorney in the firm with whom you are regularly in contact.

March 27, 2024 by Brad A. Molotsky

Sustainability and Real Estate – Thoughts from the I-Global Conference 3-26-24

We had the pleasure or participating in the I-Global LP and GP Conference yesterday in New York City. In a fast moving, lots of ground covered panel headlined by Andrea Pinabell – RE Tech, Uma Moriarity – Center Square, John Forester – RMR Group, Hyon Rah – DWS and Randy Hoff – PWC which I had the honor of moderating, the discussion focused on Sustainability, ESG and Real Estate investment.

The panel covered how each of their organizations have set goals and targets for sustainability including some setting net zero 2024 goals (wow), operational efficiency and energy usage reduction goals, water and recycling goals, return on investment goals and how sustainability is used as part of the various lenses to evaluate and determine which assets to purchase and invest in and how resiliency and weather impacts like hurricanes, floods, and wild fires are relevant to decisions being made by investment committees on where to invest and where to divest assets.

We touched on the advent of Energy Star, the free tool from the EPA that has been around for decades and keeps getting better with more in depth features and analysis tools, and how it can be used to measure building performance within a market segment as well as across various market segments given that the data within the tool is normalized for weather and temperature.

The panel defined and discussed Scope 1 (the energy one consumes and the greenhouse gas (“ghg”) impact of it on site), Scope 2 (the energy one brings on site and the ghg impact from a utility) and Scope 3 (the ghg impact from one’s supply chain and one’s own travel) and why it is important to be measuring and monitoring these items, even though the final SEC Rules on Climate Disclosure did not include Scope 3 reporting, noting that the California Climate bills that were passed in 2023, do indeed include Scope 3 measuring and reporting.

We touched on the challenge of data integrity and data management when multiple geographies and product types are owned and operated but that these challenges can be met and how their organizations were indeed including sustainability features within their due diligence processes in purchasing properties and in developing them let alone operating them within their various portfolios.

Building performance on energy, water and waste within the 48 cities, 3 states and 2 counties requiring such monitoring, measuring and reporting was also reviewed as was the new Local Law 97 type mandates requiring greenhouse gas measuring and reporting and a fining regime for non-compliance in various cities like Boston, New York, Washington DC, Denver, San Francisco, etc. were continuing to appear and evolve and how such trends are being tracked by the Institute for Market Transformation (IMT) on line with an easy to see tool and map.

Lastly, we spoke of the various changes to the final rules in the SEC’s Rules on Climate Disclosure which are now the law, but which have been granted a temporary stay by the 5th Circuit, delaying their implementation but not impacting various public companies from complying anyway given the likelihood that the rules will be required at some point in the near future.

We also learned that the panelists were currently enjoying Columbia University’s Energy podcast, Monday Morning Quarterback, All In, How I Built This and the Energy Gang as their guilty pleasure ESG or other podcasts.

Green Spouts: The picture that was painted by the panelists, despite news headlines in certain business publications to the contrary, is that sustainability, weather incidents, resiliency and risk mitigation are topics that are agnostic to politics and political winds and that very large real estate companies are continuing to focus on and expand their ambit of goal setting, measuring, monitoring and acting on various energy, water, waste and social and governance issues where they believe they can obtain an appropriate return or where they are otherwise being required by law to report their results.

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, please contact Brad A. Molotsky, David Amerikaner, Joseph West, Sharon Caffrey, Sheila Rafferty-Wiggins, Alice Shanahan, Jeff Hamera, Nanette Heide, Joel Ephross, Jolie-Anne Ansley, Robert Montejo or the attorney in the firm with whom you are regularly in contact.

September 18, 2023October 11, 2023 by Brad A. Molotsky

California Jumps the Line ahead of the SEC and enacts two significant Climate Disclosure Bills

Last week, the California legislature passed and, over the weekend (on October 9, 2023) Governor Newsom signed, two climate disclosure bills which focus on the financial risk of greenhouse gas emissions. Full text of the bills can be found at SB 261 and SB 253.

The bills will require that companies doing business in California will be required to state and certify their scope 1, 2 and 3 greenhouse gas emissions and to state and certify their climate related financial risks.

Given that many US companies and many EU and UK companies that do business in the US also transact in California, these laws will have a meaningful impact on many public and non-public companies alike irrespective of the pace or lack thereof from the SEC on its own set of federal climate disclosure obligations.

Bill 261 – Under SB 261, companies with annual revenues of more than $500 Million Dollars that do business in California will now be required to compile and issue a biennial climate-related financial risk report, with the first due date being January 1, 2026.

Bill Text – SB-261 Greenhouse gases: climate-related financial risk. (ca.gov)

“Climate related financial risk” under SB 261 is defined as a “material risk of harm to immediate and long-term financial outcomes due to physical and transaction risks, including but not limited to, risks to corporate operations, provision of goods and services, supply chain, employee health and safety, capital and financial investments, institutional investments, financial standing of loan receipts and borrowers, shareholder value, consumer demand and financial markets and economic health.” Wow, that is a pretty wide ambit of what risks will fall within the definition of climate related financial risks!

SB 261 requires that the reports required under the Bill must be prepared in accordance with the Task Force on Climate Related Financial Disclosures (also referred to as TCFD) reporting framework. Reports that are prepared under the International Financial Reporting Standards -Sustainability Disclosure Standards (or ISSB) will also be acceptable. Failure to report under the Bill will be subject to an annual fine of up to $50,000 per year.

Bill 253 – SB 253, also known as the Climate Corporate Data Accountability Act, applies to companies that do business in California and have total annual revenues in excess of $1 Billion. The reporting requirements will not be applicable until January 2026, once the California Air Resources Board (CARB) has adopted implementing regulations, which must occur by January 1, 2025.
CARB’s implementing regulations will likely provide the key details of the reporting process, including the following:
Bill Text – SB-253 Climate Corporate Data Accountability Act. (ca.gov)

Scope 1 and Scope 2 Emissions. Beginning in January 2026, reporting entities must annually publicly disclose their scope 1 and scope 2 GHG emissions for the prior fiscal year. The bill defines Scope 1 emissions as “all direct greenhouse gas emissions that stem from sources that a reporting entity owns or directly controls, regardless of location, including, but not limited to, fuel combustion activities.” Scope 2 emissions are defined as “indirect greenhouse gas emissions from consumed electricity, steam, heating, or cooling purchased or acquired by a reporting entity, regardless of location.” Most publicly traded companies have begun some level if not a very detailed level of Scope 1 and 2 tracking, with many actually already reporting these metrics.

Scope 3 Emissions. Beginning in 2027, reporting entities will also be required to annually disclose their scope 3 emissions for the prior fiscal year. Scope 3 emissions include “indirect upstream and downstream greenhouse gas emissions, other than scope 2 emissions, from sources that the reporting entity does not own or directly control,” which may include “purchased goods and services, business travel, employee commutes, and process and use of sold products.” Many in the industry are concerned about how they are going to get their supply chain to measure and report in a meaningful way data that will become the reporting entities’ Scope 3 emissions.

Annual Fees. Reporting entities will be required to pay an annual fee to CARB upon filing their annual disclosures. These fees are supposed to be used to fund CARB’s oversight of the program.

Administrative Penalties. Reporting entities that fail to timely file their annual disclosures will be subject to administrative penalties of up to $500,000 per reporting year.

Reporting Standards. Reporting entities must measure and report their GHG emissions in conformance with the Greenhouse Gas Protocol, a set of reporting standards developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBC). Reporting entities must also engage an independent third-party assurance provider to audit their scope 1 and 2 emissions beginning in 2026, and their scope 3 emissions beginning in 2030.

Green Sprouts – SB 253 and SB 261 make California the first state to require GHG emissions and climate risk reporting from large companies. The bills, which are now law, jump the SEC’s proposed climate disclosure rules which have not yet been finalized or released after two publicly disclosed delays in implementation.

Given the number of companies that “do business in California”, irrespective of when and how the SEC makes its climate disclosure rules final and if it does this fall, California has once again cemented its place of relevance in the climate change arena and has mandated movement in this space by larger companies doing business in California. It remains to be seen if other states follow their lead but surely New York, Washington, D.C., Massachusetts and others will take a very hard look at proceeding down this path.

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, please contact Brad A. Molotsky, David Amerikaner, Joseph West, Sharon Caffrey, 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.

July 19, 2023February 3, 2025 by Drew D. Salvest

ISSB issues global sustainability and climate-related standards

In June 2023, the International Sustainability Standards Board (the ISSB) published its first set of global sustainability and climate-related disclosure standards for investors[1]. The ISSB was established in November 2021 at the UN Climate Change Conference (COP26) as a sister board to the International Accounting Standards Board (IASB) and is responsible for developing IFRS sustainability standards to better inform investment decisions and meet the needs of the capital markets.

Although IFRS is not used in the US, the standards are likely to influence the Securities and Exchange Commission’s (SEC) sustainability reporting requirements that are currently being developed. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) have been drafted in response to users of financial reports calling for information to be presented in a comparable, verifiable and consistent way.

Overview:

IFRS S1 is a set of sustainability-related financial disclosures that prescribe how companies should report information about their sustainability-related risks and opportunities in a way that is useful to users of financial reports in making investment decisions. The standards require companies to disclose and report on sustainability-related risks and opportunities over the short, medium and long term to investors. IFRS S1 requires companies to disclosure information regarding sustainability targets, governance, strategy and risk management.

IFRS S2 is a set of climate-related disclosures that have been developed to provide information to investors about a company’s climate-related risks and opportunities. IFRS S2 incorporates recommendations provided by the Task Force on Climate-related Financial Disclosures (TCFD). IFRS S2 requires a company to disclose its Scope 1, Scope 2 and Scope 3 greenhouse gas emissions.

Next Steps:

IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024. The standards are not mandatory and it is up to individual countries to decide whether listed companies are required to apply them. It is expected that the standards will be voluntarily adopted as non-financial reporting on sustainability becomes market standard. The UK has indicated its intent to incorporate the ISSB standards, however the EU and US plan to introduce their own separate disclosure requirements. European companies are subject to disclosure requirements with the European Sustainability Reporting Standards (ESRS) and the SEC’s climate-related disclosure rules were proposed in 2022 and are due to be issued later this year. It remains to be seen how the different reporting obligations will work together to avoid duplication and inconsistency. The ISSB has been working with EFRAG (European Financial Reporting Advisory Group) on the specific reporting requirements of the CSRD to ensure there is a level of consistency between the standards. Guidance is expected to be issued by the ISSB in order to avoid duplication between the different standards in the EU. The ISSB has also established the Transition Implementation Group to work with stakeholders to facilitate implementation of the standards and address concerns. The International Organization of Securities Commissions (IOSCO) also intends to independently review the ISSB standards.

If you have any questions about this post, please contact Drew D. Salvest, Natalie A. Stewart or Rebecca Green.

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, 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.

[1] https://www.ifrs.org/news-and-events/news/2023/06/issb-issues-ifrs-s1-ifrs-s2/

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.

December 14, 2022December 16, 2022 by Duane Morris

New ESG Disclosure Rules: EU Corporate Sustainability Reporting Directive

In April 2021 the European Commission presented a proposal for a Corporate Sustainability Reporting Directive (CSRD) that would amend the current Non-Financial Reporting Directive (NFRD) and form part of the wider EU policy to require companies to publicly disclose information and data around environmental, social affairs and governance matters.

On 28 November 2022, the European Council adopted the CSRD following adoption by the European Parliament on 10 November 2022. The CSRD will come into force 20 days after publication in the EU Official Journal and EU member states will then have 18 months to incorporate it into their national laws.

To read the full text of this blog post by Drew Salvest, Natalie Stewart and Rebecca Green, please visit the Duane Morris London Blog.

June 10, 2022 by Brad A. Molotsky

Data Centers – From the Clouds – Much Ado about ESG!

We had the opportunity to chat with some of the leading owners and builders of data centers space today on our Data Centers Task Force group meeting. Fascinating and fun conversation with Aaron Binkley of Digital Realty and David Hall and David Sitkowski from Clune Construction Company.

Some key take aways from the conversation:

– multiple new entrants into the data center space are putting pressure on rents (upward) with a lot of venture capital funding the new entries

– Increased focus by Owners (and customer/users) on renewable energy with an understanding that the renewable energy is cheaper but NOT Free.

– Energy markets remain a bit volatile for renewable energy with federal tariff on solar panels continuing to negatively impact supply

– Climate related reporting from the EU taxonomy, Singapore and potential SEC proposed rules creating a continued ESG focus by owners and customers in the Date Center space

– Supply chain issues continue to negatively affect delivery times and cost – causing consternation but opportunity as well

– Noting generators are taking in certain locations over 72 weeks for delivery and switch gear breakers taking over 16 months for delivery from the normal 6 months

– Labor Shortages continue in various markets delaying jobs – e.g., Pacific NW on carpentry and Phoenix on electricians and other trades

– Deals continue to increase in size and scale despite increased need for local based service of smaller scale

– Increased cooperating and sharing of work pipeline to enable design and build on time

– increased federal work in the data center site space

– increased interest by customers in LEED and Energy Star certifications but not everywhere

– increased interest in power coming from solar and wind sources both on site and off site through power purchase agreements (e.g., in VA, TX, CA, Illinois and NJ)

– customers and employees continuing to ask about sustainable features in buildings and in power supply and other areas of design

– Communities are beginning to wake up to data centers and in certain locations object to their noise and power consumption, noting the lack of traffic and school impacts given their use

– Water is becoming more and more relevant to the conversation and how water is or is not used in cooling systems (noting – Digital Realty does not use water in its cooling solution but towns where they operate are starting to ask about this resource)

– Permitting for generators which used to be relatively easy to obtain is now starting to get a bit trickier and harder to get on an over the counter baiss given potential air quality issues and diesel for generator issues – resulting in additional time for development permits

– Site Selection – certain jurisdictions with a high amount of data centers are beginning to increase real estate taxes for the data center user/owner which will likely, in turn, have these owners focus on other locations which are not so pricey by way of taxes.

From the Cloud – on balance, labor shortages, supply chain and increased focus by customers on ESG is driving various changes to design and build in the data center space to ensure timely and on budget deliveries. While supply chain issues should clear up in Q4 to Q1 of 23′, the focus on ESG should continue well into the future as more and more customers are adopting GhG reduction targets and more and more owners follow the lead of big industry players like Digital Realty and Prologis.

Duane Morris has an active Data Centers Team as well as an ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on your data center project and your Sustainability and ESG planning and initiatives. We would be happy to discussion your proposed project with you. For more information or if you have any questions about this post, please contact Brad A. Molotsky, Jeff Hamera, Joel Ephross, Robert Montejos 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.

February 22, 2022November 29, 2023 by Brad A. Molotsky

ESG: Sustainability Linked Loans becoming more Commonplace in the Marketplace – Louise Melchor, Esq.

As environmental, social, and governance (“ESG”) initiatives are increasingly implemented by borrowers and lenders, sustainability linked loans provide opportunities for both.

What are Sustainability Linked Loans?

Sustainability linked loans (“SLLs”) are based on the Sustainability Linked Loan Principles developed by the LMA, APLMA and LSTA.[1] In SLLs, a borrower, together with its lender group, determine and set certain sustainability performance targets (“SPTs”) for the borrower to achieve, to be measured by key performance indicators (“KPIs”). Independent organizations, including the Sustainability Accounting Standards Board (“SASB”), provide guidance on the ESG metrics most relevant to certain industry sectors. Once agreed between the borrower and lenders, the KPI/SPT benchmarks are then integrated into margin adjustments to the interest rate or commitment fee for the credit facility (i.e., by achieving the KPIs, the interest rate is reduced). The credit facility documentation will also include reporting requirements for independent, external verification of the borrower’s performance level with respect to each SPT for each KPI, at least annually.

Borrower Benefits

Many companies have already undertaken ESG data collection and reporting, and more will likely do so as the SEC expands its focus on ESG disclosures and as more investors demand this information. While the above noted third party verification and reporting costs are inherent to SLLs, borrowers that are already engaging in these efforts may find they can efficiently obtain an additional economic incentive through SLL financing. Additionally, SLLs can be part of a comprehensive alignment with the borrower’s ESG strategies and policies.

Lender Benefits

Lenders are undertaking ESG initiatives as well, in which SLLs may be a component. And, regulatory agencies for certain lenders are communicating their plans to provide guidance on climate-related risks, and integrate these principles into their supervisory expectations.[2] Further, studies have shown that companies (e.g., SLL borrowers) that identify and manage their ESG risks have improved financial performance.[3] So, financing SLLs can benefit lenders across policy, regulatory and business aspects.

Current State of the Market and Next Steps

Although SLLs are a relatively new financing concept, particularly in the U.S., the volume of SLLs globally quadrupled in issuance between 2020 and 2021.[4] As ESG momentum continues to build in the U.S., the volume of SLLs is likewise expected to continue to grow. Currently, terms are negotiated on a transaction specific basis, and market provisions have not been added to the LSTA’s suite of documentation. But, as SLLs become more common, the market is likely to coalesce on terms. Stay tuned for more updates on SLLs and other trending sustainable finance products, including green bonds and commercial property assessed clean energy (C-PACE) financing.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Louise Melchor, the author or Brad A. Molotsky, Nanette Heide, Seth Cooley, David Amerikaner, Jolie-Anne Ansley or the attorney in the firm with whom you are regularly in contact.

[1] Available at https://www.lsta.org/content/sustainability-linked-loan-principles-sllp/

[2] See https://www.occ.gov/news-issuances/bulletins/2021/bulletin-2021-62.html and https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202111032

[3] https://www.msci.com/esg-101-what-is-esg/esg-and-performance

[4] See https://about.bnef.com/blog/1h-2022-sustainable-finance-market-outlook/

December 19, 2021 by Brad A. Molotsky

ESG: – New York City Council Passes a Natural Gas Ban for New Buildings

Last week, New York City’s city council approved a ban on natural gas as a fuel source in newly constructed buildings.

Per reporting from NPR, nearly 40% of carbon emissions in the country — and more than 50% of New York City’s emissions — come from buildings.

The new natural gas ban in newly constructed buildings, by a vote of 40-7, applies to buildings that are up to 7-stories in height by the end of 2023; buildings that are taller than 7-stories have until 2027 to comply.

The bill contains several exceptions, including hospitals, laundromats and crematoriums.

As noted by NPR, the legislation also requires that the Mayor’s Office of Long-Term Planning and Sustainability conduct 2 long term studies. The first will examine the use of heat pump technology and the second is a study on the impact of the new bill on the city’s electrical grid.

Not surprising there has been massive pushback from the natural gas industry against these type of natural gas bans. This pushback, however, has not stopped cities around the country from proceeding with various types of natural gas ban efforts. By way of example, at least 42 cities in California have acted to limit natural gas in new buildings, and Salt Lake City, Utah and Denver, Colorado have also made plans to move toward required electrification in buildings.

Moreover, in Ithaca, New York, the city committed to ending the use of natural gas in all buildings — not just new ones.

Passing this type of natural gas ban for new buildings in New York City, the largest city in the country, marks a significant move for other cities trying to move similar legislation to attempt to cut down carbon emissions in the fight against climate change, joining cities like San Jose and San Francisco that have made similar commitments to reduce emissions.

The efforts to ban natural gas in new buildings in New York City is also being considered on a state wide basis in the New York Senate and House. Senator Brian Kavanagh (D) and Assembly Member Emily Gallagher (D) are working on legislation that would require any buildings constructed in New York after 2023 to be entirely powered by electricity. If their legislation passes, New York would become the first state to ban natural gas in new buildings on a state-wide level.

Triple Bottom Line – By passing this type of natural gas ban in new buildings, focusing on buildings as one of the largest emitters of green house gases, New York has provided other cities with a leader to attempt to follow if they are so inclined. As noted, California has been attempting this type of ban on a city by city basis and has passed 42 such bans throughout the state. If New York state follows the NYC lead it will become the first state to enact such a ban and would mark a bit of a watershed moment in the fight against greenhouse gas emissions showing that buildings can indeed be constructed in this manner if reduced emissions are one of the key goals attempting to be achieved by the builder/owner or the legislature.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Nanette Heide, Seth Cooley, David Amerikaner, Jolie-Anne Ansley, Hari Kumar or the attorney in the firm with whom you are regularly in contact.

November 15, 2021February 3, 2025 by Drew D. Salvest

The HM Treasury’s Roadmap to Sustainable Investing: Overview and Key Considerations for Businesses

On 18 October 2021, the HM Treasury published a policy paper titled “Greening Finance: A Roadmap to Sustainable Investing” (the Roadmap) that sets out the government’s long-term strategy to green the financial sector.

The Roadmap outlines a three-phase strategy to achieve this goal. The first phase is “informing” where sellers of investment products, financial services firms and corporates will be required to report information on sustainability. The second phase is “action” where this information is mainstreamed into business and financial decisions. The third is the “shift” phase; ensuring financial flows across the economy shift to align with the UK’s net zero commitment.

The Roadmap sets out the government’s strategy to achieve phase 1 through economy-wide Sustainability Disclosure Requirements (SDR), the UK Green Taxonomy and Investor Stewardship. Each of these are outlined below.

1. SDR: what will businesses have to report on?

The SDR’s aim is to combine existing and new sustainability disclosure requirements in one framework for corporates, asset managers / owners and creators of investment products. The framework will be implemented through legislation, with sector-specific requirements being determined by government departments and regulators. The Roadmap emphasises that these new requirements will go further than existing disclosure requirements (such as those required by the Task Force on Climate-Related Financial Disclosures) by requiring reporting on environmental impact. SDR will also go beyond the FCA’s existing ESG framework by requiring asset managers / owners and creators of investment products to substantiate ESG claims in a way that is both comparable and accessible. SDR will also require disclosure with reference to the UK’s Green Taxonomy. Certain firms will have to publish transition plans, detailing how they intend to align with the government’s net zero goal by 2050.

Certain UK-registered companies and listed issuers, including financial services firms, will need to disclose information about how they identify, assess and manage sustainability factors arising from their global operations in their Annual Reports. Financial services firms that manage or administer money for investors will need to disclose the sustainability-related information that clients and end-consumers need to make informed decisions about their investments. Investment product firms will need to disclose, at product level, the sustainability-related information that consumers need to make informed decisions about their investments.

2. UK Green Taxonomy

The lack of commonly accepted definitions makes it difficult for companies and investors to clearly understand the environmental impact of their decisions and can lead to issues such as greenwashing. To address this, the government is implementing the UK Green Taxonomy (the Taxonomy) that outlines criteria that specific economic activities must meet to be considered environmentally sustainable and “Taxonomy-aligned”.

Reporting against the Taxonomy will form part of SDR. Certain companies will be required to disclose the proportion of their activities that are Taxonomy-aligned. Providers of investment funds and creators of investment products will have to do the same for the assets that they invest in and products they create.

The Taxonomy has six objectives: Climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems. Each of the environmental objectives will be underpinned by a set of standards known as Technical Screening Criteria (TSC). To be considered Taxonomy-aligned, an activity must meet three tests. It must make a substantial contribution to one of the six environmental objectives, do no significant harm to the other objectives (this aims to ensure that activities which support one objective do not have a significant adverse impact on another) and meet a set of minimum safeguards: these are minimum standards for doing business, constituting alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.

Although Taxonomy-alignment will be determined by reported data rather than projections, the Taxonomy also recognises companies that are working to meet environmental objectives in the future. For example, due to technological constraints, some economic activities cannot currently be conducted in a way which is aligned with net zero-ambitions. For a number of these activities, the TSCs will set the threshold for Taxonomy alignment at the “best-in-sector” emissions level. These are known as “transitional activities”. Secondly, some companies will report on the proportion of their capital expenditure that is Taxonomy-aligned. This will enable these companies to demonstrate their investment in producing green activities in the future.

3. Investor Stewardship in Green Finance

The Roadmap outlines the government’s expectation that the pensions and investment sectors should seek to integrate ESG considerations into investment decision-making, monitoring and engagement strategies, escalation and collaboration (with other investors) and voting practices. For example, when exercising their shareholder rights, being ready to vote against directors, corporate actions or other resolutions.

Next Steps

The key dates and developments to look out for are:

November 2021 – discussion papers on SDR disclosures, consumer-facing product-level SDR disclosures and the sustainable investment labelling regime
Q1 2022 – consultation on two of the environmental objectives under the Taxonomy (climate change mitigation and climate change adaptation)
2022 – consultations on SDR disclosures, consumer-facing product-level SDR disclosures and the sustainable investment labelling regime
End of 2022 – legislation on draft TSCs for climate change mitigation and climate change adaptation
End of 2022 – government expects pensions and investment sector organisations to have published a high-quality net zero transition plan
Q1 2023 – government to consult on expansion of TSCs and standards for remaining four environmental objectives under the Taxonomy
End of 2023 – government to assess progress on its expectations for stewardship within the UK pensions and investment sectors

Key Considerations for Businesses

Although companies will have adequate notice before becoming subject to disclosure requirements, in order to be prepared companies are advised to review existing disclosure practices and determine the additional information required to be disclosed and the processes in place for gathering that additional information. Companies are also advised to keep up-to-date with the key consultation and implementation dates outlined above.

If you have any questions about this post, please contact Drew D. Salvest, Natalie A. Stewart, Rebecca Green any of the attorneys in our Banking and Finance Industry Group or the attorney in the firm with whom you in regular contact.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, please contact Brad A. Molotsky, David Amerikaner, Nanette Heide, Darrick Mix, Vijay Bange, Steve Nichol, or the attorney in the firm with whom you are regularly in contact.