Governance & Sustainability Roundup – October 14, 2026

Welcome to our Governance & Sustainability Roundup — Our regular briefing that gives a quick overview of what has recently happened in the world of governance and sustainability that may be of interest to your company, your executive team, or your board. This is a fast-evolving space and we hope to share brief highlights with you on a regular basis.

V&E continues to monitor these developments and is happy to discuss any of these updates in more detail, so please reach out with any questions.

Key Developments You Should Know

• SEC Issues Innovation Exemption and Opens Door to US Tokenized Stock Trading
• Retail Voting Program Updates — Company Announcements and New CFIs
• Dismissal of NYC Greenwashing Suit Against Energy Companies Affirmed
• SEC Warns Investors on Climate Action 100+ and Coordinated Shareholder Engagement
• EU Publishes Final Revised European Sustainability Reporting Standards
• CFTC Scrutinizes Voluntary Carbon Credits
• EU Proposes Sustainability Rating Scheme for Data Centers

SEC Issues Innovation Exemption and Opens Door to US Tokenized Stock Trading

On September 17, 2026, the Securities and Exchange Commission (“SEC”) issued its highly anticipated “Innovation Exemption” order (the “Order”), which is now in effect and grants a five-year condition of exemptive relief to allow for the trading of tokenized U.S. listed stock on trading venues called Tokenized Securities Venues (“TSVs”). A joint venture between OKX and the New York Stock Exchange owner called OKXICE has already provided public notice pursuant to the Order that it will run a TSV. The tokenized stock traded on TSVs can be tokenized by the issuer or a third party that’s not affiliated with the issuer. Importantly, issuers can opt out of the trading on TSVs of their tokenized stock, but must do so within 30 days of receiving a TSV’s notice — more information is provided below.

The Order and its Conditions: Specifically, the Order grants exemptive relief for the trading of National Market System (“NMS”) securities (i.e., U.S. listed equities and exchange-traded products (“ETPs”)) by TSVs on automated market makers, which are blockchain-based smart contracts that establish trading terms and execute transactions against assets supplied to liquidity pools. The exemption is subject to conditions designed to protect investors and the broader market, including:

• Notice and Objection: requiring that issuers of the underlying NMS stock be given written notice and an opportunity to object within 30 days before a TSV makes available for trading issuer stock that has been tokenized by an unaffiliated third party;
• Volume and Symbol Limitations: to reduce risk to the broader market, Tier 1 stocks (S&P 500, Russell 1000 and eligible ETPs) are limited to 75 symbols and 0.25 percent of average daily volume per stock and Tier 2 stocks (all other NMS stock) are limited to 250 symbols and 2.5 percent of average daily volume per stock;
• Halt-Matching Requirements: a TSV must stop trading in a tokenized NMS security concurrently with any stoppage of trading in the underlying NMS security on the primary listing exchange, including halts and suspensions;
• Same Rights: a requirement for verification of equivalent shareholder rights (i.e., that the tokenized NMS stock gives holders the same rights and privileges as the traditional stock, including ownership interests, dividends, voting and residual liquidation rights); and
• Other Conditions: access must be permissioned, and the TSV must be a U.S. person; smart contracts must be public and auditable on a permissionless ledger; the TSV must publish a detailed notice at least 30 days before operating, post trade data within 10 minutes, and keep books and records; leverage, hypothecation and primary issuance are prohibited; the TSV may not claim SEC registration or approval.

The order is essentially a trial period: The SEC has requested comments and may modify the relief.

Opting Out. As noted above, before a TSV can trade tokenized stock created by an unaffiliated third party, it must give the issuer written notice and an opportunity to object. Issuers have 30 days from the date that they receive the notice to object before a TSV can allow for trading of the tokenized stock. Pursuant to the Order, the notice must be sent to the physical or email address for the issuer’s principal executive offices listed on the cover page of the issuer’s Exchange Act reports.

A valid objection (no reason is required) prevents the TSV from trading the tokenized NMS stock, but there is no blanket objection: Each TSV’s notice requires its own timely objection. The objection right does not reach synthetic or offshore products.

Issuer Considerations. The SEC notes that the trading of tokenized NMS securities may provide certain advantages for investors, including providing for self-custody, around-the-clock trading, fractional ownership, and near-instant settlement.

Nevertheless, the Order raises certain questions and risks for issuers. A TSV can operate 24/7 and prices for tokenized securities are set by pool ratios rather than being tied to the price on the national exchange. Prices of tokenized NMS securities therefore may diverge from exchange prices, especially outside regular U.S. trading hours or during thin liquidity. The volume and symbol caps noted above are designed to mitigate this risk but may not eliminate it. This phenomenon could create opportunities for price arbitrage or cross-market price discovery. Further, problems at a TSV could create investor relations (“IR”), reputational, or litigation concerns, even if an issuer is not responsible. It is also unclear what remedies are available if an issuer does not object within the 30-day window; how token records would be reconciled with the issuer’s shareholder register and its transfer agent’s records; and how record dates, voting, dividends and other corporate actions would be passed through to token holders.

This approach is new and largely untested and may change as the SEC receives comments; the SEC Chairman has described it as an interim measure to be followed by durable rulemaking.

What Should Issuers Do Now? With at least one TSV already coming online and indications that others may not be far behind, issuers may wish to start preparing now for a tokenized future, including:

• Confirming that the physical/email address on the cover of Exchange Act filings is accurate and actively monitored, as this is where TSVs will send their notices.
• Establishing an internal process to flag incoming notices and route them to the right people.
• Discussing these developments with IR and transfer agent personnel to understand the potential benefits and risks of permitting trading of tokenized securities.
• Discussing the issuer’s potential position on trading of its tokenized securities with senior management and the board of directors, as the 30-day objection period leaves little time to deliberate.

Retail Voting Program Updates — Company Announcements and New CFIs

On October 8, 2026, the SEC’s Division of Corporation Finance issued two new corporation finance interpretations (“CFIs,” which were formerly known as “Compliance and Disclosure Interpretations”) on retail voting programs. These programs provide retail shareholders the ability to give a company standing instructions for how to vote their shares at future meetings. Retail voting programs have been gaining momentum since the Staff’s no-action letter to Exxon Mobil Corporation in September 2025, with the Staff granting similar relief to The Goldman Sachs Group, Inc. and Tesla, Inc. late last month.

The new CFIs answer two questions that have come up as more companies consider adopting these programs. In CFI 189.01, the Staff addressed a program whose only option is a standing instruction to vote with the board’s recommendations. The Staff confirmed that a company need not add other options, such as an instruction to vote against the board. In CFI 189.02, the Staff addressed programs allowing shareholders to vote in line with a third party’s recommendations. The Staff cautioned that a company’s communications about standing instructions may be a solicitation subject to Rule 14a-9, which prohibits material misstatements and omissions. Companies offering this option should therefore consider whether shareholders will know how the program will vote their shares on each proposal, and in particular whether shareholders receive the third party’s recommendation at no cost and have sufficient time after receiving the recommendation to override the standing instruction.

Taken together, the CFIs give companies considerable latitude in designing their retail voting programs. A program that only offers board-aligned instructions remains a viable option, and companies do not need to accommodate requests from proponents, activists, or other shareholders to add alternatives. Although the Staff did not rule out third-party options, the conditions in CFI 189.02 may be difficult to achieve in practice. Companies should prepare program descriptions, enrollment materials, and related disclosure with Rule 14a-9 in mind, and companies considering a retail voting program for the 2027 proxy season should engage counsel early.

Dismissal of NYC Greenwashing Suit Against Energy Companies Affirmed

On October 8, 2026, the New York Supreme Court, Appellate Division, First Department, unanimously affirmed the dismissal of New York City’s (the “City”) lawsuit accusing several integrated oil majors of deceiving consumers about the environmental effects of their gasoline products and their alternative energy investments.

Background. The City filed suit in April 2021, three weeks after the Second Circuit affirmed the dismissal of its earlier federal suit seeking climate-related damages from major oil companies. The new case shifted the City’s strategy away from compensation for climate damages and toward the way the companies advertised their products. The City made “product greenwashing” claims, arguing that ads for the defendants’ gasoline and fuel additive products, which the City said were positioned as promoting cleaner-burning products, did not make clear that gasoline still produces greenhouse gas emissions. The City further made “corporate greenwashing” claims, alleging that the companies overstated their company-wide efforts to address climate change. The trial court dismissed the case in January 2025, finding that the challenged statements were taken out of context or were aspirational statements or puffery, and that the corporate statements were not made “in connection with the sale” of a consumer good. The claims against an energy trade association were separately dismissed for lack of personal jurisdiction.

The Decision. The five-judge panel found that the ads “make plain that the advertised products are gasolines” and claim only that they produce fewer emissions than other gasoline products. The court called these relative rather than absolute claims and compared them to “diet” soda marketing. The panel agreed that the companies’ broader corporate messaging fell outside the Consumer Protection Law because it was not directly connected to the sale of goods or services. The court also distinguished pending greenwashing cases in Connecticut, Vermont, Massachusetts, and Washington, D.C., noting that the City’s law places narrower limits on which corporate statements can be challenged.

The decision is a significant win for companies that make comparative environmental claims about their products, especially where the ads clearly describe the product and frame the benefit in relative terms. That said, the ruling is grounded in the City’s comparatively narrow statute and does not decide the merits of other climate or greenwashing suits. Companies should continue to closely scrutinize environmental claims to ensure they are accurate, properly qualified, and presented in context.

SEC Warns Investors on Climate Action 100+ and Coordinated Shareholder Engagement

On October 7, 2026, the SEC announced that it would not pursue enforcement action at this time against certain large asset managers and investors as members of Climate Action 100+ (“CA100”) in connection with the election of dissident Engine No. 1 directors to the ExxonMobil board in 2021. Nevertheless, the SEC in its Report of Investigation (the “Report”) stated that coordinated engagement practices, even when undertaken through an intermediary, may implicate the beneficial ownership reporting framework and could be a factor affecting their ability to report as passive investors.

In its Report, the SEC states that questions about whether a “group” has been formed may be raised when investors undertake concerted action through an intermediary. A “group” under Sections 13(d) and 13(g) of the Exchange Act must disclose combined beneficial ownership holdings exceeding 5 percent of an issuer’s securities. Disclaimers denying the existence of a group would not be conclusive evidence as to whether a group has been formed, and the SEC advises beneficial owners that do not wish to be part of a group to “proactively ensure policies aimed at avoiding group formation are adequately enforced.” Further, the Report notes that incidental, routine, or otherwise non-volitional conduct, including parallel actions that arise from independent decision-making, ordinary-course commercial transactions negotiated at arm’s length, or interactions that do not reflect any shared purpose in acquiring, holding, or voting securities, would not, without more, result in a finding that investors have formed a “group.”

Irrespective of group formation, the Report notes that questions could be raised concerning investors’ eligibility to report their beneficial ownership holdings on Schedule 13G and they could instead be required to report on Schedule 13D if they are members of an organization whose stated purpose is to change or influence control of a specific issuer by promoting the election of dissident directors. The Report further raises questions about eligibility when, among other factors, an investor joins an organization that engages on specific issuers and targets specific management or policy outcomes. As a reminder, an investor with control intent is generally required to file a more burdensome Schedule 13D, whereas exempt investors and investors without a control intent, including qualified institutional investors and passive investors, file on Schedule 13G.

The issuance of the Report follows other SEC efforts to discourage investors from what it views as pressuring companies to engage in certain behavior. For example, the SEC’s CFIs 103.11 and 103.12 published in 2025 generally provided that Schedule 13G may be unavailable in cases where a shareholder discusses with management its voting policy on a particular topic, describes how the issuer fails to meet the shareholder’s expectations on such topic, and, in order to apply pressure on management, states or implies during any such discussions that it will not support one or more of the issuer’s director nominees at the next director election unless management makes changes to align with the shareholder’s expectations. While the SEC recently issued new clarifying CFIs on this topic, the 2025 CFIs created uncertainty and noticeably cooled lines of communication between issuers and large asset managers and other institutional investors that historically leveraged their proxy voting power to allegedly influence issuer behavior.

While it remains to be seen how these developments may impact institutional investor behavior moving into the 2027 proxy season (if at all, given the relatively niche conduct addressed by this Report), the SEC’s report suggests that passive investors should consider the risks to their beneficial ownership reporting practices if they join or participate in sustainability organizations like CA100 or seek to influence companies on sustainability-related topics.

EU Publishes Final Revised European Sustainability Reporting Standards

The European Commission (the “Commission”) has finalized a new Voluntary Sustainability Reporting Standard (the “VS”), which is intended to give companies with fewer than 1,000 employees a proportionate, voluntary framework for organizing and communicating sustainability information. The Commission adopted the VS on July 3, 2026, alongside a separate delegated act revising the European Sustainability Reporting Standards (“ESRS”). The VS was published in the Official Journal on September 21, 2026, as Delegated Regulation (EU) 2026/1560, and entered into force on September 24, 2026. The scrutiny period ended on September 4, 2026, without objection from the European Parliament or the Council.

The VS grew out of the EU’s “Omnibus I” simplification package, which significantly reduces sustainability and due diligence reporting requirements. As part of that package, mandatory reporting under the Corporate Sustainability Reporting Directive (“CSRD”) is limited to large undertakings with more than 1,000 employees, and companies no longer in scope may report voluntarily using a Commission-adopted standard. The VS builds on the voluntary sustainability reporting standards for small and medium enterprises (“VSME”), which was developed by EFRAG and recommended by the Commission in July 2025. According to the Commission, changes to the VSME were kept to a minimum and made mainly to align it with the revised ESRS. The VS covers the same sustainability topics as the ESRS, but in a form suited to smaller companies. The revised ESRS still applies to companies within CSRD scope, and taken together, the two acts reduce total datapoints by more than 70 percent.

Separately, EFRAG has approved a draft ESRS standard for third-country groups, which the Commission expects to adopt in 2027. The Commission has asked EFRAG to update and maintain the non-mandatory guidance that accompanies the VS. EFRAG has published that guidance in English, and translations are expected starting in November 2026. For companies outside CSRD scope, the VS is optional. It does, however, give them a recognized format for answering sustainability questionnaires from customers, lenders and investors.

CFTC Scrutinizes Voluntary Carbon Credits

The Commodity Futures Trading Commission (“CFTC”) has made fraud involving carbon credits a new enforcement priority. In a September 2026 speech, CFTC Director of Enforcement David Miller said at least one investigation is already underway, and press reports describe a broad probe of the voluntary carbon credit market. As part of that probe, CFTC investigators are sending voluntary document requests about carbon projects which the agency views as potentially problematic, including those related to credits tied to plugging abandoned oil wells and anti-deforestation projects. It focuses on large U.S.-based registries, validators, certifiers and third-party ratings agencies, and the CFTC plans to seek more information through international channels. The CFTC has not publicly announced the investigation.

Under the Commodity Exchange Act, the CFTC regulates derivatives on carbon credits, including futures, options and swaps, and can police fraud and manipulation in the spot market for carbon credits. The CFTC created an Environmental Fraud Task Force in 2023 and brought its first fraud action in the voluntary carbon market in 2024. Those actions included a settlement in which project developer CQC Impact Investors agreed to pay a $1 million civil penalty and to cancel or retire credits linked to the misconduct. The CFTC has since withdrawn its guidance on listing voluntary carbon credit derivatives, though its latest moves suggest the agency is now relying on enforcement rather than guidance to oversee this market.

As scrutiny on these markets increases, companies that develop, verify, rate, trade or buy voluntary carbon credits should take steps to confirm that project data is accurate, and companies that rely on carbon credits to support climate claims should make sure those claims are backed by high-quality credits.

EU Proposes Sustainability Rating Scheme for Data Centers

On September 21, 2026, the European Commission proposed an EU-wide sustainability rating scheme for data centers, aimed at making energy and water use more transparent and allowing facilities to be compared on a common basis. The scheme would cover individual data centers with at least 500 kW of installed IT power and require disclosure of indicators including energy and water efficiency, local water stress conditions, and measures such as waste heat reuse. Under the proposal, beginning in August 2027, each data center already reporting under the EU’s existing regime would receive an automatically generated label graded A to G on two separate scales — one for energy and one for water. The labels would be issued electronically through the European database on data centers, similar to the energy efficiency labels familiar from household appliances. Smaller data centers (below 500 kW) and facilities at the design or construction stage could also participate voluntarily.

The proposal is a delegated regulation under the recast Energy Efficiency Directive (Directive (EU) 2023/1791), which already requires monitoring and reporting of data center energy performance. It builds on Delegated Regulation (EU) 2024/1364, which established the European database and the initial reporting framework, and which the Commission described as a first step toward a common rating scheme. The rating scheme forms part of a broader data center energy efficiency package that includes a strategic roadmap for digitalization and AI in the energy sector and a proposed “Cloud and AI Development Act.” The initiative comes as the EU seeks to triple its data center capacity over the next five to seven years. The European Parliament and EU Member States have two months to object to the delegated regulation.

Although the rating scheme is framed as a transparency measure, it is likely to carry commercial weight. The Commission has said it will use the ratings to assess sustainability under the proposed Cloud and AI Development Act and inform the procurement of more sustainable digital assets and services across Europe. In addition, the Commission has opened a public consultation and call for evidence, closing December 14, 2026, on minimum performance standards that would require new or retrofitted data centers to meet baseline levels for energy efficiency, water use, waste heat reuse, and grid services, with a legislative proposal expected in the second quarter of 2027. Data center operators and owners, as well as investors, cloud and AI service providers, and customers procuring data center capacity in the EU, should consider whether to take part in the minimum performance standards consultation.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.