A new environment for environmental liability 

Environmental issues are at the top of the agenda for companies across Europe. And regulatory and stakeholder scrutiny of companies’ environmental performance is increasing. Sylvie Monereau, product leader environment – APAC & Europe at AXA XL, discusses the changing face of environmental liability and the role insurance has to play in working with clients to address this evolving risk.

Stakeholders from all walks of life are now increasingly focused on their own environmental impact, and the environmental performance of the companies they buy from, work for and interact with. Companies of all sizes and all industry types are setting or will implement environmental, social and governance (ESG) goals. Regulators in Europe and beyond are seeking greater reporting clarity on the environmental performance of companies, while non-governmental organisations and other third parties have an increasing appetite to seek financial redress for environmental and biodiversity damage as well as the physical effect on animal and human life.

In short, the potential environmental liability exposures of our clients are changing – all the time.

Underwriters are monitoring this fast-changing landscape, talking closely with our clients about developments in their own business and, of course, watching the evolution of prior-year losses and trying to detect trends.

One area that has come under the spotlight in recent years is the use of per- and polyfluoroalkyl chemicals (PFAS), also known as forever chemicals.

PFAS have water and dirt-repellent properties and are used in a wide variety of consumer goods, like textiles, cosmetics and toiletries, and food packaging, as well as other products like firefighting foam. These chemicals are extremely persistent and some forms of PFAS can take thousands of years to degrade. There are also increasing concerns in some quarters about their effect on human and animal health.

At the start of this year, five northern European countries – Denmark, Germany, Netherlands, Norway and Sweden – submitted a proposal to the European Chemical Agency (ECHA) to restrict the use of about 10,000 PFAS under the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation.

The ECHA adopted the proposal, and it is now being examined by European agencies. A ban on the PFAS in question is likely by 2025.

Underwriters are closely monitoring the progression of this proposal and the implications that it may have for clients. Insurers need to look at historical contaminations and future potential operational risks.

The PFAS issue has been bubbling for some time now and some clients are already taking steps to ready themselves for rule changes.

Environmental performance indicators

The focus on the environmental impacts of companies’ activities is only likely to increase over the coming years. And one developing area is the increasing need for companies to report financial criteria related to climate change, pollution, biodiversity, ESG performance and so on.

The EU has stated its aim to achieve climate neutrality by 2050, as part of its European Green Deal. As part of this effort, several new layers of reporting are likely to be required of companies operating in Europe.

For example, the EU Corporate Sustainability Reporting Directive will, from next year,  require large and publicly listed companies to publish regular reports on the social and environmental risks they face and how their activities impact people and the environment.

And the proposed EU Corporate Sustainability Due Diligence Directive would oblige companies to demonstrate the actions they are taking to protect the environment and human rights all the way through the value chain.

While these initiatives might suggest that a new and potentially onerous reporting regime is on the horizon, there are, in fact, several countries in Europe that have already put into place some forms of ESG reporting.

Underwriters welcome this harmonised framework as it gives valuable information when underwriting clients’ risks, in addition to the other data we require from them.

New technology, new opportunities

As Europe moves towards its target of carbon neutrality, and as companies seek to fulfil their own ESG goals, the transition to new forms of tech continues apace.

In line with our own ESG ambitions, we are willing to support the opportunities inherent in clients’ moves into new areas of technology, like decarbonisation projects, the possible increased use of hydrogen, the re-use and storage of batteries, the development of new renewable energy sources and so on.

And this drive towards developing and using new forms of technology will only increase as we move nearer to the 2050 net-zero target date. We are very open to discussions with clients about how this shift will affect their environmental liability risks and exposures now and in the future.

Environmental liability insurance is in permanent evolution. The risks faced by our clients are evolving as the expectations of stakeholders, regulatory bodies and the general public shift and change. We are attentive to these shifts and are working with clients and their brokers to understand the liabilities they will need to transfer both now and in the future.

As Europe heads towards a greener economy, our environmental liability value proposition will continue to be a valuable solution to enable clients to meet the new expectations placed upon them and achieve their own ambitions.

Contributed by Sylvie Monereau, product leader environment – APAC & Europe at AXA XL

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