October 27, 2011
In recent months, ASTM International (“ASTM”) has issued or revised key environmental standards governing the performance of and response to environmental site assessments, with potentially significant impacts for lenders, developers and owners of contaminated property.
Before contaminated property is sold or remediated, federal and state law and transactional due diligence generally require an environmental site assessment to be conducted pursuant to ASTM standards. Such assessments may be undertaken to preserve the innocent landowner, bona fide prospective purchaser, or contiguous property owner defenses to Superfund liability, which require “all appropriate inquiries” into the environmental conditions on a given site and impose “continuing obligations” to stop, prevent, or limit human exposure to hazardous substance releases.
Under EPA regulations, compliance with ASTM’s Phase I site assessment standards (E1527-05 or E2247-08) is sufficient to establish “all appropriate inquiries” for the purpose of these defenses.
After more than two years of review and deliberation, ASTM recently revised its Standard Practice for the Phase II Environmental Site Assessment Process (E1903-11). Phase II site assessment involves the sampling of soil, groundwater or other exposure pathways, typically after a Phase I reveals a likelihood of contamination. While Phase II assessments are not required under Superfund regulations, they can be useful in determining what “continuing obligations” are needed to establish landowner liability protections. Phase II assessments may also be required as part of transactional due diligence or to inform a company’s disclosure of its environmental liabilities.
Recognizing the variety of contexts in which Phase II assessments arise, the revised ASTM standards set forth an iterative process, emphasizing communication between the “user” who commissions the assessment and the “assessor” who performs it. Unlike the prior standards, the new version requires the user and assessor to agree upon a written statement of objectives that sets the scope of the investigation. These objectives are tailored to the user’s needs; they can limit the investigation to only certain parts of the Site or certain contaminants, or expand it beyond the recognized environmental conditions (“RECs”) identified in a Phase I. These objectives may be revised throughout the assessment process, as sampling increases the amount of information about environmental conditions on Site, culminating in the production of a written Phase II Report.
Last July, ASTM released a new “Standard Guide for Identifying and Complying with Continuing Obligations” (E2790-11). These standards establish a four-step process for developing and implementing a “continuing obligation plan,” which will be tailored to meet site-specific conditions. Since “continuing obligations” are broadly defined under CERCLA and its regulations, courts may look to the new ASTM standards for more specific guidance.
For more information on ASTM’s new standards and the environmental site assessment process, contact Michael Bogin or Christine Leas.
August 4, 2011
On July 29, 2011, Governor Cuomo signed a law authorizing local governments to create not-for-profit corporations to act as land banks with respect to vacant, abandoned, or tax-foreclosed property. These non-profit land banks will have the ability to sell property free and clear of prior tax liens. However, the new law does not insulate these newly created non-profits from liability for site contamination.
Newly created land banks will need to exercise caution in acquiring abandoned and foreclosed property, which are often contaminated from historic industrial activity. Such contamination may have been a factor contributing to the abandonment of the property, particularly in economically depressed areas. Federal and state laws can impose strict liability on owners of contaminated property to address the actual or potential release of hazardous substances. Although these laws provide a defense to government entities acquiring property involuntarily or through eminent domain, such defenses do not appear to be available to a land bank. Land banks would be well advised to consider this risk and to protect themselves by conducting due diligence investigations before taking title (in order to qualify for certain statutory defenses to liability) or by delaying taking title until a developer or other entity has been identified with the financial capacity and willingness to assume environment liability for past contamination.
February 16, 2011
SPR attorneys recently served as environmental counsel to Acumen Capital Partners in its acquisition of the former Pfizer manufacturing facility in Brooklyn. The plant, comprising 660,000 square feet, had been vacant since Pfizer operations ceased there in 2008. Pfizer traces its corporate origins to the neighborhood, having commenced its operations there in 1849.
Plans for the property include conversion to light industrial and commercial uses. Acumen seeks to incorporate environmental sustainability into its redevelopment projects, and is known for constructing a rooftop farm comprising 43,000 square feet on another former industrial property in Long Island City. Five acres of undeveloped property remain north of the former Pfizer plant, which Pfizer has envisioned for potential development as affordable housing.
SPR represented Acumen in evaluating the environmental aspects of the purchase of the plant. For more information contact Michael Bogin or Jeff Gracer.
October 4, 2010
Four years ago, New York’s Department of Environmental Conservation (“DEC”) and Department of Health (“DOH”) issued new guidance on soil vapor intrusion, triggering the ongoing reevaluation of over 400 contaminated sites and the reopenings of dozens for new testing or mitigation. Now, the U.S. Environmental Protection Agency (“EPA”) is taking the first steps towards revising its own vapor intrusion guidance.
On August 30, 2010, EPA’s Office of Solid Waste and Emergency Response released its Review of the Draft 2002 Subsurface Vapor Intrusion Guidance. The Review highlights areas of existing guidance that EPA plans to update or change over the next two years.
In 2002, EPA released draft guidance for detecting and responding to vapor intrusion, caused by the migration of subsurface contamination into overlying buildings. Vapor intrusion is most commonly found at sites with elevated levels of volatile organic compounds – including chlorinated solvents and gasoline – in the soil or groundwater.
In response to recent scientific developments, last year the EPA Inspector General recommended that the agency update and finalize its guidance, which remains in draft form. EPA hopes to complete that process by November 2012, with the recent Review highlighting various assumptions and methodologies that are subject to change. For instance, the agency plans to incorporate multiple lines of evidence into vapor intrusion screening determinations, expand its guidance related to non-residential and yet-to-be-constructed buildings, and provide for the collection of indoor air samples earlier in the investigation process.
As it moves forward, EPA intends to solicit public comment and hold hearings on the guidance revisions in 2011. The agency asserts it is not required to take comment on guidance documents, but often does so for higher profile issues.
Meanwhile, New York continues its process of re-evaluating contaminated sites for vapor intrusion pathways, including many properties that had previously been remediated and de-listed. Purchasers and lenders are also increasingly investigating vapor intrusion as part of their Phase 1 environmental site assessments.
Thus far, EPA has not announced plans to re-open Superfund sites to investigate vapor intrusion. Where low levels of contamination are left at a remediated site, however, the Superfund statute requires a site review every five years, at which point additional work may be needed to address vapor intrusion threats based on new guidance.
Sive, Paget & Riesel represents a number of property owners on vapor-intrusion evaluations and re-openings. For more information on this topic, please contact Christine Leas, Jeffrey Gracer or Michael Bogin.
September 8, 2010
According to an article published last week in the New York Times, major banks conducting business in the United States appear to be increasingly wary of financing mountaintop removal mining. This practice, a form of surface mining, involves the use of explosives to remove the tops of mountains to expose coal seams beneath. While viewed by industry as an efficient, legal, and relatively safe means of coal extraction, mountaintop removal mining has been sharply criticized by environmental advocates. The adverse impacts of this practice include habitat destruction and water pollution from mining overburden that is deposited in neighboring valleys. The practice is not illegal, although bills have been introduced in Congress that would effectively disallow the placement of such fill into valley streams – for example the Clean Water Protection Act and the Appalachia Restoration Act.
In recent years, as the practice has engendered more controversy, several of the nine banks known to finance companies that conduct mountaintop removal mining in Appalachia have indicated an intention to apply greater scrutiny to, and/or phase out, financing of mountaintop removal mining. However, according to a report issued jointly by the Sierra Club and the Rainforest Action Network, which ranks responsiveness to mountaintop removal mining concerns, some of the banks’ statements are vaguely worded — allowing significant leeway for continued financing of mountaintop removal mining — or do not provide for public accountability.
The substantive impact of the banks’ policy statements remains to be seen. While some may view such statements as a harbinger for the eventual demise of a “dirty” practice, mining industry representatives have told the New York Times that funding has not become problematic, and that the mining companies will not have trouble finding new lenders in the event that existing lenders sever ties.
For more information on environmental due diligence and corporate transactions, please contact Jeff Gracer.
June 8, 2010
Last week, the Environmental Defense Fund (“EDF”) and Kohlberg Kravis Roberts & Co. L.P. (“KKR”), a leading private equity firm, announced that a program to implement environmental best practices at several KKR portfolio companies yielded $160 million in savings over the past two years. KKR’s Green Portfolio Program launched in 2008 in conjunction with EDF’s Green Returns program, an initiative that aims to improve both environmental and business performance in companies owned by private equity firms.
According to EDF, the first eight KKR-owned companies to enroll in the Green Portfolio Program, which include such well-known names as Sealy and HCA, collectively avoided “over $160 million in operating costs, 345,000 metric tons of CO2 emissions, 8,500 tons of paper, and 1.2 million tons of waste.”
EDF reports that the Green Portfolio Program has expanded from its initial eight companies “to include approximately 20 percent of the companies in KKR’s global private equity portfolio.” In addition to its work with KKR, EDF has also collaborated with the Carlyle Group, another major private equity firm, to create an environmental due diligence screening tool which helps to identify opportunities for environmental improvements in prospective portfolio companies.
The recent success of the Green Portfolio Program has implications beyond the involved portfolio companies and their investors at KKR. It suggests that for any business, enlightened environmental management can improve profitability. Private equity firms, in particular, are focusing on sound environmental stewardship as an essential ingredient to the success of their portfolio companies.
For more information about environmental management strategies, contact Jeffrey Gracer.
February 5, 2010
On January 27, 2010, in response to petitions filed by institutional investors and other investor groups, the Securities and Exchange Commission (“SEC”) published an interpretive release to provide greater guidance to public companies regarding the Commission’s existing disclosure requirements as they apply to climate change matters (the “Guidance”).
The SEC’s action follows settlements entered into by the New York State Attorney General’s office with three major power companies mandating more extensive disclosure of climate change risks, and the EPA’s recently-finalized rule mandating a wide array of companies to publicly report their greenhouse gas emissions.
During comments announcing the decision, SEC Chair Mary Schapiro emphasized that the Guidance is not meant create new law, and instead is aimed at providing consistency among corporate climate change disclosures, which have been marked by significant variability in scope and content, even among companies within the same industry.
The Guidance was approved by a 3-2 vote of SEC Commissioners, divided along party lines. Dissenting Commissioners objected to the SEC using its interpretive power to address areas that are not within its competence and expertise. The Guidance also has been heavily criticized by certain Republican members of Congress.
Although the Guidance does not technically create new legal obligations, it does, in practice, advance principles that public companies must carefully consider when updating and revising their environmental disclosures. Although some critics have questioned whether the Guidance will really solve the problem of variability in climate change disclosure due to potentially different interpretations of the materiality standard, it will, at the very least, promote more careful attention to corporate disclosure of climate change issues and very likely drive companies toward more fulsome disclosure.
Many of the key principles articulated in the Guidance reiterate fundamental tenets of good corporate disclosure that the SEC has been applying for years, but when applied specifically to climate change matters, they create a formidable set of challenges for companies making disclosure decisions. For example:
- In determining whether a climate change risk is material, the company should ask whether there is a substantial likelihood that a reasonable investor would consider the information important, and resolve doubts in favor of disclosure;
- Disclosure of a known trend or uncertainty regarding climate change (such as future legislation or regulation) is required unless management determines that it is not reasonably likely to occur or is not material;
- The time horizon of an analysis underlying a disclosure may be relevant to a registrant’s assessment of whether a future trend or uncertainty is reasonably likely to occur or is material; and
- Companies should address, when material, their difficulties in assessing the effect of the amount and timing of uncertain events and provide an indication of the time periods in which resolution of the uncertainties is anticipated.
In light of these uncertainties, companies would be well advised to consider certain core issues as they relate to disclosure of the risks and effects of climate change, including the following potential concerns as they may be relevant and material to a particular company’s business:
- Companies should assess whether they have sufficient disclosure controls and procedures in place to process information pertaining to climate change disclosure;
- Because climate change is a rapidly developing area, companies should regularly assess their potential disclosure obligations in light of new developments;
- Climate change disclosure should consider the material impacts of current and reasonably anticipated future international accords, as well as federal, state, and local laws and regulations;
- Companies should consider the extent to which their plants and operations are subject to current and reasonably anticipated material physical impacts associated with climate change; and
- Companies should consider whether the indirect consequences of climate change regulation will create new material risks or opportunities that could impact their profitability.
It remains to be seen how these principles will be applied, but, taken together, they point toward increased analysis and disclosure of climate change risk by public companies.
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