Get ahead: including emerging contaminants in environmental due diligence

Questions surrounding long-term liability are top-of-mind pre-acquisition, when considering taking title to a property and becoming part of the chain of ownership. Commercial and industrial real estate investors should be cognizant of the need to consider emerging contaminants, especially per- and polyfluoroalkyl substances (PFAS).

Concerns regarding emerging contaminants have become increasingly heightened as the prevalence and persistence of PFAS become better understood. Although the United States Environmental Protection Agency (USEPA) has yet to add emerging contaminants to the hazardous substances list, currently 28 states are further ahead with regulatory thresholds, while others are still in development.

With near-constant press coverage and increasing global regulatory scrutiny, those involved in commercial and industrial real estate transactions are asking: how could PFAS affect us, and what do we need to do about it?

Effective February 13, 2023, the USEPA adopted ASTM E1527-21 standard to meet the All Appropriate Inquiries (AAI) rule (AAI standard; 40 CFR Part 312). The current ASTM E1527-21 Phase I Environmental Site Assessment standard sets a higher bar for what is deemed “good commercial and customary practice” in environmental due diligence.

As part of the due diligence process, environmental professionals seek to identify recognized environmental conditions (RECs) associated with the subject property. The scope of work includes data gathering and drawing conclusions regarding RECs to meet the requirements of AAI under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or Superfund).

As outlined by the AAI rule, the Phase I ESA scope of work includes:

• Physical setting resources
• Standard federal, state, and tribal environmental record sources (e.g., database review)
• Regulatory agency files and records review
• Historical research
• Site reconnaissance
• Interviews with past and present owners, operators, and occupants
• Interviews with state and/or local government officials
• Evaluation and report preparation

The purpose of the Phase I ESA process is to seek an understanding of current and historical operations or conditions at the subject and adjoining properties, specifically including industrial operations that may include the use of petroleum products and hazardous substances, to identify RECs.

While nearly 30 states in the US currently have guidance and/or regulatory thresholds established pertaining to certain PFAS, stakeholders are awaiting the announcement from USEPA pertaining to the addition of two PFAS to the CERCLA hazardous substances list (PFOS and PFOA). Maximum contaminant levels (MCLs) are also proposed by USEPA in this proposed regulation to establish the maximum level allowed in drinking water delivered to any user of a public water system (PWS). Given the pending regulatory changes, for the assessment of industrial properties in particular, increased attention should be considered for the potential presence of emerging contaminants, including PFAS.

While consideration of emerging contaminants like PFAS is referenced in the current Phase I ESA standard in the non-scope considerations, they have the potential to be identified in state agency database searches for jurisdictions that have established regulations or guidance pertaining to emerging contaminants. Some clients are already including an assessment of PFOA and PFOS (the PFAS that are currently proposed for listing as CERCLA hazardous substances).

While we are awaiting an announcement from USEPA, there are steps that can be taken to assess the potential for PFAS at the subject property.

1. Use information sources for emerging contaminant usage
2. Conduct historical and current operations research (some clients are unaware that PFAS are in their processes or supply chain)
3. Access USEPA resources

Use information sources for emerging contaminant usage

Third-party data providers, such as LightBox, generate a search of government environmental records in a database report, including capturing state-specific databases that report PFAS such as PFAS RCRA Manifest. PFAS ECHO may be the most common database identified in new database requests, as it is related to industry sectors.

Based upon the information provided in the database report, a Freedom of Information Act (FOIA) record review request to the regulatory agency may reveal additional details regarding release events, as well as associated remediation activities, if any.

Furthermore, agency file research can be another important resource regarding industrial operations and disposal records. Such files may contain information on Standard Industrial Classification (SIC) codes, for example, which can be informative as to the likely onsite use of hazardous substances including PFAS. Further investigation regarding Safety Data Sheets (SDS, formerly Materials Safety Data Sheets) can illuminate which specific chemical compounds were utilized onsite.

Conduct historical and current operations research

Thorough historical research can be helpful in assessing the potential for emerging contaminants usage or presence. City directories or street directories provide information regarding tenants or occupants by address and often reveal historic uses such as gas or service stations, printing, or other industrial operations.

An example is the metal finishing or electroplating industry, where beginning in the 1950s, PFAS, and particularly perfluorooctane sulfonic acid (PFOS), have been used as mist suppressants that were added to some metal plating and finishing baths to prevent air emissions of toxic metal fumes.

Current operations research, carried out as part of operational assessments, can include a detailed review of a company’s operations including inputs (e.g., safety data sheets, purchasing records, and chemical inventories), processes, and waste handling and waste streams; storage of materials; the environmental setting of a facility; the company’s supply chain; potential release mechanisms and migration pathways; potential proximal or regional sources of PFAS; environmental data; and applicable current or anticipated regulations.

Access USEPA resources

In January 2023, USEPA released the PFAS Analytic Tools interactive webpage that centralizes multiple sources of information pertaining to PFAS, which has helped those seeking PFAS information in a specific geographical area. The Analytic Tools will aid in understanding potential PFAS sources in communities.

Additional resources via USEPA are available as well as in many states nationwide.

Monitor regulatory developments

One challenge for assessors in the context of due diligence is the lack of emerging contaminant guidance in some states, and variability in approach across others. Thus, environmental professionals should continue to monitor state- and federal-level developments while more resources are being developed.

On March 14, 2023, USEPA proposed the first-ever national drinking water standard for six PFAS (PFAS6), complementing state efforts to limit PFAS, by proposing to establish legally enforceable levels for six PFAS known to occur in drinking water. Due to the proposed rule change, the Toxic Release Inventory (TRI) database may have increased usefulness in the future.¹

¹For more regarding PFAS reporting and proposed TRI changes, consider the following analysis: Proposed Toxic Release Inventory Changes Would Impact Reporting of PFAS and Supplier Notification Requirements | Jeanine L.G. Grachuk (bdlaw.com)

Those considering a new acquisition, investment, or leasehold, particularly with a property that may have had industrial or manufacturing operations onsite currently or historically, should work closely with their trusted environmental counsel and environmental consultant to develop an approach to due diligence when seeking to limit liability and uncertainty surrounding emerging contaminants.

The regulatory landscape around PFAS is changing quickly, and due diligence presents an opportunity to reduce uncertainty and manage risk.

Ramboll routinely assists clients in evaluating potential risks associated with PFAS and other emerging contaminants in the United States and around the world, and with preparing environmental liability cost estimates to support mergers and acquisitions and other environmental due diligence for property transactions. These estimates may be used to pursue indemnity agreements, releases of liability, environmental insurance, or assist in purchase price negotiations.

We have global experience with a local presence, and our multidisciplinary teams work seamlessly across jurisdictions. Our unmatched reputation is built on decades of experience with regulators, close collaboration with attorneys who are equally keenly focused on mitigating risk for their clients, and undertaking thousands of transactions every year. We have an excellent understanding of many industrial processes, and the experience and insight to identify potential PFAS sources and/or PFAS in processes where they may otherwise be overlooked.

Beyond support with due diligence, Ramboll provides additional technical and advisory support services for PFAS and other emerging contaminants, including investigation, remediation, forensics analysis, expert testimony and litigation support, drinking water and wastewater treatment, air quality, toxicology, and epidemiology.

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