SEPTEMBER 2022: Human Rights violations in XUAR, Patagonia's latest move to fight the climate crisis, Instagram's record privacy fine, EU's plan to eradicate forced labor, and more

Key highlights from September 2022 in the sustainability space.

UN report confirms human rights violations in XUAR – In a 48-page report following a 4-year investigation, the United Nations Office of the High Commissioner on Human Rights concludes that “serious human rights violations have been committed in XUAR [Xinjiang Uyghur autonomous region]” at least between 2017 and 2019, affecting “directly or indirectly Uyghur and other predominantly Muslim communities.” The report condemns “far-reaching, arbitrary and discriminatory restrictions on human rights and fundamental freedoms, in violation of international norms and standards”  and finds that “the extent of arbitrary and discriminatory detention of members of Uyghur and other predominantly Muslim groups ... may constitute international crimes, in particular crimes against humanity.” While the facts underlying the report have been surfacing for years, the release of this official document will likely speed up the departure of a number of businesses suspected of benefitting from forced labor in the region.

Patagonia’s creative move to address the environmental crisis – On September 14, Patagonia’s founder announced he and his family had transferred all their shares in the company to two entities: all voting stock went to the Patagonia Purpose Trust, while the nonvoting stock went to the Holdfast Collective, ensuring that any distributed profit would be directed to fight the climate crisis. As one of the sustainability leaders in the garment industry, Patagonia takes responsible business conduct to a whole new level. Only time will tell whether this new – and creative – governance structure does, in fact, lead to measurable positive change. If so, this move may inspire other founders across industries.

Instagram fined €405 million over children privacy – The Irish data protection agency (Data Protection Commission or “DPC”) fined Instagram (Meta, previously Facebook) €405 million after finding that the Company violated several provisions of the General Data Protection Regulation (“GDPR”). The inquiry that led to this decision started at the end of 2020 and looked into certain processing of child users’ personal data in Instagram’s networking service, and focused particularly on Instagram’s public disclosure of email addresses and/or phone numbers of children using the Instagram business account feature, as well as a public-by-default setting for personal Instagram accounts of children. The Irish regulator’s decision follows an intervention of the European Data Protection Bureau, and should be remembered as the second highest GDPR-based fine and the first EU-wide decision on children’s data protection rights.

H&M and Decathlon commit to adjust sustainability claims – In addition to donating €500,000 and €400,000 to sustainability causes, the two brands committed to adjust or no longer use sustainability claims on their clothes and/or websites. The Dutch Authority for Consumers and Markets (ACM) started looking into clothing retailers’ potentially misleading sustainability claims over a year ago and investigated Decathlon and H&M more specifically. Selling products with general claims such as “Ecodesign” and “Conscious” without specifying clearly the associated sustainability benefits may be misleading to consumers, ACM found. The two retailers have made specific commitments and their compliance will be monitored closely by the Dutch watchdog over the next two years.

ECB plan on decarbonizing its corporate bond holdings -The European Central Bank (ECB) published further details on how it aims to gradually decarbonize the corporate bond holdings in its monetary policy portfolios in line with the Paris Agreement goals. In these newly published Q&As, the ECB explains that it will “tilt its purchases towards issuers with a better climate performance” using an internally developed climate scoring methodology (to be reviewed within a year). While individual issuers’ climate scores will not be published by the ECB, the Eurosystem announced the publication of regular climate-related information on corporate bond holdings.

EU to ban products made with forced labor– Following other initiatives, the most talked about being the United States Uyghur Forced Labor Prevention Act, the European Commission issued a comprehensive proposal designed to fight forced labor, a stated Union priority. In a world where nearly 28 million people were reportedly in forced labor in 2021, 12% of which children, the proposed regulation would provide a clear prohibition for all economic operators to “place or make available on the Union market products that are made with forced labor” or to export them. Through a mix of risk-based investigations, shared intelligence, and Member States’ cooperation, the proposed regulation is a promising attempt to tackle this complex yet unanimously condemned issue.

JULY 2022: UNDP Guidance for businesses in conflict regions, Business & Human Rights in Luxembourg, Renewables in Germany, H&M leaves Russia

Key highlights from July 2022 in the sustainability space.

UNDP guidance for businesses in conflict regions – The United Nations Development Program (UNDP) Working Group on the issue of human rights and transnational corporations officially launched a guide for businesses operating in conflict-affected regions. Because the risk of gross human rights abuses is heightened in conflict-affected contexts, heightened human rights due diligence becomes necessary to identify and assess not only a business’ adverse impacts on human rights, but also its adverse impacts on the conflict. Grounded on the United Nations Guiding Principles on Business and Human Rights (UNGPs), the 60+ page document provides practical guidance for businesses on what to do and when, including a valuable compliance checklist.

Business & Human Rights in Luxembourg – On July 6, the government of Luxembourg announced that 50 corporations had signed the countries’ National Action Plan (NAP) for Business & Human Rights. Developing and enacting a NAP is part of the responsibility of States to disseminate and implement the United Nations Guiding Principles on Business and Human Rights. Linklaters LLP, Grant Thornton and Luxembourg’s national railroad company are among the signatories. ABBL, Luxembourg’s banker’s association, is also one of them.

2 weeks after the announcement, however, Luxembourg postponed the scheduled country visit of the UN Working Group on Business and Human Rights at the last minute. This qualifies as a disappointing conflicting message at best.  Indeed, the Working Group’s busy agenda signals that its visit may now be pushed back for months if not years.

Germany accelerates expansion of renewables – Earlier this month, Germany’s Parliament approved proposed legislative amendments designed to accelerate the roll out of renewable energy in the country. The so-called “Easter Package” includes, among other measures, an increase of gross electricity consumption from renewable energy sources from 42% in 2021to 80% by 2030.

H&M suspends its operations in Russia – On July 18, H&M’s CEO announced that the Swedish retailer was leaving the Russian market and entering a “responsible wind down” phase there.  H&M had suspended its sales in Russia back in March, following the Russian invasion of Ukraine. In her statement, Helena Helmersson explained that “After careful consideration, we see it as impossible given the current situation to continue our business in Russia.”

JUNE 2022: Businesses and reproductive rights, Greenwashing, OECD National Contact Points, Uyghur Forced Labor Prevention Act, Limited EPA regulatory powers, New technologies and Human Rights

Key highlights from June 2022 in the sustainability space.

Businesses and the fundamental right to abortion. On June 24, the US Supreme Court reversed the landmark Roe v. Wade decision, thereby ending the constitutional right to abortion that had been upheld for nearly half a century. With immediate implications in over a dozen states, businesses have taken the floor to mitigate the impact of this decision on their employees. Patagonia, L’Oréal USA, JPMorgan and Microsoft, to name a few, have offered to provide travel benefits for employees living in states banning the procedure.

Greenwashing in the hot seat. A French watchdog filing a complaint against Adidas and New Balance, the Norwegian Consumer Authority finding marketing based on HIGG Transparency Program misleading, the SEC investigating Deutsch Bank, BNY Mellon and Goldman Sachs Asset Management on ESG criteria compliance … the recent rise in enforcement actions and litigations coincides with a shift of ESG issues from marketing to legal and compliance teams.

OECD Watch reports on NCPs’ failures. In its annual ‘State of Remedy’ report, the global civil society network finds that National Contact Points (NCPs) continue to fail to facilitate effective remedy outcomes for complainants. While only 2 of the 22 cases concluded in 2021 by NCPs reached full agreement, OECD Watch finds that not a single case resulted in a directly improved situation on the ground. The report offers an apparently necessary reminder that one of the roles of NCPs is to “assist in the resolution of issues between the parties”, which may not be resolved solely by forward looking steps to prevent similar non-compliance in the future. Rather, assisting to resolve issues raised in a complaint before an NCP requires “examining the adequacy of past HRDD conducted by companies and seeking to facilitate remedy for any harms arising from such non-compliance.” Also of note, the network recommends that the OECD Guidelines be updated to ensure their continued relevance and the effectiveness of NCPs.

Uyghur Forced Labor Prevention Act (UFLPA) comes into effect – On June 21, the UFLPA, which was signed into law by President Biden on December 23, 2021, came into effect. It establishes a rebuttable presumption that the importation of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or produced by certain entities, is prohibited and that such goods are not entitled to entry to the United States. In effect, the Act requires companies that import goods from China’s Xinjiang region to provide “clear and convincing evidence” that no component was produced with forced labor. An official guidance for importers is available on the CBP website.

U.S. Supreme Court ruling limits EPA’s authority to regulate carbon emissions – In West Virginia et al. v. EPA et al., which was argued back in February, the Supreme Court held that the EPA did not have the authority to devise emissions caps. In a powerful dissent, Justice Kagan wrote: “Whatever else this Court may know about, it does not have a clue about how to address climate change. And let’s say the obvious: The stakes here are high. Yet the Court today prevents congressionally authorized agency action to curb powerplants’ carbon dioxide emissions. The Court appoints itself—instead of Congress or the expert agency—the decision-maker on climate policy. I cannot think of many things more frightening.”

Human rights and new technologies – In an official address to a panel on good governance in protecting human rights during and after Covid-19 pandemic, Nada Al-Nashif, UN Deputy High Commissioner for Human Rights announced that her Office was “developing UN system-wide guidance on the application of a human rights-based approach to the use of new technologies, complementary to the existing Guiding Principles on Business and Human Rights”. She also made a number of recommendations to governments as they work on fulfilling their duty to protect citizens against abuse and misuse of digital technologies. These include the need to place human rights “at the heart of tech governance”, and to “systematically carry out human rights due diligence with digital technologies in order to prevent and mitigate adverse impacts.”

MAY 2022: Mandatory climate disclosures in Canada, Clarifying the scope of the ATS, SEC’s ESG disclosure proposal, Public procurement and ESG in France, TESLA, BNP, and more

Key highlights from May 2022 in the sustainability space.

New mandatory climate disclosures in Canada – Beginning in 2024, federally regulated banks and insurers will be required to provide climate disclosures in Canada, in alignment with the TCFD framework. Recognizing that “Climate change and the global response to the threats it poses have the potential to significantly impact the safety and soundness of federally regulated financial institutions, and the financial system more broadly”, the Guidelines aim to support these institutions in developing greater resilience to these risks. The proposed draft is entering a public consultation process and is open for comments.

Clarifying the scope of the Alien Tort Statute –  This month, two US Senators introduced the Alien Tort Statute Clarification Act (ATSCA) in an attempt to clarify the extraterritorial application of the Alien Tort Statute. Finding that “The Alien Tort Statute should be available against those responsible for human rights abuses whenever they are subject to personal jurisdiction in the United States, regardless of where the abuse occurred”, the ATSCA would amend the ATS to clarify that it applies to human rights abuses committed by a national of the United States, an alien lawfully admitted for permanent residence in the United States, or an alleged defendant that is present in the United States, irrespective of the nationality of the alleged defendant. This Act, if passed, would significantly improve the prospects of strategic litigations in US courts concerning violations of human rights abroad.

SEC’s ESG disclosure proposal – When ESG investment includes a “wide range” of funds managing potentially trillions of dollars under management, the Securities and Exchange Commission is proposing to amend the rule under the Investment Company Act that addresses certain broad categories of investment company names that are likely to mislead investors about an investment company’s investments and risks. With the stated design “to increase investor protection” the proposal seeks to improve and clarify the disclosure and recordkeeping requirements for certain funds with a name suggesting an ESG focus.

ESG & Public procurement in France – Decree nº2022-767, which amends the French public procurement Code, halves the spending threshold above which regulated public buyers must design a plan promoting socially and environmentally responsible buys. From 100 million, the new threshold is fixed at 50 million and will be effective starting January 1, 2023.

ESG ratings, the TESLA test – As Tesla Inc. was dropped from the S&P 500 ESG index, its CEO immediately reacted calling ESG “a scam”. The globally recognized sustainability index that ranks companies in terms of their environmental, social and governance (ESG) standards also excluded Chevron Corp and Johnson & Johnson, among other others. Justifying its decision, S&P cited claims of racial discrimination, poor working conditions at a Tesla factory in California, Tesla’s handling of an investigation by the National Highway Traffic Safety Administration after multiple deaths and injuries were linked to the company’s Autopilot system as well as the company’s lack of low carbon strategy. Regardless of Tesla’s shortcomings, the exclusion of the electric carmaker’s from the index while companies such as Amazon or Exxon Mobil remain listed raises the question of what weight should be given to a company’s social and environmental impact in absolute terms rather than relative to its peers.

BNP Paribas’s ambitious climate pledge – In its 55-page Climate Analytics and Alignment Report, BNP Paribas commits not to finance any oil and gas projects and related infrastructure in the Arctic and in the Amazon regions. This geographical exclusion is a first in the industry and its impact will be closely watched.

APRIL 2022: New European Sustainability Reporting Standards, EU anti-SLAPP directive, first SEC enforcement based on ESG disclosures, and more

Key highlights from April 2022 in the sustainability space.

Draft European Sustainability Reporting Standards published - The European Financial Reporting Advisory Group (EFRAG) announced the release of its initial draft of European Sustainability Reporting Standards, setting out the proposed rules and requirements for companies to report on sustainability-related impacts, opportunities and risks under the EU’s Corporate Sustainable Reporting Directive (CSRD) which is currently under development. The draft is subject to public consultation until August 8, 2022.

Proposal for directive against SLAPP – The European Commission issued a proposal for a directive protecting persons who engage in public participation from manifestly unfounded or abusive court proceedings (“strategic lawsuits against public participation” or SLAPP). Recognizing SLAPP as an increasingly prevalent phenomenon in the European Union, the Commission’s proposal aims to protect the targets of these litigations and to limit the further expansion of the phenomenon. Under the proposed regulation, courts would be entitled to request security for costs from claimants, and they would offer accelerated early dismissal procedures. Also of note, the proposal includes a shifted burden of proof in early dismissal proceedings, as well as the availability of “effective, proportionate and dissuasive penalties on the party who brought those proceeding.” The feedback period is scheduled to close at the end of June.

ESG listed among SEC Division of Examinations’ priorities for 2022 – In a March 30 press release, the SEC’s Division of Examinations announced it would continue its focus on ESG-related advisory services and investment products and focus particularly on whether registered investment advisors and registered funds are accurately disclosing their ESG investing approaches and have policies and procedures in place to prevent violations of the federal securities laws in connection with their ESG-related disclosures.

SEC first ESG-related enforcement action – In line with its announced priorities, the SEC filed a complaint on April 28, alleging that Vale, one of the largest iron ore’s producers worldwide, published false and misleading information in its sustainability report and other ESG disclosures. The Brumadinho dam had collapsed on January 25, 2019, killing 270 people and causing an environmental disaster at the Paraopeba River. Meanwhile, Vale’s ESG reports and a webinar posted on the company’s website emphasized the company’s commitment to dam safety. This case should be watched closely as it may inform on the various risks linked to ESG-related statements, including enforcement actions.

Meta expands E2EE to all its messaging apps – After commissioning BSR to conduct a thorough Human Rights Impact Assessment of a possible expansion of end-to-end encryption to Messenger and Instagram DMs, Meta is moving forward. The report, which is published in full on Meta’s website, acknowledges the positive human rights impact of end-to-end encryption and makes 45 recommendations to ensure adverse impacts linked to the expansion of E2EE are mitigated.  Significant risks identified by BSR include the inhibition of Meta’s ability to detect, remove and report child sexual abuse and exploitation, the virality of hate speech and harmful misinformation as well as digital recruiting and general use by extremist and terrorist groups. A number of BSR’s recommendations touch on the necessary strengthening of user reporting mechanisms, the efficiency of which will be key to prevent and mitigate serious human rights violations linked to the use of these end—to-end encrypted platforms.

New Duty of Vigilance action against McDonald’s in France – One French and two Brazilian workers’ unions claim that McDonald’s coffee supplier committed serious human rights and environmental violations. Mc Donald’s orange juice supplier is also targeted by the plaintiffs of labor law violations. Mc Donald’s has so far failed to publish a vigilance plan as mandated by the 2017 French law on the duty of vigilance for companies with more than 5000 employees in France or meeting other distinct thresholds. McDonald’s has 3 months to comply and publish its vigilance plan before the three workers’ unions may bring their claims before the Tribunal Judiciaire de Paris.