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.

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.

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.

• View more SPR project updates

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.

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.

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.

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.

• View all posts relating to emerging law on climate change issues

• Analyze material financial risks associated with GHG laws and regulation. This includes:
  • identification of current GHG laws and regulations in the states and countries where the companies operate (including the Regional Greenhouse Gas Initiative (RGGI);
  • discussion of expected trends in GHG laws and regulations; and
  • analysis of the material  financial impact (if any) of these laws and regulations on the company’s business.

• Analyze material financial risks from climate change litigation. This includes:
  • a description of any climate change litigation involving the company the outcome of which is likely to have a material financial effect; and
  • any climate change-related decisions issued by the Supreme Court of the United States, the US Court of Appeals or any court in any jurisdiction in which the company operates, that the company concludes are likely to have a material financial impact on the company’s business.

• Analyze material financial risks from the physical impacts of climate change. This includes material financial risks to the company arising from increases in sea level and changes in weather conditions (such as extreme weather, droughts or water shortages and changes in temperature).

• Analyze strategies to manage climate change risk and GHG emissions.  To the extent that the company’s GHG emissions (or the impacts of climate change on company operations) materially impact its financial exposure, the company is required to:
  • state its current position on climate change;
  • estimate its GHG emissions for the reporting year;
  • identify expected GHG emission from new plants that are subject to federal or state permitting;
  • include strategies to reduce its climate change risk and adapt to the physical impacts of climate change;
  • identify the results of such strategies; and
  • address the company’s corporate governance process applicable to climate change issues, including the role of the board of directors and whether officer compensation is based on meeting climate change objectives.

Only a few days after the AES settlement was announced, the NYAG joined a supplemental petition to the Securities and Exchange Commission (SEC) filed by a coalition of institutional investors, asset managers and environmental organizations renewing its call for interpretive guidance on climate risk disclosure.  The supplemental petition cites a number of new developments that make the need for national guidance on climate change risk even more compelling than it was when the coalition filed its original petition in 2007.  Those developments include:

• Increasing scientific evidence that climate change is happening at a more rapid pace than had previously been predicted;
• Current EPA regulations requiring reporting of greenhouse gas (GHG) emissions;
• The progression of proposed cap and trade legislation through Congress;
• EPA’s proposed finding that GHGs endanger human health and welfare;
• EPA’s proposed “tailoring rule” that would require GHG permitting under the Clean Air Act for large stationary sources; and
• Recent appellate court decisions recognizing standing and federal court jurisdiction over climate change claims.

In a speech before the Corporate Counsel Institute at Northwestern University School of Law on October 9, SEC Commissioner Elisse B. Walter stated:

We are taking a very serious look at our disclosure system in [the climate change] area.  Although I’ve stated publicly that we are not an agency populated with climate experts, we are taking affirmative steps to better educate ourselves.  I have recently met with a number of experts who analyze the risks and opportunities posed by climate change.  Discussions at these meetings have confirmed my belief that climate change is a very serious issue.  And I believe that it is time for us to consider issuing interpretive guidance regarding disclosure in this area.

Although Commissioner Walter was speaking for herself and not making an official pronouncement on behalf of the SEC, two working groups have been created within the SEC to study the issue.  It appears that the petition filed in 2007 seeking interpretive guidance from the SEC on climate change disclosure is receiving more favorable consideration now than was the case under the prior administration.

• See Jeff Gracer’s article, Disclosure of Climate Change Risk to Investors (pdf) for a fuller discussion of climate change disclosure issues.

One resolution, by shareholders of IDACORP—an Idaho energy company—achieved a majority vote of 51.2%.  Following the vote the company is working with a shareholder advisory group on identifying renewable energy pilot projects, and the company promised to adopt greenhouse gas reduction goals, according to the report.  The majority vote on the IDACORP resolution marked the first time such a resolution has achieved majority approval.

If the trends identified in the report continue, corporations will increasingly face pressure from shareholder resolutions to take action on the issue of global climate change.

• More detail on the report: Investors Achieve Major Company Commitments on Climate Change, Highlights from the 2009 Climate Change Proxy Season (pdf)
• Read more on the emerging law of climate change

The Fund alleges that Kerr-McGee made false and misleading statements in a public offering incident to the spin-off of Tronox Corporation (“Tronox”), which at the time of the offering was a wholly-owned subsidiary of Kerr-McGee.  (Id. at 5.)  The registration statement for Tronox stated:

As of September 30, 2005, our financial reserves for all active and inactive sites totaled $239.4 million, $160.6 million of which are classified as noncurrent liabilities.  We believe we have reserved adequately for the reasonably estimable costs of known environmental contingencies.  However, additional reserves may be required in the future due to the previously noted uncertainties.

The complaint alleges that: (1) Kerr-McGee knew these estimates materially underestimated actual environmental liability because an internal investigation had determined that Tronox’s environmental liabilities were at least $400 million and perhaps as high as $900 million; (2) Kerr-McGee purposefully chose not to reveal these estimates to investors, thereby allowing Kerr-McGee to profit significantly from Tronox’s inflated stock price; and (3)  Tronox operated as an independent company for only a short period before earnings losses due to negative environmental assessments caused stock prices to plummet.  Tronox filed for bankruptcy in January 2009.

Lawsuits of this type are likely to become more common in tough economic times, as environmental costs contribute (or are perceived to contribute) to declines in stock price.  Great care is necessary to accurately disclose environmental risks in public offerings and to make such disclosure consistent with internal assessments so that disclosure cannot be second-guessed with the benefit of 20-20 hindsight.

• Read more about issues of failure to disclose climate risk in corporate filings