A GUIDE TO Environmental Liability in Europe SPONSORED BY FC_SRELG11 1 15/04/2011 11:34 Untitled-2 1 14/04/2011 14:49 ENVIRONMENTAL GUIDE [ STRATEGIC RISK ] FOREWORD 2 | Introduction The ELD brings consequences ENVIRONMENTAL LIABILITY IS 4 | Germany nothing new in Europe. Yet A two-tier system makes life European risk managers still diffi cult for risk managers aren’t seeing the need to buy a standalone environmental 6 | France insurance product. Many are The Bouches-du-Rhône disaster happy to seek out extensions in illustrated the cost of pollution their general liability policies to cover risks introduced by the Environmental Liability Directive (ELD). 8 | United Kingdom A number of environmental disasters have occurred Firms are still burying their in Europe since the ELD passed into law. France’s head in the sand over the ELD Bouches-du-Rhône oil spill received a great deal of media attention, yet the take-up of environmental insurance 10 | Spain & Portugal products remains low. And in the case of the Hungarian Cover is mandatory but fi rms toxic spill, the government fears cracking down on the still lack awareness company involved for political and economic reasons. Neither incident has provided particularly accurate data for 12 | Eastern Europe what constitutes environmental liability or shown how The fall-out from the toxic spill regulators will approach the subject in a post-ELD world. So, as risk managers mull the consequences of a 14 | Scandinavia major incident, insurance could start to look like the right Why Scania won’t buy ELD cover option. But the decision might not be le in their hands for much longer. The European Commission is considering 16 | Resolving a claim introducing a Europe-wide mandatory fi nancial protection The environment’s true value scheme. Companies may have to buy insurance or fi nd another way of reserving cash to pay for the clean-up if 18 | Buying the right cover they cause damage to the environment. Assessing the impact of the ELD Nathan Skinner is editor of StrategicRISK 20 | Conclusion More data is needed before ELD take-up will increase Editor Nathan Skinner Events logistics manager SPONSORED BY Editor-in-chief Sue Copeman Katherine Ball Market analyst Andrew Leslie Publisher William Sanders Group production editor Áine Kelly tel: +44 (0)20 7618 3452 Deputy chief sub-editor Laura Sharp Managing director Tim Whitehouse Business development manager Donna Penfold tel: +44 (0)20 7618 3426 Production designer Nikki Easton Group production manager To email anyone at Newsquest Tricia McBride Specialist Media Senior production controller please use the following: Gareth Kime fi rstname.surname@ Head of events Debbie Kidman newsquestspecialistmedia.com Strategic RISK 1 01_03_IntroFword_SRELG11.indd 1 15/04/2011 10:36 ENVIRONMENTAL GUIDE [ INTRODUCTION ] operators are required to take Do you know preventative measures in the event of an imminent threat of environmental the consequences of damage. This proactive approach contrasts with established environmental law, which is mainly concerned with environmental liability? repairing the damage a er the event. Focusing on the fi nancial repercussions of Financial drivers pollution, the Environmental Liability There is still much uncertainty surrounding the operation and Directive brings much-needed clarity enforcement of the ELD, particularly in terms of fi nancial penalties for polluters. This is understandable given how ITHOUT QUESTION, THE wide-reaching it is geographically and W Environmental Liability Directive with respect to the liabilities created, so (ELD) is a signifi cant development in only time will tell as the law is allowed to environmental law, but we must be ‘bed in’ across the EU. mindful not to focus solely on this most One key driver behind enforcement recent legislation and ignore existing law, will be the resources available to the which is well regulated in many regulators. Unfortunately, tough economic territories. These laws still exist and will times see public bodies reducing staff still be enforced alongside the ELD, not numbers, which will only weaken their replaced by it. In some EU member states, ability to enforce new regulations. however, the position is very diff erent, as The economic climate may also be less well-developed environmental law responsible for government reluctance in means the ELD has meant a more enforcing environmental regulations too fundamental change. strictly. The need to help industry out of What the ELD does do well is focus recession means a heavy-handed far more attention on the consequences approach to enforcement may not be the of environmental damage, particularly right way to go at this time. with respect to natural habitats and Regardless of enforcement activity, protected species, which we may call changes in legislation are a positive ‘biodiversity’. Indeed, the introduction of driver in companies’ growing awareness complementary and compensatory of their environmental responsibilities, remediation costs is testament to this which is coupled with an increased focus core focus, and demonstrates how the on corporate responsibility across the fi nancial consequences of environmental board. Reputational risk is certainly a big damage for the polluter will be more part of this as customers, shareholders, severe under the new regime. The investors and other stakeholders will introduction of strict liability is another increasingly look at environmental important development, replacing the performance when making decisions. need to prove fault or negligence for While companies may be more aware many ‘regulated’ industry sectors. of environmental risk, recognition of the The ELD also looks closely at consequences – despite the legislative preventing incidents in the fi rst place, as drivers – is questionable. Many will 2 StrategicRISK 01_03_IntroFword_SRELG11.indd 2 15/04/2011 10:36 associate such risks with large-scale pollution events, such as that which SUMMARY occurred in the Gulf of Mexico last year. The Environmental Liability Directive This focus on severity means businesses, regardless of type and size, • The ELD focuses on the consequences of environmental overlook their own environmental damage and recognises the need to expand existing laws. exposures, plus it must be remembered • Financial provision for environmental damage is a rapidly that fi nancial consequences for each developing requirement in the EU, and companies should company are relative. Indeed, the costs protect their business regardless of legal requirements. of remedying environmental damage • Demand for environmental insurance has risen in line with may easily be absorbed by one risk awareness. organisation, but could threaten • Economic conditions mean many organisations cannot the solvency of another. aff ord to assess environmental risks or take out insurance – but they cannot aff ord the uninsured losses either. Covering yourself One very important development championed by the ELD in particular is other EU territories, but of late has the concept of fi nancial provision for focused on ‘operational’ environmental environmental damage. While this risks: those that companies face as a initiative is still in its infancy across the result of their ongoing business activities. EU and has without doubt been slowed The goal here is that this type of by the current economic downturn, it is a insurance be considered in the same way signifi cant change and presents good as other lines, like public liability or opportunities for the insurance industry. property. Insurance is seen by many as the most There is room for development, but obvious and arguably effi cient solution to specialist insurers in this sector have satisfy fi nancial provision requirements. made signifi cant strides in making this Transferring the fi nancial type of insurance accessible and consequences of environmental risks to aff ordable for all organisations, the insurance market should be a key irrespective of size or industry sector. consideration for companies whether Certainly, environmental risk insurance legislation encourages it or not. While is not exclusively for large multinational many organisations are unlikely to act corporations; a wide range of entities unless forced to by legal or contractual from small family-run fi rms to global requirements, it is evident that as organisations have adopted this level of awareness of environmental risks has risk management. developed, so too has demand for Current economic conditions are environmental insurance solutions. making it diffi cult for many to assess Companies that appreciate the environmental risks or indeed purchase importance of such risks and the need to adaquate insurance protection, but manage them strategically also recognise companies must ask whether they are that environmental insurance can be an able to aff ord the consequences of effi cient and eff ective means to support uninsured environmental events. SR this strategy. The environmental insurance market Wayne Harrington is UK and Ireland is well established in the UK and many manager of environmental risk at ACE Strategic RISK 3 01_03_IntroFword_SRELG11.indd 3 15/04/2011 10:36 ENVIRONMENTAL GUIDE [ GERMANY ] In this environmental KEY ADDITIONAL state, the polluter LIABILITIES FROM THE ELD • Operators have to report any always pays pollution incident – it is a criminal off ence not to do so. But a ‘patchwork of regulation’ makes • Strict liability – fault or Germany a tough place for risk managers to negligence is not a prerequisite