This week, we wrap up our forecast of annual trends with a focus on environmental, health, and safety issues that we expect many manufacturers may face this year.
1. ESG Developments
Last year, we reported on the SEC’s Proposed Rule on Climate-Related Disclosures. The SEC is expected to finalize this rule in 2023, perhaps as early as March. The proposed rule is based in part 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 might be familiar with – but not all. The proposed rule would require disclosures related to:
- Governance of climate-related risks and relevant risk management processes;
- How 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 outlook; and
- The impact 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 those 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 will impose significant data gathering obligations that some companies are already grappling with despite the proposed nature of the rule.
Meanwhile, the SEC has stepped up scrutiny of climate-related and environmental disclosures under its existing rules and guidance. The SEC has issued letters to registrants asking for more information on filings and has even 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 seems to be a few steps ahead of the United States in requiring ESG-related disclosures. As an example, in late 2022, the EU passed the Corporate Sustainability Reporting Directive (CSRD), which will require covered companies to report on a variety of 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 with a significant presence there (annual generation of $150 million or more). And, while companies may use foreign sustainability reporting standards as a stand-in for the CSRD standards, the reporting requirements in the SEC proposed rule will not likely suffice.
In the midst of all of 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 courtroom – when they can’t back up their environmental or sustainability claims. Greenwashing claims are having real consequences on companies in the form of reputation, litigation, and reporting risk. And while all of these new reporting standards are aimed, at least in part, to curtail greenwashing, with ever-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 OSHA to increase inspections and enforcement in 2023. One noteworthy change that took place at the end of 2022 was an expansion of OSHA’s Severe Violator Enforcement Program (SVEP). Under this program, OSHA prioritizes – and publicizes – certain employers for inspections and enforcement based on criteria regarding the severity of their safety record. In late 2022, OSHA expanded the SVEP to cover even more employers. Now, an employer may find itself on the severe violators list if it meets at least one of the following criteria:
- A fatality or catastrophe inspection where OSHA finds at least one willful or repeated violation or issues a failure-to-abate notice if directly related to an employee death or three or more hospitalizations;
- An inspection where OSHA finds at least two willful or repeated violations or issues failure-to-abate notice based on a high gravity serious violation; or
- Egregious situations (e.g., extensive violation history, bad faith, intentional disregard for health and safety).
Employers that find themselves in the SVEP will be subject to follow-up inspections at the facility in question. OSHA will also conduct inspections at related worksites if it has reason to believe that there could be a broader pattern of non-compliance.
Once an employer is part of the SVEP, it will remain on the list for at least three years. However, if an employer will agree to an enhanced settlement that includes, among other things, implementation of a safety and health management system, it may be able to exit the SVEP after two years.
Expansion of the SVEP is just one way we can expect to see increased OSHA activity in 2023. Companies that find themselves outside the SVEP may also see increased inspection and more aggressive enforcement as we move through the year, and beyond.
Are you sick of hearing about per-and polyfluoroalkyl substances (PFAS) yet? I hope not. The theme for PFAS in 2023 is more everything – more science, more investigation, more regulation, more litigation. More from the federal government, the states, the courts, the community, and your counterparts in a transaction. A couple of noteworthy highlights – first, EPA proposes to designate PFAS as a national enforcement initiative for fiscal years 2024-2027. This addition signifies that there will be increased focus on holding polluters responsible for investigating and remediating PFAS contamination, as well as preventing future releases. As part of the designation, EPA would develop a policy regarding enforcement and settlement of PFAS matters under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund.
Speaking of CERCLA, 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 broad impacts across the regulated community. First, as CERCLA hazardous substances, the government and private parties alike will have a clear pathway towards cost recovery and other actions related to PFAS contamination. Most manufacturers know from experience that Superfund sites typically implicate a wide variety of parties, some of whom may have had a very minimal contribution 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 detect at miniscule concentrations. The designation may also result in the reopening of investigations at Superfund sites where PFOA and PFOS could be an issue but has not yet been addressed.