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Research Trends and Conclusions: Environment 2011

September 2011
Environment

This, the sixth edition of The International Who’s Who of Environment Lawyers, builds on our previous research into this discipline, combining tens of thousands of votes and comments from private practitioners and in-house lawyers around the world to give a detailed snapshot of the current state of the international environmental law market.

In the year since the Deepwater Horizon oil spill in the Gulf of Mexico was confirmed as the worst environmental disaster in US history, lawyers in jurisdictions around the world reported that their practices have been - either directly or indirectly - affected by the spill. “What might appear on the surface to be a problem local to the Gulf has had major implications for lawmakers and clients throughout the US and overseas,” according to one source. During the course of our research lawyers noted an increase in the demand for environmental compliance and due diligence advice, in the energy and fossil fuels sector and elsewhere, among clients eager to avoid the negative media attention and subsequent stock drops that befell BP in the wake of the Gulf crisis. Demand for litigation and ADR support has also increased as a raft of new regulations have been imposed by governments around the world, opening clients up to an expanding array of enforcement actions.

Another point of intersection between the energy industry and environmental law is demonstrated by the continued high levels of interest in alternative fuels and green energy by governments and corporate entities. However, even in the context of widespread legislative pressure to cut emissions and reduce dependency on oil, lawyers reported that transaction levels were lower than might be expected as the recent turmoil in the global financial markets and the ongoing effects of the credit crunch have restricted financing.

DEEPWATER HORIZON AND ENVIRONMENTAL LIABILITY

Environmental lawyers across the US noted that the Deepwater Horizon disaster has caused clients to focus more closely on their companies’ compliance with national safety and regulatory regimes. According to the Washington Times, BP’s market value had dropped by more than $100 billion in the two months following the spill. Later in the year, both the Mexican and the US governments filed suits against the company, which included accusations of failures to use the safest available drilling technology, maintain necessary surveillance and ensure the safety of personnel, equipment, natural resources and the environment. In light of these troubles, lawyers advising clients in the energy sector have seen a surge in demand for their advisory services. “Advisory work for clients from power plants to pipelines is extremely active at the moment,” according to one source. “Companies come under enormous environmental scrutiny before receiving permits and that is added to by a new level of internal environmental due diligence on the part of boards of directors.” Various lawyers throughout the US speculated that the vast amount of media and regulatory attention attracted by the disaster will have a novel effect on future enforcement activity: “Whereas there was previously an ebb and flow in environmental enforcement depending on the nature of the administration in power, it is now clear that, whether the president is a Democrat or a Republican, there will be more enforcement in the future,” predicts one of our sources.

Lawyers in Europe also expect authorities to be more active in imposing regulations to prevent environmental disasters. The EU’s Environmental Liability Directive (ELD), predicated on the “polluter pays” principle aimed at preventing and remedying environmental damage, came into force across Europe in 2009 and lawyers have been heavily engaged in compliance work for clients as a result. While proposals for a mandatory EU-wide liability scheme were opposed under the ELD, lawyers in numerous member states noted that their governments had responded with robust enforcement measures: “authorities will be more active and injunctions will be more prevalent against polluters going forward.”

October 2010 also saw the European Parliament issue a resolution on EU action on oil exploration and extraction in Europe, partly in response to the Deepwater Horizon spill. The resolution urges the Commission to lower the ELD’s damages threshold to include damages caused to marine waters and to look into establishing an effective surveillance system for drilling operations, with an emphasis on “strengthening of inspection methods and minimum compulsory EU safety rules”. Even while British offshore oil industry regulations were praised for their strength in the US National Commission’s report into the Deepwater Horizon spill, the recent Gannet Alpha oil spill in the North Sea has raised questions about the UK regime, with some calling for stronger unilateral guidance from the European Commission.

Sources around the world also said that more of their clients were facing prosecution as pre-existing regulations are enforced with greater conscientiousness. Lawyers in several jurisdictions reported an increase in their environmental litigation work, despite the continuing financial problems faced by companies in the wake of the credit crunch, as more clients are facing criminal charges. “Compliance and corporate governance are long-term solutions to environmental liability,” according to one European source “but, with more ferocious enforcement across the board, it is our skills in the court room that have seen the greatest demand from clients.”

CONTINUING ENERGY PRODUCTION

One hotly contested area among US lobbyists is hydraulic fracturing or “fracking”, whereby conductive fractures in subterranean rocks allow the extraction of previously inaccessible fossil fuels. While fracking provides a major boost for domestic energy production in the US, lawyers representing clients in this sector have reported extremely high demand for representation in EPA investigations of possible resultant water contamination. “These investigations not only expose clients to potential liability, but also give rise to public concern and reservations among private equity and financing groups,” says one source “as such, it is really important to clients that they receive the best representation in these cases.”

In March of this year, the US government produced its “Blueprint for a Secure Energy Future”: a plan aimed at reducing the country’s oil dependency and emphasising clean energy production. Alongside its plan to “improve the safety and environmental performance of fracking” the blueprint also commits to “harness America’s clean energy potential” through solar, wind and water power, echoing the commitments of regulatory bodies around the world. Despite such pledges, lawyers specialising in green energy projects noted that investment activity over the past year has been less robust than previously. “Transactional work has been slower this year as clients are assessing their financial positions in the wake of unstable markets”, says one US lawyer “there is a lot of excitement about the potential for growth in the wind energy sector, but there is also a lot of uncertainty about financing and this is setting transactions back.” Indeed, certain areas of green energy in Europe, such as biofuel and onshore wind farms, have seen reductions in previous high levels of expansion as financing becomes harder to acquire.

LAW FIRM DEVELOPMENTS

Even without robust dealflow in green energy projects, the increasingly broad application of environmental regulation, coupled with high-profile matters such as Deepwater Horizon, have given rise to the expansion and increased importance of environmental law departments in firms, particularly outside the US. One lawyer at a full service firm in Europe reported a 30 per cent increase in billings for the firm’s environment department in the past year, while elsewhere in Europe lawyers emphasised the increasing importance clients place on environmental expertise as part of a full-service firm’s general corporate service. As one source puts it “regulatory enforcement is such that it is increasingly difficult to embark on a transaction that does not have a key environmental component.” Against this trend, some sources in the US mention that the increase in commodity-based regulatory work is more favourable to smaller firms with lower rates than it is to mid-sized and larger teams

While generally strong levels of activity see firms expanding their teams at a junior level, our research identifies very little movement among the most highly regarded individuals in this discipline over the past two years, following a period of steady year-on-year expansion between 2006 and 2009 (Chart 1).

Leading Firms by Number of Lawyers Listed

This pattern of expansion among the leading firms demonstrates a trend throughout the international environmental bar. Our research has seen a steady expansion in the total number of lawyers listed across the 2006, 2007 and 2009 editions, followed by a large jump in 2010 and stabilisation in 2011 (Chart 2).

Total Number of Listed Lawyers by Year

While all of the leading firms posted strong expansion in their number of listings up to 2010, the only firm to continue this expansion in the most recent research was Allen & Overy LLP. A closer look at the geographical distribution of the lawyers at these firms (Chart 3) offers some clues as to reasons for this.

Leading Law Firms by Jurisdiction

The overwhelming majority of the listed lawyers at Beveridge & Diamond PC, Hunton & Williams LLP and Sidley Austin LLP are drawn from offices in the traditionally most active US market. Even while US lawyers constitute the majority of featured professionals in our research, the percentage of US lawyers listed has fallen from 63 per cent in 2010 to 59 per cent in 2011 and Allen & Overy’s growth is attributable to two additional listings for lawyers based in the EU, where reports of the increasing importance of environmental departments were frequently expressed.

Overall the feedback generated in our most recent exploration of the environmental law marketplace is optimistic. Following such disasters as the Deepwater Horizon spill, clients are seeking the reassurance that leading lawyers can provide. While the scope and reach of environmental regulations continues to grow, the value lawyers can add to companies through compliance advice and robust defence is growing with them. As with all areas of industry, green energy has been affected by the vicissitudes of the financial markets, yet the ongoing commitments made by governments towards green energy production the reduction of environmental contamination, means that environmental lawyers will become ever more central players in the industrial expansion of the global economy in the 21st century.