ESG Blog

George Michael Gerstein Discusses ESG ERISA Implications on DCIIA Webinar

George Michael Gerstein, co-chair of Stradley Ronon’s fiduciary governance group and member of the ESG group, served as a panelist on the Defined Contribution Institutional Investment Association (DCIIA) webinar, “Practical Guidance for ESG Incorporation in DC Plans,” on Dec. 15.

Gerstein’s panel discussed how plan sponsors approach ESG discussions with their investment committee and plan stakeholders, the steps plans are taking to formalize their ESG criteria and how this is monitored by both the plan sponsor and their consultant, what a plan sponsor and their investment consultant need to document to show they are methodical in their consideration of the basis of the material ESG factors within their investments, the range of implementation decisions that are made and recommendations to apply when integrating ESG, and how plan changes are communicated to participants.

Gerstein advises plan sponsors and financial services firms on the fiduciary and prohibited transaction provisions of ERISA and the rules and regulations applicable to governmental plans. He’s also co-chair of the fiduciary governance and ESG groups. He’s authored numerous articles on the interplay of ERISA and ESG investing.

Webcast on December 9: Renewable Energy Technologies and U.S. Innovation

President-elect Biden’s agenda is likely to include an increased focus on tax incentives directed at investment in renewable energy resources, though gaining congressional support may pose either a challenge or an opportunity for a grand deal. President-elect Biden’s renewable energy tax policy revolves around his stated goal for the United States to achieve net-zero carbon emissions by 2050. In support of this goal, he plans to modify and extend renewable energy tax incentives in order to help achieve carbon pollution-free electricity generation by 2035. President-elect Biden’s renewable energy tax policies include restoring the solar investment tax credit and expanding tax incentives for carbon capture, storage and use. If President-elect Biden implements his policies, will they lead to enhanced U.S. innovation? If the Senate remains a Republican majority, what compromises might Republicans seek, and what roadblocks might they impose on Biden’s agenda?

Join our industry panelists to hear more about renewable energy, tax policy and the impact on America-based technologies.

When: Wednesday, December 9 from 1-2 p.m. ET

Presenters:

Andrew S. Levine, Partner and Co-Chair – Environmental, Stradley Ronon

Jason Wert, National Market Leader – Renewables, RETTEW

Andreas N. Andrews, Associate, Stradley Ronon

REGISTER

What does Joe Biden’s election mean for ESG?

By: Andreas Andrews, Sara Crovitz, Matthew DiClemente, George Gerstein, Andrew Levine and Brian Seaman

In recent years, Congress and U.S. regulators have fallen behind globally on efforts related to ESG, despite the exponential growth in and demand for ESG investing. With the election of Joe Biden, this will change. The 2020 Democratic party platform explicitly recognized that “climate change poses serious risks to the economy and the financial system,” and President-elect Joe Biden has stated that climate change will be a top priority for his administration. Social and governance issues, including addressing racial justice, also feature prominently in Biden’s plans. If the Democrats were to win the Senate, it would increase the speed and impact of this shift. Here are several changes to watch for under the new administration:

  • Biden’s climate plan includes a commitment to require public issuers to disclose climate risks and emissions data. Biden could issue an executive order directing the Securities and Exchange Commission (SEC) to engage in rulemaking to require more standardized and uniform disclosure relating to climate change. The SEC also could incorporate more standardization and uniformity with regard to other ESG factors, such as governance and diversity and inclusion.
  • The SEC also could impose additional regulation on asset managers regarding their use of and disclosure around ESG strategies to address concerns of greenwashing.
  • Recent SEC rulemaking and guidance relating to proxy voting and proxy advisory firms may be rolled back. Engagement is a key prong of an ESG strategy, and much of the recent rulemaking was seen as thwarting efforts by shareholders, including institutional investors and asset managers, to engage public issuers.
  • Legislative efforts to address systemic racism through, for example, increased training and education on diversity and inclusion topics and/or mandatory disclosure of diversity metrics and policies likely will gain steam (e.g. to increase diversity in the asset management industry). It appears certain that Trump’s executive order banning certain types of diversity and inclusion training in the federal government on what the order deemed “divisive concepts” will be rescinded.
  • The Department of Labor (DOL) recently proposed changes to the proxy voting duties imposed on ERISA fiduciaries. The DOL has yet to advance that rule. However, the DOL recently finalized a new regulation that directly affects ESG investing, which could be subject to rescission by Congress or changes by a new DOL, though neither scenario is inevitable or necessarily probable.
  • The election results may promote a shift in domestic innovation.  Biden aims to construct policies that will ensure the United States is carbon-emission free by 2035.  An implementation of renewable energy tax incentives to further such goal is part of the plan and may inspire more U.S. innovation, depending on the type of incentive (i.e., a tax credit or tax deduction) and the relative industry (e.g., real estate or power) that is the focus of the incentive. Legislative policies focused on tax incentives directed at investment in renewable energy resources face an uphill battle given the current composition of Congress, but Biden could, early in his term, issue executive orders to set aside funds for renewable energies to be built on federal lands and could prohibit oil and gas (fossil fuel) companies from renewing leases on federal land.

Advising on the Future, Today

Institutional investors, such as ERISA plans, registered investment companies, foundations and hedge funds are under increasing pressure to take ESG factors into account in their investment decision-making, proxy voting and shareholder engagement processes. Investment advisers, broker-dealers, family offices, and others are also now addressing ESG risks and opportunities with respect to their own firms in response to greater concern by clients and employees.

Operating companies are also sensitive to ESG. Whether it is pursuing renewable energy projects, managing environmental compliance, evaluating sustainable financing opportunities, shoring up their cybersecurity defenses, or embarking on diversity and inclusion initiatives, ESG is at the forefront for many operating companies across industries.

Stradley is proud to announce the new Environmental, Social & Governance Group, which offers clients a holistic approach to help them navigate this fluid landscape of legal and regulatory developments, stewardship codes, disclosure frameworks and non-governmental organization codes of conduct.

Here is a digital brochure for additional information. The ESG Group also operates this blog that covers timely developments and analysis.

Webcast Available Now – Stradley Ronon’s Diversity and Inclusion Committee Presents: A Candid Conversation with Hispanic Leaders

Stradley Ronon’s panelists of Hispanic leaders share insights into their career journeys and the challenges they’ve overcome along the way. The group discusses ways to combat discrimination and racism, and how the Hispanic community is currently underrepresented in leadership positions, especially in the legal profession.

Presenters:

Gisele Fetterman, Pennsylvania’s Second Lady
Renee Garcia, Managing Senior Counsel, PNC Bank
Sharon R. Lopez, Civil Rights Attorney, Triquetra Law
Rebecca Rodrigues, Associate, Stradley Ronon
Gabriella Leyhane, Associate, Stradley Ronon
Adriel J. Garcia, Associate, Stradley Ronon
Brian P. Seaman, Counsel and Chief Diversity Officer, Stradley Ronon

Replay

NJ Governor Signs Environmental Justice Legislation Placing New Requirements on Facilities Operating in Overburdened Communities

On September 18, 2020, Gov. Phil Murphy signed environmental justice legislation intended to address the disproportionate impacts of pollution on communities by restricting certain industrial operations from entering or expanding in those communities. The law is based on the premise that, and creates a new definition describing, certain communities are “overburdened” because they have historically been impacted, more than other communities within a geographic area, by operations that tend to generate pollution. These “Overburdened Communities” as now defined in the law, share at least one of the following characteristics:

  • at least 35% of all households are low-income households;
  • at least 40% of residents identify as minority or part of a recognized tribal community; or
  • at least 40% of households have limited proficiency with English.

The Department of Environmental Protection is charged with compiling a list of “Overburdened Communities” in the state. However, as described, the definition may be expected to encompass many, if not all, urban areas in the state where residences co-exist with industrial uses, as homes in such areas are typically the least expensive homes in an urban area to rent or own. Often, the housing stock proximate to such facilities was previously known as ‘worker housing’ and in some cases, was constructed by the owners of the industrial facilities and built either at the turn of the 20th century or during the post-World War II manufacturing boom. The current operations which are defined as “Facilities” targeted by the new law are the following: any major source of air pollution, resource recovery facilities, incinerators, sludge processing facilities or combustors, large sewage treatment plants, large transfer stations and solid waste facilities, recycling facilities receiving at least 100 tons of material per day, scrap metal facilities, landfills and some medical waste incinerators.

Under the new law, each of the above-described types of operations will be subject to additional layers of scrutiny whenever an application for a new facility permit, or an application for a major modification of an existing permit, or an application to expand operations is submitted to the Department for approval. The heightened review’s exact extent is not completely clear as the Department is required to promulgate regulations before the new review process commences. Still, there are two specific requirements of that process highlighted in the law. First, no application will be reviewed unless accompanied by an environmental justice impact statement, which does not have a specific definition in the law. That statement must include an assessment of the “potential environmental and public health stressors” that is, all sources of environmental pollution (whether avoidable or unavoidable) which may be expected to arise from the proposed operation, as well as any potential health conditions which the proposed operation may cause in the community. These conditions include asthma, cancer, elevated blood lead levels, cardiovascular disease and developmental problems. It is not known if the Department’s regulations will provide a methodology for determining, on a consistent scientific basis, reproducible evidence of connections between a Facility’s operations and adverse health impacts of nearby residents. The environmental justice impact statement must also contain a description of the environmental and public health stressors already present in the community.

Once the statement is prepared, it will be submitted to the municipality where the Facility is or will be located, and to the Department, who will post it on the Department’s website. The applicant will then hold a public hearing on the application at which the environmental justice impact statement will be presented, and comments will be solicited from the public. Following the hearing, the Department will consider the public’s testimony and determine whether there should be conditions placed on the permit being sought by the applicant in order to “avoid or reduce the adverse environmental or public health stressors affecting the overburdened community.” The law does not describe nor limit the type of conditions that the Department may impose, nor does it appear to limit the Department’s discretion to impose conditions to only address those adverse environmental or public health stressors caused by the Facility at issue.

There are several exceptions from the scope of the new law. Permit applications for remediation activities do not trigger the public hearing requirement and the possibility of additional conditions being imposed, even where minor pollution levels will be allowed to remain in the soil or groundwater. Further, certain provisions of the new law raise significant questions for regulated Facilities. It is not clear if the law’s public disclosures would constitute voluntary disclosures of violations under other state and federal laws. The enforceability of conditions imposed on industrial applicants which are based on the science underlying such a connection may be questionable. Modern science has yet to provide consistent and reproducible evidence of a direct connection between certain conditions and stressors identified in the law and potential health impacts on communities. Likewise, would meeting the conditions imposed by the Department, regardless of scientific foundation, be sufficient to protect the Facility from liability if health impacts are documented in the future? It will be necessary for the Department, charged with administering the law, to provide clarity and reasonableness when bringing the law’s admirable intent into real-world situations.