Energy & Environment
Plastics and Advanced Recycling: Legislation to Watch in 2024
February 20, 2024 | Matt Crawley
January 17, 2024 | Townsend Brown
The term ESG (which stands for environmental, social, governance), in all of its various meanings and applications, has cemented itself as a premier issue for state and federal lawmakers alike. There are two main types of ESG legislation: those related to financial investments and business decisions, and mandates surrounding corporate disclosures and transparency around issues like corporate greenhouse gas emissions, workforce diversity, gender equality, fair pay, and ethical supply chains.
In 2023, lawmakers in 46 states introduced bills related to ESG investments in 2023, with Republican lawmakers pushing back against progressive ESG policies with their own brand of “anti-ESG” regulations. A close inspection of bills shows that Republican states have had much more success in actually enacting anti-ESG legislation than Democratic states have in enacting traditional ESG legislation in 2023. Examples include Florida law (FL HB 3) which requires the state’s Chief Financial Officer to make investment decisions based solely on pecuniary factors and disallows the consideration of any social, political, or ideological interests when making investment decisions. Similar anti-ESG bills were also passed in Alabama, Arkansas, Indiana, Kansas, Missouri, Montana, North Carolina, New Hampshire, Texas, and Utah.
On the opposite side of the issue, lawmakers in Illinois were successful in passing one of the most impactful ESG investing bills to date. The new law (IL HB 2782) establishes that every investment manager who manages public funds in the state (including pensions) must comply with new disclosure rules that require the investment manager to prudently integrate sustainability factors into their investment decision-making, investment analysis, portfolio construction, due diligence, and investment ownership.
Progressive lawmakers have been successful in enacting some of their key ESG disclosure policies. Lawmakers in California successfully enacted three priority bills related to corporate emissions by the end of 2023. One of those bills is a monumental piece of legislation known as the Climate Corporate Data Accountability Act (CA SB 253). The bill was officially signed into law by Governor Newsom in October of last year. The new law will require large corporations and other businesses with over $1 billion in annual revenue to provide public disclosure of corporate emissions data on an emissions registry website. The disclosure must include comprehensive data related to a company’s scope 1, 2, and 3 greenhouse gas emissions and would apply to both public and private companies (here is an explanation of scope 1, 2, and 3 emissions). SB 253 requires covered entities to publicly disclose their scope 1 and scope 2 greenhouse gas emissions starting in 2026, and their scope 3 greenhouse gas emissions starting in 2027.
California’s Climate Corporate Data Accountability Act differs from the federally proposed U.S. Securities and Exchange Commission (SEC) climate rules which would only apply to a company's scope 1 and 2 emissions, not the more difficult-to-track scope 3 emissions that will be required under California’s law. The SEC rule would also only apply to publicly traded companies. There is an assumption that the new California rule will be challenged in court. There is also the possibility that the California legislature in 2024 works to amend the language of the bill in order to push back the implementation timeline or make other changes after Governor Newsom expressed concerns about the bill after signing.
In addition to the Climate Data Accountability Act, California also passed the Climate Related Financial Risk Act (CA SB 261( and the Voluntary Carbon Market Disclosures Business Regulation Act (CA AB 1305). For SB 261, the new law requires US entities that do business in California, with total annual revenue of at least $500M, to prepare and submit climate-related financial reports as outlined by the legislation. AB 1305 is a broad bill that, among other things, places disclosure obligations on companies making net zero emissions claims at the enterprise of product level. Detailed information on all three climate-related bills in California can be viewed here.
While the three new laws in California represent a huge win for environmental activists, other states have had a harder time passing new corporate disclosure rules. Legislation in New York and Washington were (again) unsuccessful in moving what is known as the New York Fashion Act. If enacted in 2024, the bill would require fashion sellers and fashion manufacturers to effectively carry out human rights and environmental due diligence for the portions of their business related to wearing apparel or footwear. The bill would have also required companies to map out their entire supply chain and include disclosure for all four tiers of production.
The 2024 state sessions will play out in the background of what is likely to be a hotly contested and politically volatile presidential election. We should expect the political rhetoric at the federal level to have some effect on the politics at the state level. Knowing this, we should expect to see another year with a large volume of pro- and anti-ESG legislation introduced throughout the country. Additionally, we should expect to see a plethora of legislation in the states aimed to restrict or prohibit both financial investments and business supply chain operations within certain foreign countries. There will be an increase in legislation directed at foreign adversaries like Iran, China, Russia, Lebanon, and more.
Another important development within the ESG space in 2024 will be the release of the SEC’s finalized climate change disclosure rule. As a result of the released SEC rule, we may see Republican-controlled states introduce legislation to contradict the federal rule. On the flip side, Democratic-controlled states will likely propose legislation that goes beyond the requirements of the SEC rule, as we have already seen in California. A bill similar to California’s The Climate Corporate Data Accountability Act was also introduced in New York (NY SB 897). It remains to be seen how the SEC rule will interact with state laws, or if California even has the legal authority to mandate corporate data from states outside of their own. With that being said, the idea that large corporations will need to be transparent about their greenhouse gas emissions and environmental pollution is not a progressive policy likely to fade away anytime soon.
Finally, watch out for pioneering states with Democratic trifectas to be the most likely states to actually enact novel ESG legislation next year. States like California, Colorado, Washington, New York, Minnesota, and Massachusetts represent some of the most likely candidates to implement new ESG rules related to both financial investments and mandated corporate disclosures.
MultiState’s team is actively identifying and tracking this issue so that businesses and organizations have the information they need to navigate and effectively engage with the emerging laws and regulations addressing ESG. If your organization would like to further track this or other related issues, please contact us.
February 20, 2024 | Matt Crawley
January 24, 2024 | Ben Fallick
November 1, 2023 | Matt Crawley