In determining the needs of multinational clients looking to set up operations overseas, companies need a clearer understanding of the environmental regulatory picture, a new report has concluded.
In a white paper produced by ACE, the scale of variance in environmental regulations around the world is laid bare, highlighting the expanded risks faced by companies investing in unfamiliar overseas markets. It is imperative that those investors consider new and expanded environmental legislation, as ACE’s paper “Protecting Against Environmental Risks in the Global Marketplace” argues.
The paper asserts that by understanding the environmental challenges, businesses can take measures to protect their investments and reputations by securing appropriate insurance coverage. It highlights that many companies are labouring under the misconception that property damage and clean-up costs are covered under their general liability insurance.
Following a recent explosion at a paint storage facility in East Yorkshire, the company sought to recover £770,000 in clean-up costs incurred by the Environment Agency, but having sued the insurer to recover costs a court ruled that the clean-up was not insured as a liability for damages under the policy. This highlights that there are significant gaps in more traditional forms of liability insurance, and companies should be working with their brokers to ensure that they have adequate protection for these types of exposures, which can be covered under a separate environmental liability policy.
The paper warns that there is a lack of awareness from companies on both the type and potential scale of environmental liabilities they face.
“Before opening or expanding operations overseas, it is imperative to perform strict due diligence to evaluate both historical and on-going environmental liabilities in the context of the regulatory regime,” says Emma Bartolo, the company’s UK & Ireland Risk Manager. There are massive opportunities for multinationals seeking to grow, but companies should not overlook the possibility of a pollution incident on their own property that requires an expensive clean-up. Companies that are not prepared to meet that expense could potentially be putting their investment, reputation and business in jeopardy.”
On top of national regulations, multinationals must also contend with legislation that flows from other areas, including the European Union. In 2007, the Environmental Liability Directive entered into force, establishing a consistent baseline across all 27 EU members. This created the ‘polluter pays’ principle seeking to prevent damage and provide for remediation in kind where necessary. This includes a requirement to either restore damaged natural resources or to recreate a similar resource nearby, and permits the implementation of financial assurance by individual Member States.
To date, most Member States have not taken up this compulsory financial assurance, but that the option exists should serve as a reminder to multinationals to beware the likelihood of future environmental regulation changes. What is already clear is that multinational exposure has already helped raise awareness at board level. Emma Bartolo explains: “There is certainly a greater awareness of environmental issues generally, and pollution issues specifically, than in previous years. Corporate Social Responsibility has played a role—the environmental liability question is firmly on the boardroom agenda. This is fuelled by pressure to operate in a socially responsible manner, but we’d also hope that we are making a positive case for greater environmental risk awareness within corporates.”