Environmental justice (“EJ”) is a central focus of the Biden administration’s environmental agenda.  On Day One in January, the administration emphasized the importance of EJ in the federal government’s efforts to tackle climate change and to address the disparate impact of decisions affecting natural resources.  In addition, many states are implementing their own EJ requirements.  In the wake of issuance of new and enhanced EJ policies by both the federal government and states, it behooves lawyers in multiple disciplines to account for EJ issues in their legal practice.  The focus of most commentary on EJ issues has been on facility siting and the impacts of “polluting” activities on minority and economically disadvantaged communities.  This article, in contrast, addresses EJ in transactional practices.  Specifically, we identify some of the EJ issues practitioners may confront and seek to manage in merger and acquisition, asset purchase and sale, real estate purchase and sale, facility siting and/or construction, Brownfields development, financing and underwriting contexts.

As an initial matter, an essential element of transaction diligence should be an initial assessment whether EJ considerations are implicated by the transaction.  The legal team should consider conducting a preliminary assessment of the extent of environmental impacts associated with the deal, then determine whether those impacts affect an EJ community.  Impacts can include noise, traffic, aesthetics, and effects on historic and cultural resources, in addition to releases of chemicals.  Diligence also should look into historical EJ issues for the facilities or assets that are part of the deal.  Consideration of both federal and state-specific definitions/designations of EJ communities should take place.  In certain instances, engaging a consultant with expertise in EJ matters may be appropriate.

Another consideration for the deal team is whether the transaction is being structured in a way that transfer of, or application for new, emission/discharge/operating permits may implicate EJ considerations.  Practitioners should be aware that certain regulatory agencies may seek to include enhanced protections for EJ communities when re-issuing or transferring permits due to a change-in-control of a permitted facility.  Assisting buyers to factor EJ considerations into the terms of re-issued or new permits required to operate a facility will be an important task for deal teams going forward.

For deals and financings involving investment banks, there may be additional layers of assessment on EJ issues.  Most investment banks have signed onto EJ protocols, and many have their own conventions for environment, social and governance (“ESG”) issues that also capture EJ issues.  In some cases, investment agreements themselves have EJ obligations.  Consideration of both EJ and ESG may necessitate the participation in the deal of experts in these fields.

In addition to concerns about a deal’s potential adverse effects, proponents of a transaction also will want to account for economic and employment benefits that may redound to an EJ community.  Where a transaction involves construction or operation of a new facility, new investment in an existing facility, or re-opening of a closed facility, that activity has the potential to result in economic investment in the host community.  Communicating such benefits effectively should be a focus of the deal team.

Administrative lawyers are adapting to the Biden administration’s and states’ emphasis on EJ in permitting, enforcement and site cleanup.  Consideration of EJ should become a regular focus area for lawyers in transactional practices, as well.  The risks of ignoring or discounting EJ issues in a host of deal contexts include higher transaction costs, bad publicity, breaches of contract and lender protocols, and post-closing surprises to the client.  Any transaction that involves a property or facility in the U.S. should take into account EJ concerns to manage such risks effectively.