United States: DoD Doubles Down On Links Between Climate Change And National Security

The Committee on Foreign Investment in the United States (CFIUS), chaired by the Secretary of the Treasury, looks at the national security implications of investments that could result in foreign control of U.S. businesses — or, in certain cases, that could provide foreign persons access to critical data and sensitive personal information. Deals deemed to threaten national security can be blocked by the President. 

Presidential vetoes are rare, but many deals are restructured to address CFIUS concerns. CFIUS also has authority to issue mitigation orders, including divestment of sensitive assets, changes in corporate governance, restrictions on foreign sources of supply, and prohibitions against the appointment of foreign persons to key management positions. For these reasons, it is essential for investors to do a rigorous national security review of proposed transactions

 "National Security," however, is an undefined term in the laws that govern CFIUS. This is no oversight. To avoid "fighting the last war," Congress gave CFIUS free rein to look at "national security" as an evolving concept, recognizing that threats change over time. To the factors critical to all national security reviews (e.g., export-controlled technology, classified contracts, impact on critical infrastructure, access to critical information) we can now add an additional consideration: "environmental stewardship."

In October 2014, the United States Department of Defense (DoD) issued a groundbreaking report highlighting the impact of climate change on national security.¹ In announcing the report, then-Secretary of Defense Chuck Hagel noted that "[r]ising global temperatures, changing precipitation patterns, climbing sea levels, and more extreme weather events will intensify the challenges of global instability, hunger, poverty, and conflict." In an eerily prescient statement, Hagel called climate change a "threat multiplier," adding that it "has the potential to exacerbate many of the challenges we are dealing with today — from infectious disease to terrorism."² [Emphasis added.] 

President Obama followed with a presidential memorandum in 2016 directing federal agencies to ensure that "climate change-related impacts are fully considered in the development of national security doctrine, policies, and plans."³ The memorandum cited a contemporaneous report by the National Intelligence Council, which found that "climate change and its resulting effects are likely to pose wide-ranging national security challenges for the United States and other countries over the next 20 years through a number of pathways,"⁴ including large scale political instability resulting from the loss of arable land and climate-related disasters.

Recently the DoD issued a Climate Risk Analysis (DCRA) that doubles down on the 2016 Memorandum.⁵ The DCRA finds that climate change, including unpredictable extreme weather conditions, is "exacerbating existing risks and creating new security challenges for U.S. interests" and presents growing risks to DOD "strategies, plans, capabilities, missions, and equipment, as well as those of U.S. allies and partners..." The DoD pledged to consider the effects of climate change "at every level of the DoD enterprise."

The DoD report comes in response to an executive order issued by President Biden to put "the climate crisis at the center of United States foreign policy and national security."⁶ For its part, the United States Department of the Treasury has published a "Climate Action Plan" which, among other things, promises to address "climate change impacts and vulnerabilities across the range of departmental operations, including administrative, manufacturing, and law enforcement activities."⁷ In highlighting its climate change response efforts, Treasury pledges to use "U.S. leadership and commitment to significantly enhance global action and mobilize and align financial flows to combat climate change and enhance resilience within the new climate environment."

Today, climate change is front and center for the security agencies — and could well surface as an issue in CFIUS reviews. To be clear, we don't believe that CFIUS will start scrubbing deals looking for minor regulatory missteps. "Critical infrastructure," however, is a longstanding concern for CFIUS, and is now enshrined in law. In a national security review of a proposed acquisition, a poor record of compliance with environmental laws may be seen as a "threat multiplier" — even if the acquirer hails from an allied country. 

CFIUS reviews of covered transactions can extend to a U.S. target's foreign subsidiaries and assets if these foreign businesses could implicate U.S. national security. The DCRA and other studies linking global climate change and U.S. national security raise the prospect that CFIUS will look hard at the environmental impact of an acquisition if it has potential repercussions for U.S. national security, even if the impact occurs outside the United States. For example, a poor environmental record could adversely influence review of acquisitions in the lumber, gas, oil, or coal industries — or acquisitions involving water or land management in an area with a fragile ecosystem. Conversely, an investor with a stellar record of environmental compliance could be in a strong position if it seeks to acquire a company with a weak record — and can plausibly make the case that it will upgrade the target's performance. 

The key point is this: Environmental issues may or may not dominate CFIUS reviews, but they will be relevant — as the DCRA and similar studies make clear — and a poor environmental record could tip the balance against a foreign investor.

Mark Twain famously said that "Everyone talks about the weather, but nobody does anything about it." That may change. 

Footnotes

1. U.S. Department of Defense, "2014 Climate Change Adaptation Roadmap," October 2014, available at: https://www.acq.osd.mil/eie/downloads/CCARprint_wForward_e.pdf.

2. U.S. Department of Defense, Press Release, "DoD Releases 2014 Climate Change Adaptation Roadmap," October 13, 2014, available at: https://www.defense.gov/News/Releases/Release/Article/605221, and U.S. Department of Defense, Office of the Secretary of Defense, "Speech Before the Conference of Defense Ministers of the Americas," October 13, 2014, available at: https://www.defense.gov/News/Speeches/Speech/Article/605617/.

3. The White House, Office of the Press Secretary, "Presidential Memorandum -- Climate Change and National Security," September 21, 2016, available at: https://obamawhitehouse.archives.gov/the-press-office/2016/09/21/presidential-memorandum-climate-change-and-national-security.

4. National Intelligence Council: "Memorandum - Implications for US National Security of Anticipated Climate Change," September 21, 2016, available at: https://www.dni.gov/files/documents/Newsroom/Reports%20and%20Pubs/Implications_for_US_National_Security_of_Anticipated
_Climate_Change.pdf.

5. U.S. Department of Defense, "Department of Defense Climate Risk Analysis," October 2021, available at: https://media.defense.gov/2021/Oct/21/2002877353/-1/-1/0/DOD-CLIMATE-RISK-ANALYSIS-FINAL.PDF.

6. The White House, Office of the Press Secretary, "Executive Order on Tackling the Climate Crisis at Home and Abroad," January 27, 2021, available at: https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad/.

7. U.S. Department of the Treasury, "Treasury Climate Action Plan," July 2021, available at: https://home.treasury.gov/system/files/136/Treasury-Climate-Ation-Plan-July-2021-Final.pdf.

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