This week, we wrap up our forecast of annual trends with a focus on the environmental, health and safety issues we expect many manufacturers may face this year.
1. ESG Development
Last year, we reported to the SEC proposed rule On climate disclosure. The SEC is expected to finalize this rule in 2023, perhaps as early as March. The proposed rule is partly based on existing (but not mandatory) frameworks for climate-related disclosures, such as the recommendations of the Task Force on Climate-Related Disclosures, which some manufacturers may be familiar with – but not all. The proposed rule would require disclosures related to:
- governance of climate-related risks and relevant risk management processes;
- any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements (in the short, medium and long term);
- how any identified climate-related risks have affected or are likely to affect the Registrant’s strategy, business model and approach; And
- The effect of climate-related events and transition activities on the line items of a registrant’s consolidated financial statements.
Most notably, however, covered companies will be required to report greenhouse gas emissions metrics, both generated by their own company and, for some, those generated from upstream and downstream activities in their value chain. If this requirement remains in the final rule, it would impose significant data-gathering obligations that some companies are already grappling with, despite the rule’s proposed nature.
Meanwhile, the SEC has intensified scrutiny of climate-related and environmental disclosures under its existing rules and guidance. The SEC has issued letters to registrants seeking more information on filings and has also filed lawsuits against registrants based on alleged ESG deficiencies. All signs point to increased activity in 2023.
As has consistently been the case, the European Union appears to be a few steps ahead of the United States in requiring ESG-related disclosures. As an example, in late 2022, the European Union passed the Corporate Sustainability Reporting Directive (CSRD), which will require covered companies to report on various ESG topics such as pollution and climate change. The CSRD will apply not only to companies in the EU, but also to non-EU companies that have a significant presence there (annual generation of $150 million or more). And, while companies may use foreign sustainability reporting standards as stand-ins for CSRD standards, the reporting requirements in the SEC proposed rule likely will not be sufficient.
In the midst of all these reporting obligations, government agencies and the public alike will continue to scrutinize corporate greenwashing claims. Many companies have found themselves in the crosshairs – and the dock – when they can’t back up their environmental or sustainability claims. Greenwashing claims are having real consequences on companies in the form of reputational, litigation and reporting risks. And while all of these new reporting standards aim, at least partially, to reduce greenwashing, with increasing stakeholder awareness of ESG issues, greenwashing issues are likely to remain on the minds of manufacturers for the foreseeable future. .
2. Increased OSHA Enforcement
Manufacturers can expect an increase in OSHA inspections and enforcement in 2023. One notable change was the extension of OSHA through the end of 2022. Serious Violator Enforcement Program (SVEP). Under this program, OSHA prioritizes – and publicizes – certain employers for inspection and enforcement based on criteria regarding the seriousness of their safety records. In late 2022, OSHA expands the SVEP to cover even more employers. Now, an employer may find itself on the list of serious violators if it meets at least one of the following criteria:
- A fatality or disaster inspection where OSHA finds at least one willful or repeated violation or issues a failure-to-less notice directly related to an employee’s death or three or more hospitalizations;
- an inspection where OSHA issues at least two willful or repeated violations or a failure-to-less notice based on a high-gravity serious violation; either
- Serious situations (for example, extensive infringement history, malfeasance, willful disregard for health and safety).
Employers who find themselves in SVEP will be subject to follow-up inspection at the facility in question. OSHA will also conduct inspections at relevant workplaces if it has reason to believe that there may be a widespread pattern of noncompliance.
Once an employer becomes part of the SVEP, it will remain on the list for at least three years. However, if an employer agrees to a better solution, which inter alia includes the implementation of a safety and health management system, it may be able to exit the SVEP after two years.
The expansion of the SVEP is just one way we can expect to see an increase in OSHA activity in 2023. Companies that find themselves excluded from the SVEP may also see increased oversight and more aggressive enforcement as we move into the year and beyond.
Are you tired of hearing about per- and polyfluoroalkyl substances (PFAS) yet? I hope not. The theme for PFAS in 2023 is more everything – more science, more testing, more regulation, more litigation. In transactions with the federal government, states, courts, the community and more than your counterparts. A couple of notable highlights — First, the EPA has proposed designating PFAS as a national enforcement initiative for fiscal years 2024-2027. The addition indicates that the investigation and remediation of PFAS contamination will shift the focus to holding polluters accountable as well as preventing future releases. As part of the designation, EPA will develop a policy regarding the enforcement and settlement of PFAS cases under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as Superfund.
Speaking of CERCLA, the EPA has Proposed To designate two PFAS compounds—perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS)—as hazardous substances. 2023 is the year this rule will likely become final. This designation will have a wider impact in the regulated community. First, as CERCLA hazardous substances, the government and private parties alike will have a clear path for cost recovery and other actions related to PFAS contamination. Most producers know from experience that Superfund sites usually implicate a wide variety of parties, some of whom may have contributed little to the contamination at issue. This wide net will be of particular concern for sites with PFOA and PFOS contamination, given their ubiquitous use, presence in the environment, and ability to be detected at minimal concentrations. The designation may result in reopening of investigations at Superfund sites where PFOA and PFOS may be an issue but have not yet been addressed.