Environmental Law News Update

In this latest Environmental Law News Update, Gordon Wignall, Christopher Badger and Mark Davies consider an ECJ ruling on the treatment of gene editing, new guidance from the Financial Reporting Council on strategic reports and the decision to allow Cuadrilla to proceed with Hydraulic Fracturing at Preston New Road.

Gene editing and current EU legislation; case C-528/16

For centuries plant breeders have striven to improve crop traits by scientific methods for the general benefit. Mutations by the process of traditional plant-breeding techniques have sought to improve yields, to produce better flavour or to allow crops to be better harvested.

Traditional techniques have been supplemented more recently by GM methods, and over the last 20 years by the process of gene editing.

On 25 July 2018 the ECJ delivered its ruling as to whether gene editing should be considered a process akin to traditional plant breeding, or whether it is caught by EU legislation dated 2001/2002 which heavily restricts the promotion and marketing of GM materials. The case is C-528/16 Confédération paysanne et al v. Premier ministre.

The battleground was ultimately the ‘GMO Directive’ 2001/18/EEC, which regulates the release of GM organisms into the environment. Organisms covered by the directive can only be authorised after an environmental risk assessment and are subject to rules as to traceability, labelling and monitoring.

It has been said, put very simply, that GM technology introduces genes from other species into the genome of target cells (transgenesis), whilst GE uses cells from the same species to create the desired traits (mutagenesis, involving the alteration of the genome of a living species).

Scientists, whether they use the traditional plant breeding model, GM or GE, are ultimately interested in achieving the same aims. Traditional breeding methods have intentionally mutated crop species to make them tolerant to herbicides. They have also resulted in fruit and vegetables which have traded improvements in shelf-life and shipping quality at the expense of flavour. These are all consequences which are often attributed to the effects of GM techniques.

Annexes to directive 2001/18/EEC contain ‘positive’ and ‘negative’ lists of processes. The positive list describes techniques which must be considered to be techniques of genetic modification and which are caught by the directive. This does not extend to GE methods.

The negative list contains processes which are altogether exempt from the ambit of the directive. The negative list itself, however, prohibits any form of genetic modification which has employed a technique which carries the label “mutagenesis”. This wording is contrary to the contemporary French regulation in issue, which expressly excludes “mutagenesis” from the definition of techniques constituting genetic modification, and which therefore accommodates scientific developments derived from GE.

Whilst Advocate General Bobek had delivered an opinion which was not ultimately more favourable than the judgment of the ECJ (18 January 2018), his opinion is rich with various legal reflections, including the existence of a duty on the part of a legislative body to update its legislation in order to accommodate new developments and the requirement to keep the precautionary principle within proper bounds. The ECJ’s ruling is an interpretation of the strict wording of the directive. Since GE is a form of mutagenesis, it is necessarily caught by the directive.

Indeed, the ECJ’s ruling can be said to contain a ‘double whammy’. Not only does it demonstrate that GE is caught by the restraints of the directive, but it also makes it clear that even if a product is exempt from the directive by reason of the application of the criteria contained in the negative list, that does not mean that a Member State cannot establish its own rules intended to deal with its views as to what is and what is not safe from undue risks to the environment. That said, the primary laws of the EU will apply, in particular those concerning the free movement of goods and services. These are additional circumstances in which environmental regulation may end up being determined by trade laws.

The ECJ’s decision has dismayed many, who see its ruling as both a retrograde and outdated application of the precautionary principle to agricultural products which have more in common with traditional plant breeding techniques than with GM and transgenesis.

The United Kingdom government put in a response which, broadly, could be seen as a basis for future support for the development of GE. The ECJ ruling, assuming that it becomes part of the environmental acquis inherited after Brexit, can properly be seen as an unintended consequence of the adoption of the acquis. It will restrict the competitiveness of UK agriculture in a wider global marketplace.

A related news item is of interest concerning that other related environment bugbear, glyphosate (which the Commission authorised for a further five years from December 2017, after some torrid and controversial opposition from the European Parliament). Just before publication of this blog a jury in California is reported to have awarded a groundsman who contracted cancer almost $300m on the basis that Monsanto knew of the risks to health from its products containing glyphosate and that there was a causal connection between the cancer and those products. There are reportedly another 5,000 claimants intended to pursue similar claims. Monsanto intends to appeal.

Financial Reporting Council produces guidance on strategic reports

In July 2018 the Financial Reporting Council (“FRC”) published guidance on the content of corporate strategic reports.

The purpose of the strategic report is to provide information for shareholders and help them assess how the directors have performed their duty, under section 172 of the Companies Act 2006, to promote the success of the company and, in doing so, have regard to the specific factors set out in the legislation, which include disclosing information about environmental risks and uncertainties where they are material and the impact of the company’s operations on the environment.

The Guidance identifies that corporate transparency on broader matters is essential to enable shareholders to assess an entity’s ability to generate and preserve value over the long term, and to assess the management of risks which may impact the sustainability of the entity’s business or may affect society more broadly in ways which are not reflected in financial statements. Noting this, information on environmental matters, amongst others, should be integrated throughout the report where appropriate and, in particular considered when disclosing the entity’s strategy and business model, principal risks and uncertainties and KPIs.

Key questions that are raised include:

• Is the entity’s business model reliant on natural resources such as water, land or minerals?
• Does the use of these resources result in other secondary impacts on natural resources?
• What is the entity’s impact on the environment?
• What are the pollution risks from the entity’s activities?
• Will the entity’s business be affected by climate change, either as a result of climate change of by climate change affecting how the business can operate?
• What are the effects of an entity’s activities on climate change?

The Environmental Audit Committee, in its recommendations for mandatory climate risk reporting by 2022, recently highlighted the difficulties faced by companies in devising appropriate scenario analysis, to be able to assess the potential impact of climate change on any particular business going forwards (see here). However, irrespective of any potential difficulties, the need for comprehensive reporting on material risks is very current. ClientEarth has already referred three insurance companies, including the owners of Admiral and SunLife insurance brands, to the Financial Conduct Authority for failing to address the risks of climate change in their strategic reports. It is open to the FCA, depending on the results of any investigation, to issue a financial penalty or a public censure and to order that the reports are corrected.

The Guidance can be found here

Cuadrilla granted Hydraulic Fracturing Consent for Preston New Road

On 24 July 2018, Minister for Energy and Clean Growth Claire Perry granted Cuadrilla Bowland Ltd Hydraulic Fracturing Consent (“HFC”) for horizontal well PNR-1z at its Preston New Road site in Lancashire. The HFC is essentially the final consent Cuadrilla require in its long battle to extract shale gas from that specific well.

HFC was introduced by the Infrastructure Act 2015 as an additional step to the regulatory and permitting regime. Its purpose is to ensure that all necessary environmental and health and safety permits have been obtained, and that the Department of Business, Energy and Industrial Strategy (“BEIS”) is otherwise satisfied that it is appropriate to grant it.

As part of the process, Cuadrilla have been assessed as having adequate financial resilience to undertake work at Preston New Road but, interestingly, the decision letter for the HFC includes a condition in relation to one of the project’s backers, Spirit Energy Ltd; either its accounts must be submitted to BEIS for the last financial year or £557,000 must be transferred into an escrow account to hold said amount until the audited accounts are provided. Spirit Energy Ltd was only formed in 2017 following the merger of Centrica’s Exploration and Production business with Norway’s Bayerngas Norge, which may explain the concern.

In granting the HFC, BEIS has certified its satisfaction that the 13 technical requirements set out in section 4A of the Petroleum Act 1998 have been met. This includes as the first condition that the environmental impact of the development has been taken into account by the local planning authority.

It should be remembered that Friends of the Earth’s High Court challenge to the Environment Agency’s assessment of Cuadrilla’s techniques for the site is still outstanding, although this does not appear to have delayed Ms Perry’s decision. In her statement accompanying the decision she stated, “Shale gas has the potential to be a new domestic energy source, further enhancing our energy security and helping us with our continued transition to a lower-carbon economy.”

The Government’s announcement may be read here.