Law and the Environment

El Paso Corp to Pay $15.5 Million Fine in Pipeline Explosion Case

The Houston Chronicle reports that El Paso Corp. will pay a $15.5 million fine as part of a settlement with the Department of Justice and pipeline safety regulators related to a 2000 natural gas pipeline explosion in Carlsbad, N.M., that killed 12 people.

El Paso has also committed to spend $86 million to modify the 10,000-mile pipeline system that was part of the incident.

The Houston-based company has already spent $225 million on methods to better monitor and repair internal corrosion, which investigators say was the probable cause of the accident.

President, General Counsel, and Chief Medical Officer Fined $34.5 Million in Oxycontin Drug Case

As we continue to receive requests for clients for advice on potential civil and criminal liability for officers and directors under federal and state environmental laws, we continuously review reports of the filing of cases and the settlements or plea bargains in these cases.  Althought not prosecuted under environmental laws, the guilty plea and sentencing of Purdu Pharma provides an example of the potential liability officers of companies can face under US laws.

Purdue manufacturers Oxycontin, a trade name for a long-acting form of the painkiller oxycodone, that produces a heroin-like high if ground and swallowed or snorted.  It is also highly addictive.  Many deaths have occurred from overdoses of this drug. From 1996 to 2001, the number of deaths related to oxycodone nationwide increased fivefold while the annual number of OxyContin prescriptions increased by nearly 20 times, according to a report by the Drug Enforcement Administration.

The company and its president Michael Friedman, who retired in June, its general counsel Howard Udell, and its former chief medical officer Paul Goldenheim plead guilty in May to a misdemeanor count of misbranding the drug for claiming that OxyContin was less addictive and less subject to abuse than other pain medications.

The company and the three officers were fined in total $634.5 million.  The three officers must pay $34.5 million.

The case demonstrates the potential liablity of officers in the United States for actions they take with respect to the company's operations and activities.  While not arising under environmental laws, cases like this demonstrate that participation in civil or criminal activities of a corporation may lead to significant liability.  In this case, the officers escaped any prison sentence and were only put on probation for three years.  This decision by the federal district judge was, however, highly controversial, with victims and victims relatives decrying what they believed was a very light sentence.

Climate Change Due Diligence: A New Aspect of Environmental Due Diligence?

           Now that California and six western states and ten northeastern states have passed laws and entered into regional programs to limit greenhouse gas emissions, the United States is entering a carbon-constrained economy.  Nine or more bills have been filed in Congress.  As companies enter into mergers and acquisitions, the potential costs of large carbon footprints at facilities or companies being acquired is becoming a significant concern.

            Not only the regulatory costs of potential emission reductions or offsets, but the “license to operate” may in jeopardy.  The case of TXU and it’s attempt to gain permitting for eleven coal-fired power plants demonstrates that the public and many legislators may prevent the construction of large greenhouse-gas-emitting facilities. The Wall Street Journal reports that Mirant, a utility that just emerged from bankruptcy, is facing limits on its profitability as a result of carbon regulation in the northeastern states.

            Many investment companies looking to acquire facilities in Europe are evaluating greenhouse gas emissions and the allowances and credits that have been purchased to ensure the ability to continue operating.  In the US, some companies have begun entering contracts to secure carbon credits to offset expected limits on greenhouse gas emissions.

            As we appear to be moving to increasing constraints on carbon dioxide and other greenhouse gases here, the need to begin conducting greenhouse gas evaluations and considering the ability to reduce emissions or the availability of offsets will begin to be a significant part of environmental due diligence.  It will become critical to evaluate not only compliance risks arising from carbon emissions, but also the very the value of facilities and companies being acquired.

EPA Proposes Guidance for Regulation of Nanotechnology and Nanomaterials

The US Environmental Protection Agency (EPA) recently published for public comment a draft of the long-awaited document regarding when nanoscale materials will be considered new chemical substances under the Toxic Substances Control Act (TSCA).  EPA's Nanotechnology Guidance will be published in the Federal Register as well. 

Nanotechnology has already produced significant advances in new products and holds the promise of many more innovations by developing machines or materials at the nanoscale.  However, a significant concern has been expressed by certain environmental groups, professors, and the EPA over potential new health and environmental risks from the materials produced that have new characteristics and new potential harms to people and other organisms.  Nano-size materiels, for example, may pass directly through the skin or into internal cells for example, and may cause harms not seen before.

On October 18, 2006, EPA invited stakeholders to participate in the design, development, and implementation of a Nanoscale Materials Stewardship Program (NMSP) under the Toxic Substances Control Act (TSCA). NM SP is a voluntary program intended to complement and support EPA’s new and existing chemical programs under TSCA and was designed to develop a firmer scientific foundation for regulatory decisions by encouraging the development of key scientific information and appropriate risk management practices for nanoscale chemical substances (‘‘nanoscale materials’’).

As part of this process, EPA is announcing the availability of two draft documents for public review and comment: ‘‘TSCA Inventory Status of Nanoscale Substances—General Approach’’ and ‘‘Concept Paper for the Nanoscale Materials Stewardship Program under TSCA.’’ The first document describes EPA’s current thinking regarding whether a nanoscale material is a ‘‘new’’ or ‘‘existing’’ chemical substance under TSCA. The second document describes the Agency’s general approach, issues, and considerations for NMSP and is intended to serve as a starting point for continuing work with stakeholders on the detailed design of NMSP.

EPA is seeking to address the potential risks and regulation of nanoscale materials in the context of existing statutes, rather than seeking amendments to existing laws or passage of new statutes.  The success of this program would diminish any interest of Congress in passing new laws to govern the health and safety issues that may be associated with nanotechnology.

UN Report Cites Growing Institutional Investor Consideration of Environmental and Social Responsibility Practices

Global Investors Get Serious on Environment, Social and Governance Issues

"Principles for Responsible Investment" Releases Report on Progress

(CSRwire) July 4, 2007 - Geneva, Switzerland – A comprehensive survey of the world’s largest institutional investors released today shows that the global giants of investing are now actively integrating environmental, social and governance (ESG) issues into their investment policies and engagement strategies.

Eighty-eight per cent of investment manager signatories to the Principles for Responsible Investment (PRI) are conducting at least some shareholder engagement on ESG issues, while 82% of asset owners are doing so.

"These findings demonstrate that a sea change in global investing is underway", said James Gifford, Executive Director of the PRI Initiative, which includes more than 200 institutional investors representing more than US $9 trillion in assets. "More and more mainstream investors understand that ESG issues can be material to long-term results and therefore must be factored into investment processes".

'PRI Report on Progress 2007', released today at the PRI annual event in Geneva, highlights the results of a survey carried out to mark the first anniversary of the launch of the Principles by UN Secretary-General Kofi Annan at the New York Stock Exchange in April 2006. The PRI are a set of best practice voluntary guidelines for institutional investors to assist in the integration of environmental, social and corporate governance issues into investment management and ownership practices.

While the results reveal that signatories are taking their commitments to implementing the Principles seriously – with plans to increase their level of responsible investment activity over the coming year – it also shows that there is still much to do.

Key results include:

More than half of signatories have asked investee companies for standardised environmental, social and governance (ESG) reporting, while 10% plan to start in 2007. The Carbon Disclosure Project attracted the greatest participation.

83% of investment manager signatories have specialist staff dedicated to responsible investment issues.

60% of asset owner signatories are involved in at least some form of collaborative engagement, with another 12% planning to become involved in the coming year.

66% asset owner signatories currently consider responsible investment issues to some extent in their investment manager selection processes, with another 13% planning to do so in 2007.

The goal of the survey is twofold: to provide a baseline for assessing the progress of the Initiative and to draw out best practices from leading signatories as part of the peer-learning process.

PRI Executive Director James Gifford said, "This report is ground-breaking. Never before have the responsible investment practices of institutional asset owners and managers been evaluated in such a systematic way."

PRI Chair Donald MacDonald added, "While signatories are making significant progress in implementing the Principles, we recognise that there is still a lot to be done. What is especially pleasing is that signatories are committed to increasing their responsible investment activities considerably during 2007. This year's assessment is the beginning of an ongoing annual process that will be improved over time".

PRI signatories welcome the initiative, not only as a reporting tool but also to assist in the self-assessment process. "This reporting tool will be very helpful for us as a signatory," says Nada Villermain-Lecolier, Head of Responsible Investment for Fonds de Réserve pour les Retraites (FRR) in France. "It provides a structured framework for contemplating and reporting our actions, and a mechanism for comparing our approach with that of our peers". Ms Villermain-Lecolier is a member of the PRI Assessment Group, which oversaw the development of the process.

Other significant results from the report include:

67% of asset owners and 83% of investment managers have adopted a formal policy on responsible investment – typically this is integrated within core investment policy statements. A further 15% of asset owners and 5% of investment managers plan to develop a policy in 2007.

Signatories have performed best in implementing Principle 2 (active ownership), followed by Principle 1 (integration of ESG issues into investment processes). Implementation of the other Principles is not as progressed.

80% of asset owners report that they have communicated responsible investment issues and the PRI to their beneficiaries.

More than half of asset owner signatories made some reference to PRI-related requirements in requests for proposals, with another 23% planning to add PRI-related requirements in 2007. 18% of asset owner signatories are planning to ask their service providers to sign the PRI in 2007.

The full report is available on the PRI website at: http://www.unpri.org/report07.