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Weekly UpdatesINTRODUCTION
IN THE PAST TEN YEARS, THE NOTION OF "GREEN" or high-performance building has moved from an isolated concept discussed among small groups of idealists to become a key element of any credible discussion regarding public or private investment in the built world.
However, that growth has been accompanied by a penumbra of oft-repeated but misunderstood or exaggerated claims regarding green building practices and certification. Unfortunately, it appears that some of those claims are being made by public companies in their securities disclosures.
In order to understand how this has occurred, it is important to understand the fervent growth of green building as a kind of social "movement"(1) in the United States. In part due to the threat of global warming and the precipitous rise of fuel costs, the green building movement has gained considerable urgency and legions of committed followers.
While environmental concerns and energy costs both factor into the growth of green building, much of the credit is due to the United States Green Building Council (USGBC) and the development and marketing of its Leadership in Energy and Environmental Design (LEED [R]) green building certification products. Where similar movements to encourage environmental practices (i.e, organic foods) have been mired in competing and misunderstood definitions or certification regimes, LEED has managed to succeed. Although rating systems exist that are similar to LEED, the USGBC has virtually cornered the market on the rating of green commercial buildings.
USGBC's cornering of the market arose from four fundamental issues: 1) LEED provides a clear definition of green that references existing, third-party standards, codes and calculation methods; 2) LEED provides an easily understood points system that seems to appeal to the competitive nature in all of us; 3) the USGBC rolled out LEED by first getting a foothold of acceptance among key federal government agencies; and 4) increasing levels of LEED certification are awarded on an appealing, highly-marketable Olympic-medal-like recognition ranging from Certified to Silver, Gold, and finally, Platinum.
The success of the USGBC is reflected in the growth of its membership and in the number of buildings registered with the USGBC for potential LEED certification. Over the past five years, the non-profit USGBC has doubled its membership to more than 16,000. (2)' At about the same time, commercial LEED registered projects have grown from approximately 2,000 to now more than 13,000 nationwide. (3)
Just as astonishing is the success of the USGBC's annual Greenbuild conference (recently purchased by McGrawHill) where the number of attendees last year (22,835 (4)) was more than six times the number in attendance at the inaugural 2002 conference. (5) This year's Greenbuild, set for November 19 in Boston, will feature Nobel Peace laureate Archbishop Desmond Tutu as its keynote speaker.
LEED's popularity has not escaped the attention of lawmakers, who have written the LEED point system into various tax (6), building and zoning" codes, and even into settlement orders in environmental litigation at nearly every level of government. (9) Whether or not this was the design of LEED's progenitors, what started as an attempt to add a set of environmental options to a set of building practices and materials has become a national and international phenomenon. (10)
While its current LEED products have caught on around the world, the USGBC continues to make changes to them. At present, the USGBC offers nine LEED products. They are: New Construction & Major Renovations, Existing Buildings: Operations & Maintenance, Commercial Interiors, Core & Shell, Schools, Retail, Healthcare, Homes, and Neighborhood Development. (11)
In addition to developing LEED products, the USGBC sells educational materials and seminars, and until recently, administered an accreditation program for design professionals and others (including lawyers) interested in earning the LEED-Accredited Professional (LEED-AP) designation in the application of LEED standards. As of September 2008, the USGBC claims to have accredited 60,000 LEED-APs. (12) The USGBC also certifies projects as LEED-compliant by obtaining written certifications from project architects stating that design elements meet LEED requirements. Beginning in 2009, the certification process will move to the Green Building Certification Institute, a 501c6 non-profit organization established by the USGBC. The following certification organizations will work with the new GBCI:
* ABS Quality Evaluations, Inc. (http://www.abs-qe.com)
* BSI Management Systems America, Inc.
(http://www.bsi-global.com)
* Bureau Veritas North America, Inc. (http://www.us.bureauveritas.com)
* DNV Certification (http://www.dnvcert.com
* Intertek (www.intertek-sc.com)
* KEMA-Registered Quality, Inc. (http://www.kema.com)
* Lloyd's Register Quality Assurance Inc. (www.lrqausa.com)
* NSF-International Strategic Registrations
(http://www.nsf.org)
* SRI Quality System Registrar, Inc. (http://www.srii.com)
* Underwriters Laboratories-DQS Inc.
(http://www.ul.com/mss)
A number of the largest public corporations, investment funds and public institutions in the U.S. have begun to certify their buildings with the USGBC under LEED. (13) This trend appears ready to increase dramatically as the USGBC unveils its portfolio certification program, which enables an owner to simultaneously certify its entire building stock. Currently in pilot form with the USGBC, the portfolio program includes 40 participating companies and institutions and covers 1,700 buildings and approximately 135 million square feet of building space. Pilot participants include institutional investors, financial institutions, hoteliers, retailers, universities and public corporations.
In July 2008, Office Depot joined a number of other retailers in opening its first LEED-prototype certified store in Austin, Texas. (14) According the USGBC, "...the most aggressive at pursuing green building ..." appears to be Kohl's Department Stores, which last November announced that it would aim to obtain "... LEED certification for every store to break ground in 2008-or more than 80 locations." (15) Other portfolio program participants include Wal-Mart, Starbucks, McDonald's, Target, Home Depot, REI and Whole Foods. (16)
FEDERAL SECURITIES LAWS
The Securities Act of 1933 ('33 Act) was enacted by the U.S. Congress as a means to restore trust in the U.S. financial system in the wake of the stock market crash of 1929 and the Great Depression. In general, it requires registration with the U.S. Securities and Exchange Commission (SEC) of any securities offered to the public. The registration process requires that the offeror provide the Commission with detailed information on the company, its management, its proposed use of funds raised, and its financial statements. Registration statements and prospectuses become available to the public shortly after filing via the Commission's online EDGAR database.
Whereas the '33 Act governs the primary market, the Securities Exchange Act of 1934 ('34 Act) targets the secondary market, requiring, among other things, ongoing disclosures by public companies to the SEC. Registered companies and those with more than $10 million in assets whose securities are held by more than 500 owners must file annual and other periodic reports. These reports are also available to the public through the SEC's online EDGAR database.
Both the '33 Act and the '34 Act were intended to provide "shareholders and [the] marketplace with sufficient information to make relevant decisions and to be apprised of significant developments." (17) Both Acts also prohibit manipulative and deceptive practices and provide the SEC with broad powers to punish any attempt to manipulate the market.
As described in the '33 Act and '34 Act and subsequent legislation, the SEC plays a magisterial role in identifying and enforcing the civil and criminal provisions of the '33 Act and '34 Act barring fraudulent practices. The agency scrutinizes, among other things, registration statements for newly offered securities, annual and quarterly filings (Forms 10-K and 10-Q), proxy materials sent to shareholders before an annual meeting, and annual reports to shareholders. The SEC also has the authority to seek an injunction prohibiting further violations, require an audit or commence ongoing supervisory arrangements. In addition, the SEC can seek civil monetary penalties or the return of illegal profits.
Private securities litigation also plays a central and often controversial role in enforcing the anti-fraud provisions of the securities laws. According to a report released by Cornerstone Research in cooperation with Stanford Law School's Securities Class Action Clearinghouse, 217 securities class actions were filed in the 12 months ending June 2008. (18)
In pursuing allegedly fraudulent activity, the SEC and shareholders commonly rely upon Section 10b of the '34 Act and Rule 10b-5 promulgated under the '34 Act. Rule 10b-5, breathtaking in its unqualified breadth and simplicity, makes it illegal to:
"... by the use of any means or instrumentality of interstate commerce... employ any device, scheme, or artifice to defraud ... [or] make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."
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