cravath, swaine & moore llp convergence of environmental practices and standards in cross-border...

CRAVATH, SWAINE & MOORE LLP

Convergence of Environmental Practices and Standards inCross-Border Transactions:

Why Local Matters Less

2CRAVATH, SWAINE & MOORE LLP

Multinational Corporations

● Multinational corporations are cross-border arbiters of conduct and migrate uniform practices

– Lowest common denominator is not a viable option

– Reputational concerns and instantaneous flow of information are creating de facto international norms

– Inefficiency of multiple practices in multiple jurisdictions supports a rise to the top rather than a race to the bottom


Private Equity Market

● Consolidates assets and standards● Provides a mixing zone for management

practices● Seeks quicker turnaround and exit strategy

– Ease of transaction, IPO or acquisition, puts premium on uniformity and absence of surprise

● Provides a bridge to international finance markets, further standardizing the approach to environmental diligence


Global Financial Markets

● Expectations for diligence in securities, mergers and acquisitions and secured financings are increasingly uniform, commoditizing both processes and results

● Ease of information assessment and need to avoid impediments to a transaction create a global market for consistent data

– It is easier to do more than to explain why you did less or to amend public disclosure, contract schedules or purchase price in the face of a surprise

– Contaminated collateral is an international pariah

– U.S. and EU contaminated land standards drive assessments worldwide


Global Financial Markets

Global Debt and Equity Offerings

1991 - > $1 trillion2002 - $4.26 trillion2003 - $5.32 trillion2004 - $5.69 trillion2005 - $6.5 trillion


Environmental Consulting Infrastructure

● Consulting firms and due diligence infrastructure are consolidating

– Stated business purpose of consolidation is to offer “one stop shopping” in multiple jurisdictions

– Net effect is move toward centralized management, practices, evaluation techniques and QA/QC

● Educational and training infrastructure reinforces global trends

● Experience in command and control jurisdictions or sophisticated regulatory regimes offers currency in the marketplace

● This enhances uniform practices and rigor


Globalization of Standards

● International standards and practices in environmental management reinforce the global playing field

– EMAS

– ISO 14001

– ASTM E-1527

● Regional compacts have further diminished the importance of national boundaries

● Practices in the developed world have cross-whipsawed; EU has led on certain issues, Canada on others, the U.S. on others


Corporate Governance

● Corporate environmental governance requirements after worldwide ethics scandals increases the demand for systematized and uniform practices and data

– SOX “fairly present” certifications put all management through same data gathering process

– Environmental line reporting is a worldwide function

– Senior management report to the same court of world opinion● All mistakes can be Googled forever


Stakeholder Initiatives in the Global Market

● Stakeholder initiatives have sped adoption of multinational guidelines

● These are not detailed blueprints for doing business, but they establish a global business climate in the public market

– Equator Principles● 2003 – 4 original signatory banks● 2005 – 39 signatory banks● 2006 – Rapid spread of internal policies exceeding Equator baseline.

Movement started with EU-based banks

– CERES Funds

● 1999 - $200 Billion

● 2005 - $ 5 Trillion

– ISS 2006 Proxy Voting Guidelines cover Kyoto, CAFOs, nuclear plants etc.

● Other coalitions among NGO groups place long-term capital behind common agendas


Wave Tank

● Cross-jurisdictional effects have multiplied over the past 10 years

● EU trailed U.S. on legacy liabilities but Environment Act and EU Directives have put “polluter pays” on comparable footing for diligence purposes

● U.S. trails the world on Kyoto and GHG credits – but emission credit trading and need for certainty for infrastructure capex will ultimately lead U.S. to close the gap


Wave Tank

● Litigants seek cross-border access to the most favorable jurisdictions (often the U.S.) to address environmental harms anywhere in the world

● Most business enterprises know that they will be either buyers or sellers or both

● Recognition of value in EMS uniformity at high level, for both ease and appearances

● Growing appreciation of environmental management as belle-weather for smart decisions and corporate stewardship

● Implementing “world class” standards is both an investment and insurance

cravath, swaine & moore llp convergence of environmental practices and standards in cross-border...

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