environment

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By Paul Davies, Richard Butterwick, Terry Charalambous, and Catherine Campbell

In recent years, China has taken significant steps in developing its environmental policy. In 2014, China’s Premier Li Keqiang declared a “war on pollution”, which began in earnest in 2017. Since then, regulators have been more proactive in enforcing environmental regulations. Factory closures have become a key part of this strategy, causing significant disruption to the global supply chain this year.

In our view, M&A dealmakers and corporates should carefully consider environmental and supply chain due diligence in China, as companies work out how to navigate the factory shutdown process. Corporates should, as part of their environmental, social, and governance (ESG) strategy, review whether their group entities and target companies are likely to be affected in the event that critical supply chains are broken. Engagement with environmental agencies in China is useful, but environmental policy and consistent regulatory enforcement are still maturing. The appropriate level of due diligence could prove to be critical to a company’s ongoing operations.

By Paul Davies and Catherine Campbell

Click for larger image.

In recent years, China has taken significant steps in developing its environmental policy. In 2014 China’s Premier Li Keqiang declared a “war on pollution”, which began in earnest in 2017. Since then, regulators have been more proactive in enforcing environmental regulations. Factory closures have become a key part of this strategy, causing significant disruption to the global supply chain this year.

In our view, dealmakers should carefully consider environmental and supply chain due diligence in China, as companies work out how to navigate the factory shutdown process. PE firms should review whether portfolio investments and target companies are likely to be affected in the event that critical supply chains are broken. Engagement with environmental agencies in China is useful, but environmental policy and consistent regulatory enforcement are still maturing. The appropriate level of due diligence could prove to be critical to a portfolio company’s ongoing operations.

Landmark ruling requires the European Commission to disclose impact assessments used as a basis for its legislative decision-making process.

By Antonio Morales and Rosa Espín

The Grand Chamber of the Court of Justice of the European Union recently issued a landmark judgment finding that impact assessments should be considered public documents. This decision sets a legal precedent in connection with the transparency, accountability, and decision-making processes of European institutions.

Case Background

A non-profit organization active in the field of environment protection had sought to access two impact assessment reports, which had played an influential role in the proposals of certain environmental laws.

By Beatrice Lo and Heeran Caselton

The Expert Finance Working Group on Small Nuclear Reactors (EFWG), an independent group convened in January 2018 by the Department for Business, Energy & Industrial Strategy, recently published its report with recommendations for a market framework to enable the development of small nuclear projects in the UK with private financing and investment. The report follows the publication of the UK government’s Nuclear Sector Deal (see Latham’s related blog post).

The EFWG report considered small nuclear projects ranging from micro-generation projects through to 600 MW reactors. In contrast to “megaprojects”, such as Hinkley Point C, which is estimated to cost almost £20 billion, the costs of small nuclear projects typically range from £100 million to £2.5 billion. Small nuclear projects can benefit from lower capital costs and quicker build times through modular construction and factory build (as opposed to on-site build) and are generally less complex than a GW nuclear project. These factors render a number of the risks more manageable, and the lower costs involved make the investment required for a small nuclear project within the range of a greater number of market participants (compared to larger projects).

Although the EFWG report focuses on small-scale nuclear new build projects, a number of the considerations and proposals may also be relevant for conventional large-scale nuclear power projects.

By Beatrice Lo and Heeran Caselton

The UK government recently published its Nuclear Sector Deal (Sector Deal) as part of the UK’s modern industrial strategy. Recognising the sector’s strategic importance in delivering future energy security, the Sector Deal reconfirmed the government’s commitment to upgrading the UK’s nuclear infrastructure and support for new build nuclear projects.

Amongst a number of other policy initiatives, the Sector Deal includes:

  • Industry action to reduce the cost of new build nuclear projects by 30% by 2030.
  • Targeted cost savings of 20% by 2030 for the decommissioning of old nuclear sites.
  • Up to £56 million in funding for R&D in advanced modular reactors and support for the development of small modular reactors. Furthermore, the industry awaits the Expert Finance Working Group’s findings on financing models for small reactors, which is scheduled for this summer.
  • The government will keep under consideration a range of financing options for new nuclear projects, including a direct equity stake in Wylfa and assessing use of a regulated asset base financing model.

By Paul Davies, Bridget Reineking, and Andrew Westgate

China, the world’s largest producer and consumer of pesticides, is strengthening its regulation of agrochemicals. The Ministry of Agriculture (MOA) recently issued revisions to the country’s pesticide registration requirements, which officially came into effect on November 1, 2017. Pesticide use in China accounts for over one-third of total world pesticide usage, so the new rules will affect a significant number of national and multinational entities and a large percentage of the country’s population.

The MOA issued the revisions pursuant to the new Regulation on Pesticide Administration (RPA) and Pesticide Registration Management Measures (MOA Order No. 3, 2017). The new rules, entitled “Data Requirements on Pesticide Registration” (MOA Proclamation No. 2569), require all pesticide chemistry and toxicology tests required under the RPA to be conducted by laboratories located in China, or overseas laboratories possessing a mutual recognition agreement with China. The new rules do not offer much granular detail with respect to how laboratories would obtain such recognition or the applicable requirements — for example, the rules do not indicate whether application data prepared in a foreign language must be translated into Chinese prior to submission. The revisions also follow the MOA’s recent elimination of temporary pesticide registrations, which effectively prolongs the timeline for the review and use of all pesticides in China.

By Paul Davies and Michael Green

The Environmental Liability Directive (ELD) aims to prevent, remedy and/or compensate for environmental damage. ELD seeks to achieve this through the “polluter pays principle”, ensuring businesses are held legally and financially accountable for environmental degradation that results from their operations. However, Member States have varied considerably in implementing ELD, significantly reducing its effectiveness. The European Parliament is the latest of several European authorities to review ELD’s effectiveness.

A report published by the European Parliament sets out the primary areas of concern with ELD, namely: (i) the lack of certainty surrounding key definitions; and (ii) narrowness of scope. For example, the European Parliament considers there is “total uncertainty” regarding the “significance threshold”. As the significance threshold determines whether an incident triggers liability under ELD, the European Parliament considers the clarity of the threshold crucial. Furthermore, ELD only imposes strict liability on operators that cause environmental damage in the course of activities specified in an exhaustive list. Beyond this list, liability for environmental damage is fault-based.

By Paul Davies, Bridget Reineking, and Andrew Westgate

Since establishing the People’s Bank of China’s Green Finance Task Force in 2014, China has encouraged green financing mechanisms through a variety of pioneering initiatives. For example, the country has designated five green finance pilot zones, within which financial institutions are incentivised to provide credit and special funds for environmentally friendly industries.

However, investors have yet to take full advantage of these developments. The lack of uptake may in part relate to recommendations set out in the Green Task Force Final Report published in April 2015. In particular, recommendation 13 of the Report proposes imposing environmental lender liability on banks – the practical consequence of which is that banks and other financial institutions become liable for environmental pollution or damage caused by their borrowers. Although green projects are by nature less environmental risk-laden than other projects, they are not risk-free. As a result, investors have been hesitant to utilize the new financing mechanisms, and banks are equally hesitant to offer financing in the face of uncertain associated liabilities.

By Paul Davies, Bridget Reineking, and Andrew Westgate

President Xi has announced the creation of a new environmental bureau to oversee China’s state-owned natural resources. Establishment of the new bureau is one of the most notable outcomes of the recent meeting of the 19th National Congress of the Communist Party, and follows Xi’s pronouncement that building an “ecological civilization” in his country is necessary for the continued development of the Chinese people.

Currently, China’s natural resources are administered by a set of localized bureaus, which oversee natural resource assets without a centralized national monitor. Local governments are responsible for staffing and funding these bureaus, so economic agendas and industrial development have directed local environmental efforts for years. Frequently, local governments have stripped the protection bureaus of the ability to impose penalties or otherwise enforce environmental compliance measures. And even if the bureaus receive staff and funding, regional and local needs are generally at odds, often causing untimely and frustrating backlogs regarding the uses of resources and land. Without national coordination, even the best-intentioned regulators working for these bureaus have struggled to implement environmental policies.