Introduction

On April 19, 2024, the Environmental Protection Agency (EPA) announced a final rule adding perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS) to the list of hazardous substances regulated under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as the “Superfund” statute. This designation, which had been expected for several years, will allow EPA to address PFOA and PFOS contamination using its authority under CERCLA. Given the ubiquity of those substances in the environment, the regulation of PFOA and PFOS is expected to increase the number of Superfund sites across the country, increase the cost of remediating those sites, and add complications to real estate and corporate transactions. This alert will provide some background on PFOA and PFOS, and highlight some of the consequences EPA’s action is likely to have in the near future.

About PFOA and PFOS (and other PFAS compounds)

PFOA and PFOS are two of the most common per- and polyfluorinated substances (referred to collectively as PFAS). They have been widely used since the 1940s in various industries for their water and oil repellant properties, and have been featured in products ranging from non-stick cookware and water-resistant fabrics to firefighting foams and industrial processes. While PFOA and PFOS are no longer being manufactured or used in the United States, some 12,000 other PFAS substances are still being produced and can be found in a range of everyday products including food packaging, clothing, cosmetics, and toilet paper.

PFAS compounds serve a range of useful purposes due to their strength and stability. However, those same characteristics cause them to be very persistent in the environment. And, given that they have not been regulated under U.S. environmental laws until very recently, they have been discharged to streams, emitted to the air, and disposed of in landfills – legally – since the 1940s. Recent investigations have detected PFOA and PFOS at many locations across the United States, with notable concentrations at airports, military bases, landfills, and manufacturing facilities where PFOA and PFOS-containing products were used or manufactured.

What does the rule do?

The rule comes after EPA concluded that PFOA and PFOS “may present a substantial danger to the public health or welfare or the environment.” Under Superfund, the EPA and third parties can now hold the owner or operator of any location where PFOA and PFOS remediation is necessary, and any party who disposed of or arranged for the disposal of PFOA and PFOS at such location, jointly and severally liable for all costs of remediating those substances. The rule’s implementation also gives rise to a requirement to report releases of PFOA and PFOS of more than 1 pound within a 24-hour period.

In sum, this action expands CERCLA’s strict liability regime (which has imposed billions of dollars of costs on businesses and property owners over the last 45 years) to cover two new chemicals that may be found at properties all over the country. While this is concerning, there are some bits of good news for some. First, EPA issued an enforcement discretion memorandum on April 19, 2024 indicating it will focus its enforcement efforts on potentially responsible parties (PRPs) who significantly contributed to the release of PFOA and PFOS, including parties that manufactured or used PFAS in the manufacturing process, federal facilities, and other industrial parties. As of now, EPA does not intend to pursue certain PRPs, including airports, farms, fire departments, community water systems, and publicly owned treatment works. And second, the rule does not change CERCLA’s liability framework, which provides liability protections in certain circumstances for parties that are not primarily responsible. Taking measures to ensure that your business qualifies for those defenses is thus more critical than ever.

What does this mean for real estate transactions?

As of February 13, 2024, the American Society for Testing and Materials standard for Phase I environmental site assessments (Phase Is) is required to be used in order to satisfy the All Appropriate Inquiry aspect of certain defenses to liability under CERCLA. At the time the standard was issued, PFOA and PFOS were not designated as “hazardous substances” under CERCLA, and thus recent Phase Is did not need to address the potential presence of those chemicals. However, once EPA’s final rule is in effect (60 days after the rule is published in the Federal Register), environmental professionals completing Phase Is will need to consider whether PFOA and PFOS have been released (or were likely released) at the property when determining whether a Recognized Environmental Condition (REC) exists onsite. If a REC related to PFOA or PFOS contamination is identified in the Phase I, a subsurface investigation will likely be recommended as a next step in order to determine whether PFOA or PFOS is present onsite in excess of regulatory action levels. If PFOA or PFOS is found in that investigation, it could trigger reporting requirements, and possibly remediation, under CERCLA. Buyers and sellers of real estate therefore need to be aware that this issue will now arise more often in Phase I reports, complicating their transactions. Buyers will also need to re-double their efforts to ensure that they meticulously follow all of the detailed requirements necessary to preserve the “innocent purchaser” and “bona fide prospective purchaser” defenses available under CERCLA. Finally, in addition to PFOA and PFOS, buyers may wish to consider whether to proactively investigate the potential presence of certain PFAS chemicals not presently identified as “hazardous substances,” but subject to other monitoring requirements under the Safe Drinking Water Act or applicable state drinking water regulations.

What does this mean for corporate transactions?

No company wants to be surprised to learn that the business it just acquired is on the hook for millions of dollars’ worth of cleanup costs (not to mention the potential for personal injury claims and negative publicity). Companies acquiring other businesses or assets will therefore need to carefully investigate whether the target company may have previously generated, used, sold, or disposed of PFOA or PFOS, and ensure that it is doing all that it can to preserve CERCLA’s limited liability defenses. While a Phase I on the target company’s properties is a part of that review, it is by no means the end of it. Buyers should carefully assess the target company’s historic manufacturing processes (at currently and formerly owned or leased facilities), as well as its waste disposal practices and personal injury claims, to assess whether Superfund liability for PFOA/PFOS (or other PFAS compounds that may be regulated in the future) is a material risk. If it is, careful consideration will need to be made as to how to allocate responsibility for that risk, understanding that representations and warranties insurance policies that are commonly used today are unlikely to cover PFAS-related claims. There is no “rule of thumb” for how to deal with PFAS liabilities in a transaction, and every deal is different. Lawyers will need to be able to come up with creative solutions to this issue to get certain deals across the finish line.

What does this mean for new or existing Superfund sites?

Once the final rule is in effect, EPA will add PFOA and PFOS to its list of hazardous substances it uses for screening when determining whether to add a site to the Superfund Active site inventory for further assessment. If EPA deems that the site should be added to the Superfund Active site inventory, it will evaluate potential PFOA and PFOS contamination as part of its Preliminary Assessment, which is used to determine whether the site is listed on the National Priorities List, allowing EPA to identify PRPs who may have caused or contributed to PFOA and PFOS contamination at the site.

As for existing Superfund sites, PRPs can expect that EPA will begin requesting evaluations of PFOA and PFOS if EPA suspects either or both chemicals were released at the already-designated Superfund site. EPA could foreseeably request such sampling even at “closed” Superfund sites that remain subject to five-year reviews of the remedies implemented at those sites. EPA may request that the PRPs at existing sites conduct testing for PFOA and PFOS voluntarily, or EPA may complete a Preliminary Assessment itself and issue an order requiring the PRPs to undertake further investigation (and possibly remediation) for the chemicals. Note, however, that to the extent the PRPs are not the current owners or operators of the facility, EPA authority under CERCLA only reaches to any party who disposed of or arranged for the disposal of PFOA and PFOS at such locations. Many PRP groups were formed (and allocation for costs assigned) without determining whether such parties disposed of or arranged for the disposal of PFOA and PFOS at such locations and as such those parties should consider carefully their next steps. If PFOA or PFOS is found, the remediation of those compounds could significantly add to the time and cost necessary to complete the remediation and ultimate de-listing of the site. It will also lead PRPs to look for other responsible parties to pay for some of the cleanup costs, leading to new and expensive multi-party litigation.

Reed Smith’s environmental attorneys have been monitoring PFAS developments at the state and federal level for many years. We have experience advising corporate, real estate, and manufacturing clients on how to manage risks associated with these compounds in both litigation and transactional contexts. Please reach out to any of the attorneys identified below if you would like more information.

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On January 31, 2024, EPA published a press release announcing the impending publication of two proposed rules relating to PFAS and the Resource Conservation and Recovery Act (RCRA): (1) “Definition of Hazardous Waste Applicable to Corrective Action from Solid Waste Management Units” and (2) “Listing of Specific PFAS as Hazardous Constituents.”  

Definition of Hazardous Waste Applicable to Corrective Action from Solid Waste Management Units

Regarding the first proposed rule, EPA intends to revise the scope of the definition of Hazardous Waste under RCRA by broadening the definition to include emerging contaminants of concern, like PFAS. This would allow EPA and authorized states to expressly require cleanup of these constituents. While EPA has not published a proposed rule as of the date of this post, EPA anticipates a 30-day public comment period from the date of publication. 

The prepublication version of this rule includes the following significant changes:

  • Revise the definition of hazardous waste to cover releases not only of substances listed or identified as hazardous waste in the regulations but of any substance that meets the statutory definition of hazardous waste, including providing notice of EPA’s interpretation that this applies to permitted and interim status facilities.
  • Include a conforming definitional amendment to the requirements for permitting solid waste management units under Section 270.14(d).
  • Add RCRA sections 3004(u) and (v) and 3008(h) to the statutory authorities identified in Section 261.1(b)(2), which provides the statutory definitions of solid and hazardous waste govern the scope of EPA’s authority under certain sections of RCRA.

EPA further notes that the rule would be applicable in all states on the effective date, however, some states may require updating their regulatory programs and obtaining EPA approval prior to administering the changes. 

Listing of Specific PFAS as Hazardous Constituents

Regarding the second proposed rule, EPA intends to identify multiple PFAS compounds as hazardous constituents included in facility assessments and for potential investigation and corrective action processes at hazardous waste treatment, storage, and disposal facilities. EPA anticipates a 60-day public comment period. 

The prepublication version of this rule includes the following significant changes:

  • Add to the definition of hazardous constituents nine PFAS substances, including their salts and structural isomers: (1) perfluorooctanoic acid (PFOA), (2) perfluorooctanesulfonic acid (PFOS), (3) perfluorobutanesulfonic acid (PFBS), (4) hexafluoropropylene oxide-dimer acid (HFPO-DA or GenX), (5) perfluorononanoic acid (PFNA), (6) perfluorohexanesulfonic acid (PFHxS), (7) perfluorodecanoic acid (PFDA), (8) perfluorohexanoic acid (PFHxA), and (9) perfluorobutanoic acid (PFBA).

EPA identified over 1,700 facilities that could be required to take additional corrective action to address PFAS constituents under RCRA. EPA further indicated it would continue evaluating whether to add PFAS substances, including these nine, to the definition of hazardous waste. EPA stated that it expected to use the findings of this rulemaking in any future rulemaking regarding regulation of these PFAS (e.g., hazardous waste designation). As part of this effort, EPA summarized and discussed certain data that it relied on to evaluate toxicity and health assessments for the nine PFAS substances. Additionally, like its companion rule, this rule would be applicable in all states on the effective date and states would need to update their programs prior to enforcing the new rules. 

Conclusion The pending proposed rules represent a continued push by EPA to regulate PFAS compounds, striving to meet the goals outlined in its PFAS Strategic Roadmap announced on October 18, 2021 setting forth proposed actions EPA planned to take through 2024. Clearly, EPA is anticipating increased activity involving remediation of PFAS under RCRA in the next few years. Additionally, EPA plans to utilize these rules, and other PFAS-related rulemakings, to further regulate PFAS. Reed Smith is actively tracking PFAS developments with the EPA and across all markets. 

The Washington Department of Labor and Industries (L&I) adopted CR-103, creating a new Part B to chapter 296-67 WAC, on December 27, 2023.  Specifically applicable to petroleum refineries, Part B includes and updates existing PSM requirements as well as introduces several new requirements, some of which are expected to be onerous for refiners to implement.

The rule is similar to Cal/OSHA’s Refinery PSM Regulation, which was amended in 2019 and is one of the most protective in the country.

The final rule includes the following new requirements:

  • PSM Program. Employers must develop and maintain a written plan to provide for employee collaboration throughout all PSM processes. The refinery manager must be designated as the person with authority and responsibility for compliance with the PSM requirements.
  • Damage Mechanism Reviews (DMRs). A DMR must be completed for each existing and new process for which a damage mechanism exists. Where no DMR is performed, the rationale for determining that no damage mechanisms exist must be documented. The employer must complete no less than 50 percent of initial DMRs within three years and all remaining DMRs within five years of the effective date.
  • Hierarchy of Hazard Controls Analysis (HCA). HCAs must be updated and revalidated as standalone analyses for PSM processes at least once every five years.
  • Process Hazard Analysis (PHA). PHAs must take into account the results of any DMRs and HCAs.
  • Human Factors Program (HFP). A written HFP must be implemented within 18 months following the effective date. Employers must assess human factors in existing operating and maintenance procedures and revise them accordingly—50 percent must be completed within three years of the effective date and 100 percent within five years.  Human factors include environmental, organizational and job factors, and human and individual characteristics, such as fatigue.
  • Management Of Organizational Changes (MOOC). The employer must develop, implement and maintain written procedures to manage organizational changes, such as a reduction in staff levels or a change in shift duration. A MOOC must be done for every change with a duration exceeding 90 calendar days.
  • Root cause analysis (RCA). Employers must implement procedures for promptly investigating and reporting any incident that results in, or could have reasonably resulted in, a process safety incident. RCAs must determine the initiating and underlying causes of the incident and identify management system failures, including organizational and safety culture deficiencies.
  • Process Safety Culture Assessment (PSCA). Employers must perform a PSCA and produce a written report within 18 months of the effective date and at least every five years thereafter.

CR-103 is effective December 27, 2024, with rolling implementation dates for individual elements thereafter. For implementation deadlines applicable to specific CR-103 requirements, refer to L&I’s Implementation Dates Chart.

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Bubbly Bubbles 2
Kai Dahms, Unsplash

The Occupational Safety and Health Administration (“OSHA”) has recently submitted to the White House Office of Management and Budget (“OMB”) a final rule to update its Hazard Communication Standard (“HazCom”), which regulates the classification and labeling of hazardous chemicals in the workplace. The rule aims to align the HazCom with the latest version of the Globally Harmonized System of Classification and Labeling of Chemicals (“GHS”), which is an international framework for consistent chemical hazard communication. The rule introduces some significant changes and challenges particularly for chemical companies and especially those exporting to the European Union (“EU”).

One of the most controversial aspects of the rule is the requirement to include on warning labels “any hazards” posed by a chemical. This includes potential hazards of the chemical not only in its current form but possible downstream combinations and reactions as well. This may require companies to craft safety sheets and warning labels for chemicals not already subject to work-safety rules. The change also places a burden on companies to gather and evaluate data on the potential hazards of their chemicals in various scenarios and contexts, which could be costly, time-consuming, and uncertain. Effected companies will need to keep alert of changed hazard warnings, labeling requirements, and shifts in protection for confidential business information, such as trade secrets and proprietary formulas.

Another challenge for international chemical companies is the compatibility of the rule with the EU’s chemical regulations, which are more stringent and progressive than in the United States. Even with the changes, the final rule is still behind the international GHS, especially regarding chemicals and products that have been tested on animals, like cosmetics.

This creates a dilemma for companies who want to comply with both OSHA and EU regulations and may force consideration of separate labels for different jurisdictions. However, separate labels also create confusion and mistrust among consumers and regulators, who may wonder why a product has different hazard warnings in different markets.

The proposed final rule also calls for changes that would reduce labeling on small-containers. Under the rule, containers less than or equal to 100 milliliters would now only need to include the product identifier, pictograms, signal word, and then the chemical manufacturer’s name and phone number—the full list of hazard statements and precautionary statements would be omitted. Additionally, for containers with a three-milliliter capacity, the container would only need to bear the product identifier if the manufacturer can “demonstrate that a label would interfere with a normal use of the container.” The final rule was submitted for OMB approval on October 11th, 2023 and is expected to be finalized early next year.

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Benjamin Child, Unsplash

On September 30, 2023, California Governor Gavin Newsom signed SB-553 into law. SB-553 is the nation’s first workplace violence prevention law.  The law adds a new section 6401.9 to the California Labor Code, which will be implemented by Cal/OSHA.  The new law requires that employers an effective plan aimed at preventing workplace violence in place by July 1, 2024.  The plan may be incorporated into an existing Injury, Illness, and Prevention Plan and does not apply to workers teleworking form a location of the employee’s choice or employers already regulated by existing standards for the healthcare industry.

The workplace violence prevention plan must be in writing, be available to employees, and include the following:

  • Names or job titles of the persons responsible for implementing the plan
  • Methods the employer will use to implement the plan
  • Procedures to obtain the active involvement of employees and authorized employee representatives in developing and implementing the plan
  • Methods the employer will use to coordinate implementation of the plan with other employers, when applicable
  • Procedures for the employer to accept and respond to reports of workplace violence, and to prohibit retaliation against an employee who makes such a report
  • Procedures to ensure that supervisory and nonsupervisory employees comply with the plan
  • Procedures to communicate with employees regarding workplace violence matters and how their reported matter will be investigated
  • Means to alert employees of the presence, location, and nature of workplace violence emergencies
  • Evacuation or sheltering plans
  • Procedures for identifying workplace violence hazards
  • Procedures to investigate and correct past incidents

In addition to the workplace violence prevention plan, employers must keep a log of all workplace incidents. The log must include the following:

  • The date, time, and location of the incident
  • The workplace violence type(s) involved in the incident (as defined in the statute)
  • A detailed description of the incident
  • Details regarding who committed the violence, including whether the perpetrator was a client or customer, family or friend of a client or customer, stranger with criminal intent, coworker, supervisor or manager, partner or spouse, parent or relative, or other perpetrator
  • A description of the circumstances at the time of the incident, including, but not limited to, whether the employee was completing usual job duties, working in poorly lit areas, etc.
  • The type of incident, including, but not limited to, whether it involved any of the following:
    • Physical attack without a weapon, including, but not limited to, biting, choking, grabbing, hair pulling, kicking, punching, slapping, pushing, pulling, scratching, or spitting
    • A threat of physical force
    • Sexual assault or threat
    • An animal attack
  • The consequences of the incident, including, but not limited to whether law enforcement was contacted, and actions taken to protect employees from a continued threat.

Employers should ensure that the log does not include personal identifying information for any persons involved. All records including the workplace incident log, training records, workplace violence investigations, and records of workplace violence hazard identification, evaluation, and correction, all must be maintained for 5 years.

Training must be provided to employees, including on the employer’s plan, the rule’s requirements and definitions, how to report incidents, workplace violence hazards specific to jobs and associated corrective measures, the violent incident log, and opportunity for Q&A.

California Code of Civil Procedure section 527.8 was also amended to allow employers to seek restraining orders to prevent workplace violence where necessary.

On August 29, 2023, the Environmental Protection Agency (EPA) announced its final Waters of the United States (WOTUS) rule.  The new WOTUS rule makes major changes to clarify which wetlands are protected under the Clean Water Act (CWA).  The new WOTUS rule is a direct response to the Supreme Court’s Sackett v. EPA decision, which held that in order for wetlands to be protected under the CWA there must be a “continuous surface connection” to a WOTUS.  

In January 2023, the Biden administration adopted a definition that mimicked a pre-2015 approach, which considered both the “significant nexus” standard, as well as a “relatively permanent” standard.  The January 2023 Rule aimed to broaden the definition of WOTUS after Trump-era revisions narrowing its scope.  The Sackett holding found that the “significant nexus” test did not comport with the Clean Water Act, forcing EPA to amend the WOTUS rule.  EPA removed the “significant nexus” test and redefined “adjacent” to mean “having a continuous surface connection.”

At first glance, these revisions appear to align with Sackett.  However, opponents continue to assert that even as amended the WOTUS rule is overly broad, unduly burdensome, and insufficiently certain.  Various industry and political groups have indicated another round of litigation is imminent.

EPA has already stated that, “If any part of the 2023 Rule as amended by this rule is stayed or invalidated, the agencies’ intent is to preserve its remaining portions to the fullest possible extent.”

In February, 23 states filed suit and obtained an injunction against the EPA over the Biden Administration’s January 2023 Rule.  In those states, the pre-2015 Rule remains in effect. 

Further, EPA elected to forego a notice and comment period and instead issue a final rule under the “good cause” exception of the Administrative Procedure Act.  In issuing new WOTUS rule as final, EPA stated that there is good cause for it to immediately finalize the rule as EPA determined such notice and opportunity for comment is unnecessary.  This decision is likely to be a subject of the anticipated litigation.

Our team will continue to track WOTUS related news and will provide updates as needed.

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What is “ESG”?

“ESG” is perhaps the most divisive acronym of this year’s legislative session. But what does it mean?
“Environmental, Social, Governance” is a framework used to evaluate investments and business decision’s impacts on the environment and society. ESG criteria considers things like a company’s carbon footprint and employee wellbeing. ESG practices are being adopted by many companies and investors, but as they continue to grow, so does the opposition.

The SEC’s Pending Climate-Related Disclosure Rules

In March 2022, the Securities and Exchange Commission (SEC) published its “Proposed Rules to Enhance and Standardize Climate-Related Disclosures for Investors.” The rules would mandate the disclosure of Scope 1 (direct emissions), Scope 2 emissions (indirect), and in certain cases Scope 3 emissions (indirect emissions from both upstream and downstream activities). Additionally, companies would need to disclose climate-related risks faced by their business, processes for evaluating those risks, as well as how the company intends to meet its climate goals where they have been openly disclosed. All required disclosures will be made in a company’s annual Form 10-K reports. The rules are expected to be finalized by the end of 2023, but no updates have been announced since the close of the comment period in June 2022.  However, even once final, businesses can expect challenges and a strong likelihood of a Supreme Court stay of implementation of the new rules pending judicial review.

Recently Introduced Anti-ESG Federal Legislation

At the end of July, House Republicans introduced a slew of anti-ESG legislation to combat ESG-friendly legislation and the anticipated SEC rules. The following bills were introduced:

  • H.R. 4790 – The Guiding Uniform and Responsible Disclosure Requirements and Information Limits Act
    • This bill would amend the federal securities laws to create a Public Company Advisory Committee within the SEC to protect investors and market fairness. Additionally, the bill would limit mandated disclosures requirement, such as those in the proposed SEC rules.
  • H.R. 4655 – The Businesses Over Activists Act
    • This bill seeks to amend the Securities and Exchange Act of 1934 to prohibit the SEC from compelling the inclusion or discussion of shareholder proposals or proxy.
  • H.R. 4767 – The Protecting Americans’ Retirement Savings from Politics Act
    • This bill seeks to amend shareholder and proxy voting processes in a way that prioritizes growth over political issues while allowing for the exclusion of ESG proposals. 

State ESG Legislation

Instead of passively waiting for new federal rules, many state legislatures have taken ESG matters into their own hands. As of August 2023, 22 states have adopted some form of ESG legislation. 18 of these states have adopted anti-ESG laws, while only 4 have adopted pro-ESG laws.

  1. Anti-ESG Legislation

Notable anti-ESG states include Alabama, Arkansas, Florida, Idaho, Indiana, Kansas, Kentucky, Montana, New Hampshire, North Carolina, North Dakota, Texas, Utah, and West Virginia.

A key theme in anti-ESG legislation from these states is the ban on the use of ESG criteria when managing public retirement systems or public funds. ESG opponents feel that the use of ESG criteria greatly harms beneficiaries, as it has the potential to lead to lower returns. Typical anti-ESG legislation includes a ban on the use of ESG criteria when making investment decisions that involve public funds. This may include an emphasis on fiduciary duties or a prohibition on divestment from certain industries.  

Indiana took this concept one step further in House Enrolled Act No. 1008, by prohibiting public retirement systems from contracting with service providers who make any “ESG commitments.” The legislation was passed in hopes to protect investment decisions to ensure that they are made with the sole purpose of maximizing the target rate of return. The public retirement system must replace service providers who have made ESG commitments where there is a comparable service provider who has not. This law went into effect July 1, 2023.

Idaho passed a similar law, House Bill 190, which bans banks and credit unions that hold state funds from boycotting an individual or company because of its affiliated industry. Listed industries include fossil-fuel based energy, timber, minerals, agriculture, and firearm sales, manufacturing or distribution. The law became effective July 1, 2023.

The most comprehensive anti-ESG legislation to date is Florida’s House Bill 3. ESG criteria may not be used when making public pension investment decisions, local government investment decisions, or awarding state or local contracts to vendors. Additionally, the issuance of ESG bonds are prohibited. Florida will likely influence future anti-ESG legislation throughout the country.

  1. Pro-ESG Legislation

Left-leaning states such as California, Colorado, Illinois, and Vermont have implemented ESG criteria mandates or taken general protective measures that allow investors to continue the use of ESG criteria where they see fit.

Typical pro-ESG legislation includes divestment from certain industries, mandated disclosures and the adoption of more sustainable investment policies.

Colorado’s S.B. 23-016 was signed into law May 11, 2023 and requires the Colorado Public Employees’ Retirement Association to disclose financial risks stemming from climate change on an annual basis. The law takes effect January 1, 2025. 

The California Climate Corporate Data Accountability Act (SB 253) has the potential to be the most impactful pro-ESG law. California is home to one of the world’s largest economies. If passed, the bill would mimic the proposed SEC rules by mandating the disclosure of Scope 1 and Scope 2 emissions for companies doing business in the state and earning at least $1 billion in annual revenue. Additionally, beginning in 2027, companies would have to disclose Scope 3 emissions. We will continue to monitor its progress as it moves through the state legislature.

General Counsel Role and Business Advice in Light of Above

Navigating a company’s role in society is one of the great management challenges of our time. In the face of the ESG backlash, companies’ reactions vary. Some are going quiet about their initiatives and accomplishments; this has been referred to as “greenhushing.” However, others are doubling down on their commitments to sustainability.  Whichever path chosen, legal departments are being looked to to help steer their company forward, 

To best prepare your company, consider the following actions:

  • Legal should consider both sides of the ESG debate and stay informed of all nuances.
  • Certain environmental, social and governance issues may impact a company’s ability to be successful in both the near and long term; others might not. At its core, ESG is about companies recognizing emerging risks as well growth opportunities to their businesses and their boards’ oversight of all of it.
  • More robust ESG data, not less, could lead to companies making more informed decisions and to better governance.
  • To that end, understand your climate goals, if any.
    • Be mindful of communicating any emission reduction goals, as this could lead to mandatory disclosures of Scope 3 emissions in the future.
  • Consider adopting a system to track emissions.
    • This may be an environmental management system certified under ISO 140001 or another method of tracking data.
  • Know the communities your company conducts business in and understand their values.
    • Gaining a deeper understanding of your customer base can best guide your ESG or non-ESG related goals.
  • Consider creating an ESG committee.
    • Fostering internal dialogue around this controversial topic will best prepare you for ESG related changes.
  • Understand your company’s climate-related risks in both the long and short term.
    • Be mindful of potential impacts or supply chain shortages your company may face if climate disaster strikes.