Green Building Law Update

Environmental Law and Sustainability for Business

ESG may be Fashionable in New York

Clothing is worn by almost everyone, almost all of the time. Across the globe, the $1.3 Trillion clothing industry employs more than 300 million people.

Over the last 15 years, clothing production worldwide more than doubled and during that period people bought 60% more garments than before but kept them, on average, only half as long. As described by Sofi Thanhauser in her new book, Worn, “by 2017, one garbage truck of clothes (5,787 pounds) was burned or sent to landfills every second.”

Today the clothing industry is one of the planet’s worst polluters producing 20% of global wastewater and emitting as much as 10% of carbon emissions.

Clothing is not only not good for the planet, but not for many of its people and in particular women, who make up more than 65% of the garment industry’s workforce, and often under difficult conditions in garment factories are forced to work long hours and are notoriously exploited and underpaid.

So it is not surprising that a great deal of attention is being paid to a single piece of ESG legislation in one state (.. okay, it is New York) targeting the fashion industry, and the definition of fashion under the bill includes not only wearing apparel but also shoes (.. ouch for Carrie Bradshaw). Originally introduced on October 8, 2021, if enacted the “Fashion Sustainability and Social Accountability Act” will require large fashion retail sellers and manufacturers to disclose ESG policies and more.

We rarely post about pending legislation (.. as most bills introduced go nowhere), but in a year when luxe sportswear is “out” and checkerboard everything on clothing is “in” S7428/ A8352 has significant public policy ramifications.

If enacted, every fashion retail seller and fashion manufacturer doing business in New York and having annual worldwide gross receipts that exceed $100 Million must disclose its environmental and social due diligence policies, processes and outcomes, including significant real or potential adverse environmental and social impacts and disclose targets for prevention and improvement of those adverse impacts.

The required ESG disclosure prescribed by the bill must be posted on the fashion retail seller’s or fashion manufacturer’s website with a clear and easily understood link to the required information.

That disclosure must include, at a minimum, supply chain mapping and disclosure across all tiers of production, from raw material to final production. A minimum of 50% of suppliers by volume across all tiers of production must be mapped.

The required posted ESG report must include, in line with the United Nations guiding principles on business and human rights, the International Labor Organization declaration on fundamental principles and rights at work, specific disclosures for responsible business conduct.

The requirements of the proposed law may be enforced by the attorney general, including bringing civil proceedings for an injunction or monetary damages, or may be criminally charged and fined up to 2% of annual revenues of $450 Million or more. Criminalizing the failure to make correct ESG disclosures creates a new slippery slope in New York’s ever expanding roster of what is a crime. And significantly, taking a page from the Texas abortion law style of enforcement, any citizen may commence a civil action against any person who is alleged to have violated this law.

Those monetary penalties will be deposited in a new community benefit fund established by the bill. The fund will be earmarked for environmental conservation and other environmental benefit projects that directly and verifiably benefit environmental justice communities.

And the fashion industry ills that this bill is attempting to address are growing every year, including being exacerbated by “fast fashion” with consumers buying Billions worth of cheaper clothes, produced with quicker turnaround of new styles that they throw away soon after. On the other hand, there are some small but fast evolving platforms across the U.S. that have the potential to stave off some of the harm, including the use of rental and second hand clothing that cause clothes to be worn longer. Trends like those may do more than this proposed New York law to improve the lives of people impacted by the fashion industry and be positively impactful in matters of ESG.

But this bill does provide a very good checklist for anyone contemplating ESG disclosures.

The Fashion Sustainability and Social Accountability Act will do more harm than good if enacted as proposed and is a noteworthy example of an industry specific ESG legislative act in a single jurisdiction, proposed in response to failure of businesses in that industry to act responsibly in the current Wild West of little or no ESG laws, that may well result in a hodgepodge of laws across the country (.. and the globe), that may well make ESG compliance more challenging and ultimately not be good for people or the planet.

ESG has become such a large component of my law practice that I am now collaborating with a group of daring, innovative and creative attorneys in ESG Legal Solutions, LLC, a boutique ESG driven non-law and consulting firm “powering sustainability, today, for tomorrow’s business.” Nancy Hudes and I are now publishing a blog www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from specific project implementation to fully outsourced managed services, do not hesitate to reach out to me.

FTC Regulates What You can Say about Your Solar Panels

By Stuart Kaplow on January 16, 2022 Posted in ESG, Solar Panel, Sustainability, wind turbine

A business that generates renewable energy, say, with solar panels, but sells the Renewable Energy Certificates (RECs) for that renewable energy may not then claim it “uses” renewable energy. The Federal Trade Commissions has prescribed that such would be deceptive.

That guidance from the FTC is not new, but as both onsite and offsite renewable energy has become a national holy grail, increasingly businesses are communicating to others about their green power, including as part of ESG disclosures.

Today there is a significant increased emphasis on renewable energy in company ESG disclosures about reducing the environmental and economic harms associated with fossil fuel energy and reduce greenhouse gas emissions by increasing the supply of renewable energy projects and foster a just transition to a green economy.

Businesses have choices when determining to use renewable energy. By way of example, a solar system can simply be purchased by a business and installed onsite or the solar system can be financed using a solar loan, lease, or power purchase agreement; or in the alternative green electricity generated by offsite solar panels can be purchased from an electric utility.

A Renewable Energy Certificate (REC) is a tradeable, market-based instrument that represents the legal property rights to the “renewable-ness” or all of the non-power attributes of renewable electricity generation. A REC can be sold separately from the actual electricity (kilowatt-hour, or kWh).

The REC owner has exclusive rights to make claims about “using” or “being powered with” the renewable electricity associated with that REC irrespective of who owns the solar panels. As the owner of the RECs associated with a renewable energy system’s electricity output, that owner can sell these RECs to another party, including transferring the tax incentives arising from that system. In doing so, the owner forfeits the ability to make any claims about “using” renewable energy, but generates a new revenue stream.

This guidance from the FTC may seem counterintuitive, but it is consistent with that prescript and the longstanding position of the federal government that only the party owning the renewableness may make a claim to it.

The FTC issued revised “Green Guides”, 16 CFR Part 260, in 2012 that are intended to help ensure that claims made by businesses about the environmental attributes are truthful and non-deceptive under Section 5 of the FTC Act, 15 U.S.C. 45.1. The Guides are administrative interpretations of the law. Therefore, they do not have the force and effect of law and are not independently enforceable. The FTC, however, can and has taken action under the Act if a business makes an environmental claim inconsistent with the Guides.

Among the relevant language in the Green Guides is, §260.15 Renewable energy claims,

(d) If a marketer generates renewable electricity but sells renewable energy certificates for all of that electricity, it would be deceptive for the marketer to represent, directly or by implication, that it uses renewable energy.

That express language is clear. But if there was any doubt as to what is intended that uncertainty is assuaged by the following explanatory example provided in the Green Guides,

Example: A toy manufacturer places solar panels on the roof of its plant to generate power and advertises that its plant is “100% solar-powered.” The manufacturer, however, sells renewable energy certificates based on the renewable attributes of all the power it generates. Even if the manufacturer uses the electricity generated by the solar panels, it has, by selling renewable energy certificates, transferred the right to characterize that electricity as renewable. The manufacturer’s claim is therefore deceptive. It also would be deceptive for this manufacturer to advertise that it “hosts” a renewable power facility because reasonable consumers likely interpret this claim to mean that the manufacturer uses renewable energy. It would not be deceptive, however, for the manufacturer to advertise, “We generate renewable energy, but sell all of it to others.

The environmental industrial complex regularly skirts this legal prescription. In describing the LEED renewable energy credit, a U.S. Green Building Council associated vendor claims, “the benefits of renewable energy are well understood by the general public, and so pursuing this credit can help you advertise your commitment to environmental responsibility.” That statement is problematic and any related advertisement requires caution to not run afoul of the FTC. But it is also clear that many businesses, in error, make a similar claim about “their” renewable energy despite having sold the RECs to others.

This is not simply an instance of playing dumb being “out” while faking smart is “in” but is about the FTC and state attorneys general policing environmental claims sua sponte. Moreover, there have been claims by tenants against landlords arising from green power, claims by new house purchasers against homebuilders, and the like, all that would not pass FTC muster.

This is all relevant at a time when federal renewable energy tax incentives are currently proposed to be expanded as part of the Biden Administration response to climate change concerns.

There is concern that the Green Guides not only go too far but have not kept pace with the marketplace and need to be corrected and updated where today some of the guidance results in the federal government inhibiting truthful statements in the misguided effort of the FTC Man Controlling Trade wielding prior restraint in the name of truth in advertising.

As renewable energy, including onsite solar, become more common so too will questions about what can be claimed about that green power and those solar panels.

ESG has become such a large component of my law practice that I am now collaborating with a fabulous group of attorneys in ESG Legal Solutions, LLC, a new non-law consulting firm “powering sustainability for tomorrow’s business.” Nancy Hudes and I are now publishing a blog www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from policy to project implementation, do not hesitate to reach out to me.

ESG Often Led by Renewable Energy

By Stuart Kaplow on January 9, 2022 Posted in Energy, ESG, Solar Panel

Businesses often ask about including green power in ESG efforts. We suggest rephrasing the query such that it is about using renewable energy to reduce the environmental harms associated with fossil fuel energy, reduce greenhouse gas emissions, increase the supply of renewable energy and foster a just transition to an ESG driven economy.

Businesses do not need to engage in the current political fights over what are green energy, noting that the European Union just announced on New Year’s Eve the Brussels “green taxonomy” list of what is sustainable energy including natural gas and nuclear, to the displeasure of some. As opposed to the renewable energy portfolio standards adopted for utilities in many U.S. states, which by way of example in Maryland restrict renewable fuel sources to: solar, wind, biomass, methane from a landfill or wastewater treatment plant, geothermal, ocean, fuel cell, hydroelectric, poultry litter to energy, waste to energy, and refuse derived fuel (but, not nuclear despite that in 2020, nuclear accounted for 41% of electricity generation in the State).

Additionally, the government disputes over all electric building codes (.. which strike us as a wrong headed idea, given that most electricity in the U.S. is generated from fossil fuels) are best left for elected officials and not for companies pursuing good ESG practices.

And we suggest most businesses not install their own solar panels, giving a wide berth to supply chain restrictions that have been imposed by multiple governments on labor and source of goods from the Xinjiang region of China (where more than 80% of the world’s solar panels are sourced).

While in a limited number of instances, including where local codes mandate it (.. from Baltimore City to San Francisco) on site renewable energy systems may make sense for a business, in the vast majority of situations a business is best served by procuring renewable energy from offsite sources for all or a portion of the company’s energy use. That is, there are at least 3 procurement strategies for renewable energy varying according to the source, from wind and sun (solar), water (hydropower) and plant waste (biomass), to any number and variety of alternative sources such as waste heat or geothermal: onsite renewable energy generation, newly constructed off site renewable energy, and a purchase of off site renewable energy.

EPA’s Guide to Purchasing Green Power, while a bit dated, provides good information on the process of and strategies for procuring off site renewable energy.

In a year when Trump International Hotels are “out” and Waldorf Astoria Hotels are “in” (.. yes, the flagship Manhattan location is closed for renovations) both report using offsite renewable energy sources.

There are few, if any laws or for that matter even rules in this space, but from our own proprietary ESG disclosure standard, we have specific guidelines for energy. Off site renewable electricity is that power contracted for from an existing renewable energy provider or off site renewable systems that were contracted for a business after the renewable system came online. Existing off site renewables, which may include utility green tariff programs or direct access to wholesale markets, may be more widely available depending on business location. Renewable energy generated locally, proximate to the business location, is preferable to that produced somewhere else across the nation. Renewable energy should meet or exceed 25% of total site energy use. The contract length should ideally be a minimum of 2 years. Alternatively, for most utility green tariff programs where a multi year contract is not available, a company may commit that it will continue to renew the renewable contract or engage in an alternate renewable energy contract for a total of at least 2 years.

When in a geographic area where it is available, we strongly encourage the purchase of Green-e off site renewable energy. The not for profit is a trusted independent third party verifier in clean energy certification.

According to the U.S. Department of Energy, fossil fuels remain the largest sources of energy for electricity generation, with natural gas, the largest fossil fuel source, being 40% of electricity generated in 2020. Coal was the source of about 19% of U.S. electricity generation. The diverse renewable energy sources combined to provide about that same 19% of total U.S. electricity generation in 2020. Hence there is much opportunity for renewable growth.

Many companies are seeking to include renewable electricity in their ESG efforts to reduce the environmental harms associated with fossil fuels, reduce greenhouse gas emissions concomitantly increasing the supply of renewable energy, and fostering a just transition to an ESG driven economy. Procuring renewable energy from offsite sources, often from the local electricity utility, can assist a company in upholding its basic “E” environmental responsibilities to people and planet.

ESG will be the Environmental Issue of 2022

By Stuart Kaplow on January 2, 2022 Posted in Environmental, ESG, Sustainability

ESG will be the environmental issue of the year, if not also among the biggest business issues of the year. ESG is everywhere. And yes, this is with appreciation that environmental is only the E in ESG.

This is more than a Magic 8 Ball prediction, although we do regularly consult one of the 1960s era plastic spheres I keep on my desk.

There has been an obvious if not dramatic shift in Western society’s demand for matters ESG.

While the number seems tripe, at the beginning of 2022 more than $17 trillion of U.S. assets under management are dedicated to ESG related strategies, according to the Forum for Sustainable and Responsible Investment, and that dollar amount is expected to grow at a greater velocity in 2022than the 20% last year. But even with the oversized flow of dollars into this category, this is not the key driver of ESG (.. is it likely more accurately the end in and of itself, not the means).

Still with almost no regulation, funds that elect to focus on companies’ ESG practices may have broad discretion in how they apply ESG factors to their investments. Several recent reviews showed environmental factors are weighted dramatically more heavily than social and governance.

We wrote in a recent post about the key driver in the U.S., Brand Reputation is Number One Reason Businesses Engage in ESG. Businesses reported stakeholders are concerned about climate change and social justice and in follow up questioning respondents identify the death of George Floyd and extreme weather becoming more frequent as rising to the top of recent concerns.

But there is little doubt a key catalyst for momentum in this space is the federal government. Congress is expected to act on EGS mandatory disclosures in 2022. The Department of Labor published a proposed rule in November removing barriers to the use of ESG factors, which regulation will be final in 2022. And the SEC has already issued some ESG enabling guidance, but that is anticipated to be only the first of many SEC moves to prioritize ESG in 2022.

We have previously described that 2022 will be the Paleolithic year of ESG law. Instead of the development of stone tools, we will see the development of the emergent and fast paced area of the law trying to catch up with society’s movement of ESG issues.

2022 will also see the effective date of Nasdaq’s SEC approved ESG rule on board diversity.

Stakeholders will be emboldened in 2022 when you consider upcoming annual meetings of public companies as we posted in New SEC Guidance Portends More Stockholder ESG Activism. Contrasted the subject of ESG shareholder resolutions this year with one of the earliest corporate social policy measures 50 years ago, when in 1971, only 1% of General Motors’ shareholders backed a shareholder resolution for the company to withdraw from South Africa over the country’s racist social policies.

Matters of lead in drinking water will be a distant second place environmental issue both in that it is largely a U.S. domestic matter and that the recently passed infrastructure bill contains $2.9 Billion to begin replacing lead pipes across the country (the total cost if which is estimated to approach $60 Billion).

High on the list of environmental issues should be, but will not be, is ventilation and controlling indoor air quality as major influences in the spread of Covid 19 and particularly some of the more highly transmissible variants (not to mention airborne bacteria that cause other diseases). There has been an abject failure on the part of codes officials not to mention a complete void in leadership by the green building industrial complex, all who are more concerned with the progressive issue of energy reduction than ventilation that today translates directly into human health. Unfortunately, with ventilation and controlling indoor air quality not a key environmental issue in 2022, the U.S. may see more pandemic and germ theory related issues into 2023.

Some suggest that all of this makes sense in 2022 when emerging virus variants are “out” and viruses emerging from a melting permafrost are “in.”

Business forecasting to produce strategies based on informed predictions is not for the faint of heart. Some share of the market steadfastly suggest that ESG is a black swan event, while others suggest it is a cygnet at this point, not dissimilar than the dot.com boom. And while we acknowledge ESG is new and emergent, all the hard trends point to ESG dominating as an environmental issue for business beginning in 2022 (even as Covid continues to knock down much of the marketplace).

As we wrote in a recent blog post, You can Participate in our Survey of ESG Activity in the Marketplace. We are accepting responses through January 10 and will blog about the findings shortly thereafter.

And despite that we are entering the third year of a worldwide pandemic and despite inflation in Western economies is at a thirty year high, ESG will be “the” environmental issue of 2022.

ESG has become such a large component of my law practice that I am now collaborating with a fabulous group of attorneys in ESG Legal Solutions, LLC, a new non-law consulting firm “powering sustainability for tomorrow’s business.” Nancy Hudes and I are now publishing a new blog at www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from policy to project implementation, do not hesitate to reach out to me.

ESG Accelerates Greenwashing

By Stuart Kaplow on December 19, 2021 Posted in ESG, Green Washing, Sustainability

A growing number of American businesses and consumers are looking to invest in and purchase ESG friendly companies and their products and services. Companies have responded with ESG disclosures touting the environmental and social benefits of what they’re selling.

Sidestepping for a moment those companies that set out to intentionally deceive other about their ESG bonafides, from time to time, what companies think their ESG claims mean and what others really understand are two different things. Knowledgeable sustainability attorneys can help companies avoid greenwashing including making ESG claims that mislead stakeholders and the public.

Greenwashing, which is often described as is conveying a false impression or providing misleading information about how a company’s products or services are more environmentally sound, is now a term being applied more broadly to ESG (.. yes, from environmental only to also include social and governance); and sometimes in the EU termed “sustainable washing.” Greenwashing is considered an unsubstantiated claim deceiving other businesses and consumers into believing that a company including its products and services are ESG friendly.

The term greenwashing is a play on “whitewashing,” which means attempting to conceal unpleasant or incriminating facts about something.

The compound word greenwashing was coined by Jay Westerveld in a 1986 essay responding to a card in a hotel room that read, “Save Our Planet: Every day, millions of gallons of water are used to wash towels that have only been used once. You make the choice: A towel on the rack means, I will use again ..” He noted that often little or no effort toward reducing energy waste was made by the hotel, although towel reuse saved them laundry costs. He concluded the real objective was increased profit labeling this and other profitable but ineffective environmentally conscientious acts as greenwashing.

The hotel industry’s “save the towel” campaign was of course not the first modern greenwashing. The Keep American Beautiful anti littering campaign was founded by beverage manufacturers and others in 1953, partly to forestall regulation of disposable containers.

In 1999, the word “greenwash” was added to the Oxford English Dictionary. And while today it has a broader definition including not only environmental claims but also matters of ESG.

There have been a few government actions against companies alleged to have overstated ESG investment successes and as regulators catch up there are high profile investigations taking place both in the U.S. and EU, but more significantly where in the past there might have been a single print story about a charge of greenwashing seen by Wall Street Journal subscribers alone, today, viral social media can descend upon a company and do real reputational damage with millions of views in minutes. That may be the real risk.

The difficulty in making ESG disclosures is that the emergent field of ESG is still ill defined with no widely accepted standards, it is almost entirely unregulated, and many of the matters under the large ESG umbrella are complex. Smaller businesses and even large corporations without a deep bench of internal ESG expertise need to be particularly cautious of greenwashing in ESG claims.

Just how sustainable a particular company really is can be a matter of debate. From a scientific perspective there is no such thing as a truly sustainable company, with or without evidence of a high ESG rating. No business organization will score high in every ESG factor, so a proper perspective requires a broader declaration that may include artistic and philosophical perspectives.

There is a little direction provided by the FTC’s 2012 update to its Green Guides, the most recent update of the Guides, but that document is at this point more of a historical reference; although it does valuably offer guidance on materials and energy sources that are “renewable,” and “carbon offset” claims.

However, with the expected new statutory and regulatory ESG mandates likely to be effective in 2022, will come dramatically more risk, including government enforcement and private party litigation.

With proper company wide efforts buttressed by good legal counsel companies can avoid greenwashing, mitigating risk and ensure their ESG assessments and disclosures are efficacious in doing their part to save the planet and its people.

ESG has become such a large component of my law practice that I am now collaborating with a fabulous group of attorneys in ESG Legal Solutions, LLC, a new non-law consulting firm “powering sustainability for tomorrow’s business.” Nancy Hudes and I are now publishing a new blog at www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from policy to project implementation, do not hesitate to reach out to me.

Net Zero Pledges by Businesses are Fraught with Risk

By Stuart Kaplow on December 12, 2021 Posted in ESG, LEED, Sustainability

I am excited to be presenting a one hour virtual program, “ESG an Emergent and Fast Growing Area of the Law” Not just for lawyers, this Tuesday, December 14 at noon. Register today for the live virtual program.

Calculating net zero is ill defined, unregulated and complex. Businesses making a net zero claim like, “we will be net zero by 2030” risk a charge that they are misleading consumers.

It is one thing when a political leaders in a government make an ESG claim. In 2009 the King of Bhutan proclaimed his Himalayan country was ‘carbon negative’ because all of its power was hydroelectric or solar buttressed with large forested areas. In 2017 Sweden became the first nation to enshrine a ‘net zero by 2045’ target into law, but the law actually only requires 5 year reports on progress. Just weeks ago, Saudi Arabia pledged to reach ‘net zero carbon emissions within its borders’ by 2060, but that calculation will not include oil exports (.. really?).

But it is another thing for a business to make ESG claims about net zero or otherwise that mislead customers. We caution companies not to make unqualified general environmental claims because ‘‘it is highly unlikely that marketers can substantiate all reasonable interpretations of these claims,’’ the Federal Trade Commission standard for environmental claims. Federal courts have held it is deceptive to misrepresent, directly or by implication, that a product, package, or service offers a general environmental benefit and ESG claims including of net zero can fall within that purview.

And that concern is real without delving into the science of whether net zero is actually possible? There would have to be some agreement, that does not exist today of what it means to be net zero (e.g., carbon dioxide, greenhouse gases, all emissions?). And while very low carbon emissions is possible, at some dollar cost, the absence of all quantity is not so easily if ever achieved (.. and such may be more philosophy than physics). And maybe that includes an agreement that zero is more like the historical absence in the number of columns counted by Sumerian scribes 4,000 years ago than a modern laboratory measure of non-detect?

We view our role as articulating and then mitigating for a business what is now termed “carbon asset risk” which includes a business claim of net zero.

There has been little litigation to date, but as far back as 2016 we wrote a blog post about “net zero energy” in California, False Advertising Claims over Net Zero and LEED Certified Homes. And we wrote in a blog post in 2019 about a claim some 3,000 miles away on the opposite coast in Maryland, Net Zero Lawsuit filed Against Home Builder.

The more likely and larger risk is certainly to reputation. Where in the past there might have been a single print story about a charge of greenwashing seen by Wall Street Journal subscribers alone, today, viral social media can attack a company with millions of views in hours if not minutes.

For years, in our sustainability law practice, we have assisted businesses manage carbon asset risk. Today, we are particularly cognizant of the fast evolving and changing dynamic between legal and technological factors that drive companies’ decision making processes. And it is not lost on us that calculating net zero emissions is ill defined, unregulated and complex. Done correctly our work for a client is also a defense of capitalism by limiting the need for future government regulation.

We assist businesses avoid making net zero and other ESG claims that mislead consumers, including that we often do that relying on third party verifications of claims being made. One good example of a third party verified standard for net zero is the USGBC LEED Zero program and its 4 segregated components: LEED Zero Carbon recognizes net zero carbon emissions from energy consumption; LEED Zero Energy recognizes a source energy use balance of zero; LEED Zero Water recognizes a potable water use balance of zero; and LEED Zero Waste recognizes buildings that achieve GBCI’s TRUE certification at the Platinum level.

Hundreds of companies have made net zero pledges this year, the majority of which expose those companies to unnecessary risk.

Again, we appreciate the fast evolving and changing dynamic between legal and technological factors in this space where calculating net zero is ill defined, unregulated and complex. We help businesses avoid making ESG, including net zero claims that mislead consumers.

ESG has become such a large component of my law practice that I am now collaborating with a fabulous group of attorneys in ESG Legal Solutions, LLC, a new non-law consulting firm “powering sustainability for tomorrow’s business.” Nancy Hudes and I are now publishing a new blog at www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from policy to project implementation, do not hesitate to reach out to me.

Water is the Most Important ESG Factor

By Stuart Kaplow on December 5, 2021 Posted in Environmental, ESG

I am excited to be presenting a fast paced and fun one hour virtual program, “ESG an Emergent and Fast Growing Area of the Law” for the Maryland State Bar Association, and Not just for lawyers, on December 14, 2021 at noon. Register today for the live virtual program.

Potable water use reduction may be the most important ESG factor.

It is widely accepted that a person can only survive without water for 3 days. But more than a Billion people lack daily access to water. And more than 2.7 Billion people across the globe find water scarce for at least 30 days a year.

Freshwater scarcity is only getting worse; fighting for access to potable water is not new. In the Old Testament when Isaac attempts to dig anew his father’s wells the shepherds of the wadi Gerar, claim, “the water is ours” forcing the patriarch to move on to dig a well elsewhere.

And while the right to water is today a momentous global problem, it is also a serious dilemma in the United States. Just last week a unanimous U.S. Supreme Court squarely rejected Mississippi’s claim that Tennessee’s wells are stealing Mississippi’s ground water. The November 22 opinion in Mississippi v. Tennessee by Chief Justice Roberts determined that the water in the massive Middle Claiborne Aquifer, lying beneath 6 states, is subject to equitable apportionment, in the way the court controls surface water and water in rivers. Appreciate that the City of Memphis’ wells pump 120 Million gallons of groundwater from that aquifer each day, which Mississippi articulated as, “pumping has taken hundreds of billions of gallons of water that were once located beneath Mississippi.” As weather induced droughts in the U.S. make interstate groundwater disputes increasingly likely in the coming years there are real implications for our future.

And just last Wednesday the California Department of Water Resources announced for the first time it is not going to allocate any water next year to local water districts. The most the state had previously cut back its water allocations was by 5%. This looming water curb and excessively severe public policy (.. in a state where the majority of rain in cities and towns flows into storm drains dumping into the Pacific Ocean), including a draft emergency regulation that among other things makes washing a car without a shut-off nozzle punishable by a fine.

Historically water was free many places for households in the U.S. New York City only began installing water meters in the 1980s. Today the average residential water bill in New York is $994 a year. And across the country when people cannot pay their water bills, water utilities shut off their water. Even more draconian, in some jurisdictions liens are placed against resident’s homes and then that home is sold at tax sale (for failure to pay a water bill).

But there is a growing chorus across the U.S. to mimic the U.N. resolution explicitly recognizing that clean drinking water is essential to the realization of all human rights. “The human right to water is indispensable for leading a life in human dignity. It is a prerequisite for the realization of other human rights.” The U.N. General Assembly went on to define the right to water as the right of everyone to sufficient, safe, acceptable and physically accessible and affordable water for personal and domestic uses.

It is necessary to appreciate the context. People living in the slums of Jakarta, Manila and Nairobi pay 10 times more for water than consumers in New York.

A company’s ESG role starts with its value system and a principles based approach to doing business. This means operating in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights and the environment. By incorporating good practices into strategies, policies and procedures, and establishing a culture of integrity, companies are not only upholding their basic ESG responsibilities, but also setting the stage for long-term success.

Business can in nearly all instances reduce indoor and outdoor potable water consumption (by more than 10% at very little or no cost, it is a requirement of green building systems) preserving no and low cost potable water resources and upholding their basic (“E”) environmental responsibilities to people and planet. Potable water use reduction may be the most important ESG factor.

ESG has become such a large component of my law practice that I am now collaborating with a fabulous group of attorneys in ESG Legal Solutions, LLC, a new non-law consulting firm “powering sustainability for tomorrow’s business.” Nancy Hudes and I are now publishing a new blog at www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from policy to project implementation, do not hesitate to reach out to me.

You can Participate in our Survey of ESG Activity in the Marketplace

By Stuart Kaplow on November 28, 2021 Posted in Environmental, ESG

We are currently undertaking a survey to assess and gauge ESG activity in the marketplace.

The use of ESG factors to evaluate companies are the cause celebre and all but exploding on the scene. With the fervor building and with the ESG umbrella covering such a broad spectrum of subjects, our goal with this survey is modest in seeking a report on current business perceptions on matters of ESG such that our clients and friends can use the results as they make their company plans for ESG in 2022.

ESG is such a new space that there are few authoritative sources of information, including that with no scholarly treatises and few if any peer reviewed published papers, blogs like this one are the best source of reliable information. Concomitantly, readers of this blog are a target rich environment for current business ESG activity and a group who is ripe for surveying.

The survey is not a truly scientific survey in that, after piloting a questionnaire, we have curated the survey methodology, sample design, and data collection with the aim of providing essential benchmarks that will on a timely basis offer predictive accuracy, in the emergent and fast growing space of ESG, on how a company can move forward.

The survey is currently in the field and we thought you would be interested in what we are asking:

Are you witnessing an increased demand, in the last 12 months, on your company to report ESG data?
Where are your company’s ESG priorities today? [environment, social, governance]
Does your company have a formal ESG program?
Do you have confidence that your company’s ESG program is sufficiently robust? [highly confident, moderately, minimally, not at all]
Does your company consider ESG metrics in executive compensation?
Do you believe companies will achieve their stated ESG commitments?
Do you believe companies frequently overstate or exaggerate their ESG progress when disclosing data?
Do you believe companies will face increasing litigation as a result of not achieving their stated ESG commitments?
Are you concerned about the potential impact ESG matters may have on the brand perception or brand value?
Are you concerned about financial penalties resulting from non-compliance with ESG regulatory requirements?
Do you expect most companies will establish and communicate a net-zero plan in the next 12 months?
Do you expect investors will reward companies that have communicated a net-zero plans with a premium?
Do you believe there will be mandatory ESG disclosures and more ESG regulation within the next 12 months?
Do you favor of mandatory ESG disclosures and more ESG regulation within the next 12 months?
Do you believe law firms should be doing more to support companies with ESG matters?
Does the law firm your company uses offer ESG capabilities to its clients?
Does your company engage outside consultants for compliance with ESG matters?

If you have not received our survey and would like to participate, a modified version is available for readers of this blog and we encourage you to click on https://www.surveymonkey.com/r/6BHDRT3

Note, in an effort to keep true to our sample design while allowing all who are interested to participate, this version asks 10 questions of key import and does not require you identify yourself or provide demographic information.

We expect our data collection will be complete within the next month and we plant to report shortly thereafter. We have committed to provide the survey results to clients and friends who have participated first and then the data will be the subject of an upcoming blog post.

ESG has become such a large component of my law practice that I am now collaborating with a fabulous group of attorneys in ESG Legal Solutions, LLC, a new non-law consulting firm “powering sustainability for tomorrow’s business.” Nancy Hudes and I are now publishing a new blog at www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from policy to project implementation, do not hesitate to reach out to me.

Updated Phase l Environmental Site Assessment is Published But ..

By Stuart Kaplow on November 21, 2021 Posted in Environmental, ESG

I am excited to be presenting a fast paced and fun one hour virtual program, “Environmental Social Governance (ESG) an Emergent and Fast Growing Area of the Law” for the Maryland State Bar Association, and Not just for lawyers, on December 14, 2021 at noon. Register today for the live virtual program.

On November 1, ASTM International revised its Phase l Environmental Site Assessment standard.

Phase l Environmental Site Assessment Standard E1527-13 sunset eight years from its approval on November 6, 2013 and the new E1527-21 was as of last week published and now available for use, but ..

For the unenlightened, this is hugely significant because a Phase l Environmental Site Assessment is conducted in the vast majority of the 5.6 million commercial real estate transactions in the United States each year, and also because Phase l reports are used for a wide variety of other purposes, including as ESG data for a company to demonstrate third party verified compliance with the E in ESG, environmental laws, and also to qualify for credits under the LEED and Green Globes green building rating systems.”

The stated purpose of the ASTM Standard E1527-21 Phase I Environmental Site Assessment process is “to define good commercial and customary practice in the United States of America for conducting an environmental site assessment of a parcel of commercial real estate with respect to the range of contaminants within the scope of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) (42 U.S.C. §9601) and petroleum products.”

But importantly, the new ASTM E1527-21 is Not yet recognized by the U.S. Environmental Protection Agency as satisfying its All Appropriate Inquiry rule to obtain protections from liability under CERCLA, the federal Superfund law, something that is expected to happen by rulemaking at some point in 2022. Some consultants are already advertising they will use the new standard, but such is premature because the new standard does not currently meet the requirements to obtain protections from liability under CERCLA, and that will only happen in the future after EPA approval. Just weeks ago the federal appeals court in Von Duprin LLC v. Major Holdings, LLC, held a party could not assert a CERCLA defense because its Phase l report did not comply with the EPA rule.

ASTM first published a standard for Phase I Environmental Site Assessments in 1993, with revisions in 1994, 1997, 2000, 2005, and 2013, so that the standard has again been revised is not surprising, but some of the changes warrant heightened scrutiny.

Among the changes, the new ASTM E1527-21 includes:

What is characterized as one of several “terminology revisions,” the change to the definition of Recognized Environmental Condition (REC), is a modification to ‘the three scariest words in real estate’ and may going forward negatively impact the value of hundreds of millions of dollars of real estate each year. Guidance is provided in the Standard that, for example, the past closure of a leaking underground storage tank may not constitute an Historical Recognized Environmental Condition (HREC) unless the environmental professional conducting the Phase l has evaluated the data associated with that closed tank to be sure that the sampling data meets current regulatory standards for unrestricted use and whether there is an open vapor exposure pathway. Some believe this tying of the consideration to “current” standards, as opposed to the regulator determination at the time the tank was closed, creates a Faustian bargain for the environmental professional, and will greatly limit the supremely valuable designation of HRECS.

I blogged some months ago, PFAS in a Phase l Environmental Site Assessment, and concluded, as does this new Standard, that because PFAS is not a CERCLA nor a RCRA listed hazardous substance, it should not be identified in a Phase l report. It is a non-scope matter. This revised Standard adds PFAS and other emerging contaminants to the list of non-scope matters that a user may want to evaluate as a business risk, as is done from time to time with asbestos and mold, including as may be impacted by a particular state law.

There has also been a terminology revision of what is a Controlled Recognized Environmental Condition (a CREC). There is no doubt that the uninitiated have been confused that a CREC is a subset of a REC, and stray close to the category of HRECs, which are not RECs. CRECs arise from a past release of a hazardous substance that has been addressed to the satisfaction of regulators, but carry some implementation of controls, like a drinking water restriction. This new text is supported by a new appendix that provides guidance on the REC/HERC/CERC decision process, including a flow chart, and examples of each.

Arguably, the change to the Standard that will substantively impact the most properties is the expansion of mandated historical research into the uses of adjoining properties. Liability from old dry cleaners in retail sites that are beyond the boundaries of the “subject property” (.. a term also now expressly defined) drove the ASTM committee to broaden the mandatory scope. While many consultants already considered prior retail uses, including on adjoining sites, adding certainty will result in consistency, but also increase the costs for a 2021 version Phase I Environmental Site Assessment.

The change to the shelf life of a Phase l report is of import when currently a report is presumed current when signed and dated as completed and more than 180 days prior to acquisition of a property which may be updated to be valid for up to a year, but what is proposed is 180 days from the day work commences on the Phase l even if that is simply a request for governmental records on a property. It is not clear how this back dating of a dated report is advantageous (to anyone other than environmental professionals who will now have to prepare more reports)?

The number one take away from the November 1 approval of the new ASTM E1527-21 is that it is Not yet recognized by EPA and as such does not satisfy EPA’s All Appropriate Inquiry rule to obtain protections from liability under CERCLA, nor is EPA approval expected anytime soon; so it is premature to use the new standard in commercial real estate transactions, although it is likely a good idea for purchasers of land, landlords and tenants, their lenders, lawyers and others to become familiar with the not yet efficacious standard.

All of that said the new ASTM E1527-21, as well as any Phase I Environmental Site Assessment report prepared under a prior standard when the company acquired real estate, are today, good ESG data for a company to demonstrate third party verified compliance with the E in ESG. Because many companies already have in their files a report prepared in advance of their acquisition of real estate, this ESG data is not only readily available but at nearly no cost. And those may be good for a host of other purposes, including to qualify for credits under the LEED and Green Globes green building rating systems.

A year ago August, I blogged, I just read my 1000th Phase l Environmental Site Assessment this year, and we readily passed that mark this year, so we will not only be monitoring EPA review and approval of the revisions before adopting new ASTM E1527-21 for our own purposes, and report on any EPA regulatory action it a future blog post.

ESG has become such a large component of my law practice that I am now collaborating with a fabulous group of attorneys in ESG Legal Solutions, LLC, a new non-law consulting firm “powering sustainability for tomorrow’s business.” Nancy Hudes and I are now publishing a new blog at www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from policy to project implementation, do not hesitate to reach out to me.