President-elect Joe Biden has promised bold action on climate change, including policy changes across federal agencies designed to achieve net-zero emissions by 2050. Recognizing that even aggressive action will only mitigate, but not halt, the physical impacts of climate change, Biden has also pledged to “build a stronger, more resilient nation,” with “infrastructure [that] can withstand the impacts of climate change.”
Much of Biden’s climate plan with respect to resiliency focuses on incentives, such as channeling federal money to initiatives that promote resiliency. He has said less about ways that his administration may seek to force existing infrastructure assets not receiving federal dollars to prevent or mitigate damage from increasingly frequent and intense wildfires, storms, and other extreme weather events.
A Sept. 28 ruling by a federal district court in Rhode Island highlights potential regulatory and enforcement tools that could complement the Biden administration’s incentive programs, as well as its stated commitment to consider climate change in permitting decisions.
Rhode Island Shell Oil Case Moves Forward
The court in Conservation Law Foundation Inc. v. Shell Oil Prods. US held that a citizen suit asserting claims under the Clean Water Act (CWA) and the Resource Conservation and Recovery Act (RCRA) could move forward, based on certain Shell Oil entities’ (Shell’s) alleged failure to prepare a terminal in Providence, R.I., for the “imminent impacts” of climate change.
The case arose in 2017, when Conservation Law Foundation (CLF) filed a citizen suit enforcement action alleging that the terminal, a 75-acre facility on the Providence River in operation since 1907, faces physical risks from increased precipitation, storm events, and coastal flooding, “all of which will become, and are becoming, worse as a result of climate change.”
CLF argued that the terminal’s location, low elevation, and lack of preventative infrastructure make it particularly vulnerable to such impacts. It also claimed that Shell violated the CWA, its Rhode Island Pollutant Discharge Elimination System (RIPDES) permit, and RCRA by failing to fortify the terminal to prevent “catastrophic discharges” of oil and other pollutants.
CLF sought civil penalties, environmental restoration, and compensatory mitigation to address alleged past violations, and declaratory and injunctive relief to prevent alleged future violations.
In 2018, Shell moved to dismiss by arguing, in part, that CLF lacked standing because the alleged injuries were “highly speculative, remote, or hypothetical” and that CLF failed to state a claim because its “failure to adapt” allegations lacked factual support.
In September, the court denied in part Shell’s motion to dismiss, holding CLF has standing because CLF’s complaint “makes clear that a major weather event, magnified by the effects of climate change, could happen at virtually any time.”
The court further held that the allegation that Shell’s failure to prepare the terminal for foreseeable weather events poses an “imminent and substantial endangerment” to human health and the environment states a RCRA claim. The court also held the allegation that Shell’s failure to account for catastrophic weather events in the Storm Water Pollution Prevention Plan (SWPPP) required under its RIPDES permit states a CWA claim.
Although the court has yet to decide the merits of the case, Conservation Law Foundation’s successful defense of Shell’s motion to dismiss suggests that companies may anticipate increased regulatory scrutiny of their climate mitigation and adaptation decisions with respect to assets that could release pollutants into the environment if compromised by extreme weather events exacerbated by climate change.
Asset owners should carefully consider the extent to which they may need to factor climate risks into the design, development, and operation of their assets in order to maintain compliance with environmental laws and permits.
Additionally, investors should take care to evaluate this aspect of compliance in due diligence. Due diligence practices with respect to physical climate risks have advanced significantly in recent years, and it is often possible to conduct diligence on key risk factors within the time frame and constraints of a typical sale process, even without involvement by or input from a target company.
Such diligence will become even more important if the Biden administration (or states) issue guidance requiring, for example, SWPPPs to address climate change risks, or pursue or support enforcement actions similar to the one being pursued by CLF, which may increase in light of the district court’s recent ruling in CLF v. Shell. Failure to anticipate and prepare for such actions could disrupt operations and invite negative press.
Worries over exactly these types of risks—enforcement, operational, and reputational—lie at the heart of growing demands for businesses to disclose pursuant to the Task Force on Climate-related Financial Disclosures(TCFD).
According to an Oct. 29 TCFD Status Report, more than 1,500 organizations have expressed support for TCFD, an increase of more than 85% since 2019, and governments have also taken an interest, most notably with the U.K. mandating TCFD-aligned disclosures by 2025.
By proactively taking steps to assess and mitigate physical climate risk, asset owners, and investors can position themselves not only to ensure compliance with environmental laws and permits, but also to demonstrate leadership consistent with political and market trends that increasingly demand climate action.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Jennie Morawetz, a partner in Kirkland’s Global Environmental Practice, provides environmental transactional, regulatory, and litigation counseling to clients across a range of industries, and also assists clients with developing and implementing environmental, social, and governance (ESG) policies and programs, including with respect to climate risk.
Alexandra Farmer, a partner in Kirkland’s Global Environmental Practice and a leader of the Firm’s Sustainable Investment & Global Impact Group, advises clients on complex strategic and evolving legal issues relating to ESG and climate-related investor demands, regulatory risks, and voluntary compliance frameworks, such as the Task Force on Climate-related Financial Disclosures.
Donna Ni, an associate in the Environmental Transactions Practice Group, conducts environmental, health, and safety and ESG due diligence in mergers and acquisitions, and supports client counseling on ESG disclosures and strategy.