Rolled out in December 2015, U.S. EPA’s eDisclosure system has received mixed reviews. Although self-disclosures for “New Owners” or for criminal violations continue to be required to be submitted under the old system, most other self-disclosures must be submitted through U.S. EPA’s new eDisclosure portal. Self-disclosures made through this system are placed into one of two categories. Broadly, Category 1 disclosures are EPCRA violations that meet all of the Audit Policy or Small Business Compliance Policy conditions, while Category 2 disclosures are all other violations. For Category 1 violations, the eDisclosure system will automatically generate an “eNotice of Determination” which confirms that no penalty will be assessed conditioned on the accuracy and completeness of the eDisclosure (and assuming that the violation is corrected within the requisite 60- or 90-day time period). For Category 2 disclosures, the eDisclosure system will automatically generate an “Acknowledgement Letter” acknowledging receipt of the disclosure and notifying the entity that U.S. EPA will make a determination as to eligibility for penalty mitigation if and when it considers taking enforcement action. The self-disclosed violation must still be corrected within the requisite time frame. The new eDisclosure system did not modify any of the underlying eligibility requirements of U.S. EPA’s Audit Policy or Small Business Compliance Policy.
Although the regulated community has acknowledged that the eDisclosure system has streamlined self-disclosures, there has been some concern regarding U.S. EPA’s recent pronouncement that disclosures submitted under the new system would generally be released in response to FOIA requests, notwithstanding the potentially unresolved nature of the alleged violations. These released disclosures would then be made available on a publicly searchable FOIA website. Companies considering whether to self-report under the eDisclosure system must evaluate whether the benefits of civil penalty immunity or mitigation are outweighed by the risks of adverse publicity and/or potential citizen suit claims. System glitches such as website time-outs have also been reported and some have complained that there is inadequate space for narrative responses on the website portal. Time will tell whether the eDisclosure system accomplishes its objective of minimizing U.S. EPA resources while encouraging self-disclosure and the subsequent correction of reported violations.
On Monday, Republicans gathered in Cleveland to kick off the Republican National Convention and adopt the official 2016 platform of the Republican Party. One of the platform’s six main sections is titled “American Natural Resources: Agriculture, Energy, and the Environment.” Republicans summarize their environmental platform by stating:
“We firmly believe environmental problems are best solved by giving incentives for human ingenuity and the development of new technologies, not through top-down, command-and-control regulations that stifle economic growth and cost thousands of jobs.”
Key positions from the Republican environmental platform include:
The latest Security and Exchange Commission (SEC) disclosure effectiveness project outreach seeks input on sustainability metrics important to investor decisions. In the SEC’s 340-page Business and Financial Disclosure Required by Regulation S-K: Concept Release (Concept Release), the Commission seeks input from the public about which sustainability metrics are important to investor decisions and why companies often choose to provide sustainability information outside of their public filing. See 81 Fed. Reg. 23,916 (April 22, 2016).
Since the launch of the disclosure effectiveness project in 2013, the SEC has received numerous communications from socially responsible investor groups urging it to use the review of corporate risk disclosures to look at material environmental, social and governance (ESG) disclosures. One of the leading independent organizations that issues sustainability accounting standards, the Sustainability Accounting Standards Board (SASB), already issued extensive comments on July 1, 2016 regarding the SEC’s Concept Release.
The key comments provided to the SEC by SASB are as follows:
- Today’s reasonable investors use sustainability disclosures;
- While Regulation S-K already requires disclosure of material sustainability information, the resulting disclosures are insufficient;
- Line-item disclosure requirements are not appropriate for sustainability issues;
- To evaluate sustainability performance, an industry lens is needed;
- Effective sustainability disclosure requires a market standard; and
- The Commission should acknowledge SASB standards as an acceptable disclosure framework for use by companies preparing their SEC filings.
The Concept Release is one of several outreach efforts as part of the SEC’s disclosure effectiveness project. At the heart of the initiative is how to make increasingly lengthy, complicated financial reports more effective, understandable and user-friendly. The Concept Release reviews the Regulation S-K disclosure requirements seeking input on what should be kept, modified, eliminated, or added as well as if the current requirements provide the most efficient and effective means of disclosing this information.
As to ESG issues including sustainability considerations, the SASB comments provide a good historical overview and update on environmental disclosures and the growing trend to provide more detailed ESG and sustainability disclosures to investors and the public at large. In its comments, SASB advocates for the SEC to acknowledge its standards as an acceptable framework for companies to use in their mandatory filings to comply with Regulation S-K in a cost-effective and decision-useful manner. SASB's comments include a quote from former SEC Chair and SASB Board member Elisse Walter, noting “…Disclosure is the foundation of securities laws in the United States and many other nations, and transparency is the engine that propels our capital markets forward. But as the world continues to evolve—and its economies along with it—our disclosure requirements and reporting standards have not always kept pace.”
While the SASB framework would provide more transparency, along with much needed structure and guidance on these disclosures, it seems highly unlikely the SEC will embrace the SASB’s recommendation at this time.
Commercial Property Assessed Clean Energy (PACE) financing is an innovative program designed to incentivize commercial businesses to undertake green efforts. By utilizing PACE financing, governmental bodies encourage commercial entities to invest in improvements or technologies that will save energy, produce renewable energy, and/or, in some states, conserve water. This concept is growing in popularity because it is a creative method to efficiently and effectively provide capital for sustainability projects.
How Does Commercial PACE Financing Work?
A potential borrower interested in securing commercial PACE financing must first determine whether the state in which the project is located has passed commercial PACE financing enabling legislation and, if so, whether the applicable municipality or county has established a program for which the project qualifies. A state must pass authorizing legislation to enable a governmental entity or other inter-jurisdictional authority to form a special tax district or special assessment district to operate a commercial PACE program. This is a key feature of the PACE financing model because the model requires the imposition of assessments or special taxes against the property that benefits from such improvements.
PACE enabling legislation has already been adopted in 32 states,1 including Illinois, California, and New York, as well as the District of Columbia. Once the state legislation has been passed, a program sponsor (a state, consortium of governmental entities, or a single local governmental body) must design and implement a commercial PACE program to achieve its objectives, which may include economic and workforce development and greenhouse gas reduction targets. Accordingly, there may be numerous programs within a particular state, each with its own customized parameters. For example, in California there are 11 different commercial PACE programs2 and, as a result, PACE financing is available in most California municipalities.3
The National Toxicology Program (“NTP”) recently announced that it intends to join the crowded playing field (pun intended) of state, federal, and international agencies that are evaluating the potential human health risks associated with synthetic turf fields. Synthetic turf fields have been the subject of ongoing assessment by U.S. EPA, the Agency for Toxic Substances and Disease Registry, the Consumer Product Safety Commission, California’s Office of Environmental Health Hazard Assessment, and the European Union’s chemicals agency. However, the NTP intends to focus specifically on the tire crumb rubber used in those turf fields and to conduct short-term in vivo and in vitro toxicology studies on the crumb rubber.
As more schools and other public facilities install synthetic turf fields, the potential health effects of the infill is an issue that is attracting increased attention. The NTP believes that its proposed study will help to fill what it views to be an important data gap. Although existing health study have not identified an elevated health risk from playing on artificial turf fields, these studies have generally focused on the potential health effects of exposure to lead other materials released from the artificial grass blades and/or exposure to possible emissions associated with the turf field in its entirety. NTP and U.S. EPA have noted that there are limited studies on the effects of exposure to the tire crumb materials specifically which will be the focus of the NTP study.
Please click here to go the NTP press release concerning its study.
According to the Governance & Accountability Institute (G&A), 81% of S&P 500 Index companies published a sustainability or corporate responsibility report in 2015. The S&P Index is one of the most widely-followed barometers of the U.S. economy and conditions for large-cap public companies in the capital markets.
The G&A Institute has analyzed the index company components’ sustainability reporting activities for the past five years. There has been a rapid and significant uptake in corporate sustainability reporting among the 500 companies. Over the years, sustainability reporting rose from just 20% of the companies reporting in 2011 to 81% in 2015. According to the G&A Institute, this increased corporate reporting underscores the importance of setting strategies, measuring and managing environmental, social, and governance issues in response to growing stakeholder and shareholder expectations, and in some cases, demands for such reporting from major customers.
The growth in sustainability reporting tracked by the G&A Institute is as follows:
- In 2011, just under 20% of S&P 500 companies had reported;
- In 2012, 53% (for the first time a majority) of S&P 500 companies were reporting;
- By 2013, 72% were reporting—that is 7-out-of-10 of all companies in the popular benchmark; and
- In 2014, 75% of the S&P 500 were publishing reports.
The G&A Institute has joined forces with the Trust Across America/Trust Around the World (TAA/TAW) program to explore potential relationships of the trustworthiness of companies that do and do not report. The companies have charted and are analyzing the 99 index companies in 2015 that did not report on their sustainability opportunities, risks, strategies, actions, programs and achievements. More information about the work of the G&A Institute and this new initiative with TAA/TAW is available at http://www.ga-institute.com/.
While not yet mandatory in the U.S., sustainability and corporate social responsibility reporting is a growing trend and becoming somewhat of an expectation among the largest public and private companies. It appears that the new focus and scrutiny will not be on the companies reporting but those that have decided not to do so.
On June 22, 2016, President Obama signed the Frank R. Lautenberg Chemical Safety for the 21st Century Act (a/k/a the TSCA Reform Act) into law. The TSCA Reform Act received bipartisan support in both the House and Senate, passing both bodies by wide margins. The TSCA Reform Act is a major overhaul of the 40-year-old chemical law, which had fallen short of its goal to protect people and the environment from dangerous chemicals.
In an article posted on EPA’s blog, Administrator Gina McCarthy praised the TSCA Reform Act, stating:
The updated law gives EPA the authorities we need to protect American families from the health effects of dangerous chemicals. I welcome this bipartisan bill as a major step forward to protect Americans’ health. And at EPA, we’re excited to get to work putting it into action.
Key provisions of the TSCA Reform Act include:
As previously reported by my colleague Lynn Grayson, ExxonMobil has faced a recent onslaught of scrutiny over allegations that fossil fuel companies had committed fraud by downplaying the effect of climate change on their businesses. These matters include a subpoena issued by the U.S. Virgin Islands’ Attorney General’s office related to allegations of violating two state laws by obtaining money under false pretenses and conspiring to do so; and New York Attorney General Schneiderman’s investigation where documents have been subpoenaed to determine whether the company misled investors about the dangers climate change posed to its operations.
Two events last week suggest that this fight will not end anytime soon.
- ExxonMobil filed suit in the Northern District of Texas, seeking an injunction barring the enforcement of a civil investigative demand issued by the Massachusetts Attorney General to ExxonMobil, and a declaration that this demand violates ExxonMobil’s rights under state and federal law, including the First and Fourteenth Amendments to the Constitution, as well as the Dormant Commerce Clause.
- The Attorneys General of 13 states wrote a sharply-worded letter to their colleagues, noting that “this effort by our colleagues to police the global warming debate through the power of the subpoena is a grave mistake” and “not a question for the courts.” The letter outlines how this investigation is in fact “far from routine” because of its following three characteristics: “1) the investigation targets a particular type of market participant; 2) the Attorneys General identify themselves with the competitors of their investigative targets; and 3) the investigation implicates an ongoing public policy debate.”
We will continue to monitor developments on this heated situation.
Jenner & Block Partners E. Lynn Grayson and Gabrielle Sigel have been named “Energy & Environmental Trailblazers” by The National Law Journal. The list honors people who have “made their mark in various aspects of legal work in the areas of energy and environmental law.”
The profile of Ms. Grayson notes that she was appointed general counsel for the Illinois Emergency Services and Disaster Agency soon after the agency took over enforcement responsibility for the state’s Emergency Planning and Community Right-to-Know Act. When she moved into private practice in Chicago, she became involved in the first REIT case involving environmental issues; since moving to Jenner & Block, she has done a great deal of international due diligence. Ms. Grayson observes that the future of environmental law will involve international transactions as well as domestic work, particularly around energy and renewable energy.
The profile of Ms. Sigel notes that she focuses on the intersection of workplace health and the environment. The profile highlights one of her cases in which the water supply in retail and medical offices became contaminated, and a number of state agencies became involved. As for the future, Ms. Sigel observes that the lines between organizations will increasingly blur. “Whether it’s business, regulatory agencies, community groups or NGOs, you have to look at issues holistically, and not in a superficial way,” she says.
Late on June 7, 2016, the Senate voted in favor of the Frank R. Lautenberg Chemical Safety for the 21st Century Act (HR 2576) (a/k/a the TSCA Reform Act). The TSCA Reform Act regulates the manufacture, transportation, sale and use of thousands of chemicals, and provides a much needed update to the 40 year old Toxic Substances Control Act (TSCA). The TSCA Reform Act had been passed by the House in May, with overwhelming support. It was held up recently in the Senate by an objection from Senator Rand Paul (R-Ky.), who argued that he needed more time to review the complex new law. But, Senator Paul dropped his objection on June 7th, and a vote was quickly held.
The TSCA Reform Act is widely seen as an improvement over the outdated TSCA. The American Chemical Counsel praised the TSCA Reform Act as “truly historic”. Others, however, were disappointed that the TSCA Reform Act preempted state laws on chemical safety, instead of setting a floor and letting state’s set more stringent standards.
President Obama is expected to sign the TSCA Reform Act into law very soon, as the White House had endorsed the Act after it passed the House of Representatives in May.