The ESG and Government Affairs Committee held a Tuesday session discussing various proposals of mandatory ESG legislation at the state and federal levels. With much uncertainty about what the federal government will do on ESG-related actions, experts from King & Spalding and Quantum Energy Partners delivered insights on what companies in the energy services and technology space should have on their radar.
Marcella Burke, Partner, Environmental, Health and Safety and Caroline Magee, Senior Attorney, Corporate, Finance & Investments, at King & Spalding, shared lessons learned from state actions and federal pressures, while Keila Hand, Head of ESG, Quantum Energy Partners, provided additional context of how financing banks and funds are responding to these actions.
States – Driving Action on ESG Issues
Burke, Magee and Hand detailed legislative actions in states like California, Colorado and Washington, as well as the potential financial impacts on businesses.
Highlighting how states can drive action on ESG, Burke said California’s actions could have nationwide impact. She discussed how the state’s vehicle tailpipe emission standards, adopted by auto manufacturers to access the California market, were subsequently adopted by 14 states, plus Washington D.C.
California has a unique relationship with the federal Clean Air Act (CAA), that allows it to enact even more ambitions standards than the CAA. Colorado and the state of Washington are also implementing rules and laws regarding emissions and products perceived as environmentally impactful.
Pension funds appear to be taking varying approaches to ESG. For example, Illinois has passed an act that requires pension funds and other public funds consider relevant sustainability factors in investment decisions. In California, Magee said, the California Public Employees Retirement System does not appear to have divestment policies for specific assets and spokespersons for CalPERS have suggested such policies may not be “particularly impacting achievement of goals related to sustainability” but instead are collaborating with others to develop a standardized set of metrics around ESG and sustainability.
Hand said the state-level regulatory environment for water is often detailed because while water is a global issue, local application is critical. So, what the states and sometimes even townships are doing in terms of water is important and is driving those regulatory action.
Federal & Agency Proposals
Burke said aspects of ESG have been the topic of many conversations and activities within federal agencies, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the U.S. Department of the Treasury and the Federal Reserve Bank.
Most recently, the SEC posted a sample comment letter highlighting that a company’s 10k has different information than its ESG report did and asking for clarification on the differences. Magee said that although the comment letters would not come from the SEC’s enforcement division, the SEC has signaled it will begin to send out comment letters like this to seek more information around public companies’ disclosure filings.
Magee added that the SEC will likely publish proposed climate and social-related disclosure rules by the end of 2021, however, finalizing and implementing any such ESG disclosure requirements would take some time. Meanwhile, the SEC is focused on materiality, and the agency can ask questions about information in issuers’ filings that could be material to investors from a financial perspective. There’s a lot of thinking that climate and social aspects can have measurable financial impact, which could fall within the SEC’s materiality mandate without a single change to regulation. Note: The comment letters, along with companies’ responses to them, are typically made public though the SEC’s EDGAR filing system.
Hand also flagged proposals in the budget reconciliation bill that involve a methane fee, an issue Senators have been looking at since earlier this year. The proposal could affect Member Companies if passed since there are different thresholds for production, processing, LNG, and national gas transmission and compression. Importantly, Hand said that although there is doubt this methane fee will pass, the discussion could create important precedent for future action.
If you are interested in joining the ESG or Government Affairs Committee please reach out to Tim Tarpley, SVP Government Affairs & Counsel, and Andy Knapp, Senior Advisor, ESG, Sustainability and Energy Transition & Technology.
Maria Suarez, Director Government Affairs, writes about industry-specific policies for the Energy Workforce & Technology Council. Click here to subscribe to the Council’s newsletter, which highlights sector-specific issues, best practices, Council activities and more.