Craig's Corner For Counsel: Environmental Law

Tuesday, April 1, 2008 - 00:00

As in-house attorneys know, several comprehensive federal environmental laws have been enacted since the 1960s, covering a wide range of manufacturing and commercial activities. Additionally, some states have created environmental standards that are more rigorous than federal law.

Private attorney and co-author of Environmental Liability Allocation (2007 Edition) Tom Bois counsels public corporations on environmental compliance and risk management. Before forming his own specialty practice, Tom headed the Southern California Environmental Practice Group for Sedgwick, Detert, Moran & Arnold. In addition to his work as a private practitioner and author, Tom is an adjunct professor at the University of California - Irvine and a Registered Environmental Assessor licensed by the state of California. He provides unique insight to environmental law professionals on California's Global Warming Solutions Act and how it affects individuals and businesses.

I recently caught up with Tom and asked him to share his insights on environmental law with readers of The Metropolitan Corporate Counsel.

Craig Miller: Why is it important for corporate counsel to know how environmental liability disclosure laws affect their work and their company's financial picture?

Tom Bois : The laws describe and explain the federal government's power and limitations on imposing strict liabilities upon corporations. At federal Superfund sites it may take decades to determine the cost of cleanup, and even longer to complete one. Cleanup costs range from the tens of millions to hundreds of millions of dollars.

Sarbanes-Oxley requires corporations to account for environmental changes that are "material" to the financial condition of the company. These liabilities are considered material if a prudent investor would reasonably want to know about them. Concealing them is an unlawful act.

Craig Miller: What must corporate counsel and their financial and accounting advisers do to disclose corporate environmental liabilities?

Tom Bois : Currently, corporate counsel must report how environmental liabilities and related compliance costs will affect their earnings, capital expenditures and competitive market position. They must report any material capital expenditures during the current fiscal year and future periods. Material liabilities that must be reported are potential costs - expenses or sanctions over $100,000 and emerging environmental liability trends that may materially affect current fiscal year or future earnings and profitability. Additionally, corporate counsel must accrue against current income any environmental liability that is likely to occur.

Craig Miller: How should corporate counsel and their financial counterparts make sure they are disclosing properly?

Tom Bois : It's important for corporate counsel to regularly analyze and prepare reports of actual and potential environmental liabilities facing their company. They can stay ahead by acquainting themselves with the company's (and its affiliates') current operations, and verifying the accuracy of information related to actual or contemplated environmental liabilities. Delving into past operations will allow for easier monitoring of potential environmental liabilities. Corporate counsel must assemble all contracts related to any assumed environmental liabilities. They must enlist the aid of in-house and outside legal counsel and environmental consultants to analyze environmental liabilities and related compliance costs. Thereafter, corporate counsel must develop outcome scenarios and attribute cost projections to both uncertain and likely environmental liability scenarios. "Sensitivity analysis" can be helpful when analyzing how sensitive the company would be to change in the various environmental liability outcome scenarios. Finally, corporate counsel should ensure the safekeeping of all environmental liability analysis memoranda and working papers for at least seven years.

Craig Miller: With the recent passing of California's Global Warming Solutions Act, what important things do corporate counsel need to know, and how will it affect their work and their company's financial picture?

Tom Bois: The Global Warming Solutions Act, effective Jan. 1, 2007, is perhaps the most significant environmental law passed in the last 25 years. The Federal Clean Air Act became law in 1963 and is the driving force for all air pollution regulation in the United States. It is the framework for a wide-ranging and coordinated federal/state scheme of regulations that now pervades our social order and national economy. It affects nearly every corporate and private citizen in our country. In 2006, California's governor signed a landmark bill that established the world's first comprehensive program of regulatory and market mechanisms to achieve real, quantifiable, cost-effective reductions of greenhouse gases.

Assembly Bill (AB) 32 requires the California Air Resources Board (CARB) to develop regulations and market mechanisms that will ultimately reduce California's greenhouse gas emissions by 25 percent by 2020. In the interim, CARB will begin to measure the greenhouse gas emissions of industries that are significant sources. The Global Warming Solutions Act is the only law of its kind in the world. Unless the U.S. Congress or other countries pass similar legislations, it will add significant cost to doing business in California, and puts California's businesses at a competitive disadvantage.

Thank you to Tom Bois, co-author of Environmental Liability Allocation (2007 Edition) . The book is available on west.thomson.com.