Report highlights significant tightening of environmental regulation globally

Recent increases in global legislation have become the biggest change to environmental risk in years, according to a new report from Chubb in collaboration with Clyde & Co. The new environmental risks report, Global Management of Environmental Risk, explores the impact of environmental risk on multinational businesses, and focuses on recent increases in global legislation.

Suresh Krishnan, head of global accounts division, Chubb Europe said: “Environmental risk is one area which has grown exponentially [and] as a result, it is increasingly important for businesses to understand the multitude of potential threats they now face. Building a multinational programme from the ground up locally brings to the forefront the preventive aspects of risk management and is a vital perspective for a company looking to protect itself against environmental risks. The consequences of not being prepared locally can be severe and the impact of an environmental incident resonates on many levels.”

The report points out that the first hurdle to overcome when managing environmental risk on a multinational basis is to understand the different jurisdictions under which a business operates and the different regulatory requirements, whether it be compulsory insurance or the ways in which pollutants must be safely stored. “It is therefore essential to have a full understanding of these laws if an organisation is to conduct business safely, effectively and successfully across these different jurisdictions,” it states.

It explains that the rising level of global environmental legislation is putting increased pressure on firms to prove compliance with rules and regulations across all its bases of operations. The report says there is little or no uniformity across jurisdictions. For example, despite the EU’s Environmental Liability Directive, there is almost no uniformity across EU member states in how the laws are implemented. It notes that 11 member states have recorded no remediation of environmental damage within the terms of the directive between 2007 and 2013, eight countries have legal requirements for compulsory financial provision for environmental risks, and two have compulsory insurance regimes.

According to the report, globally, the changing nature of environmental risk is firmly in favour of increasing regulation, adding that there is not a country in the world, with the possible exception of the US, which is winding back on environmental regulations. At the same time, enforcement of environmental regulations across different parts of the globe varies considerably.

The report notes that Latin America has tough environmental laws, but enforcement remains inconsistent, while in China, under a new law brought in in 2015, enforcement is in the hands of local government, leading to a regionalised regulatory regime where some regions carry out stricter enforcement than others, with some having little or no appetite for taking regulatory action. It says there is a more chequered regulatory landscape throughout Europe and the rest of the world.

For example, the report says that in 2016, the concept of ecological prejudice was introduced into the French Civil Code, paving an additional way for companies to be subjected to penalties in the event of environmental damage occurring. “The code states [that] ‘any person liable for an ecological prejudice is obliged to repair it’, while an ‘ecological prejudice’ is defined as ‘sizeable damages to the elements, or to the functions of the ecosystem or to the collective assets of [the] environment from which men benefit’. These regulatory changes mean the scope to bring an environmental claim has increased. Now, any person or group of people that benefit from the environment can bring a claim if that benefit has been damaged or reduced,” states the report.

It also highlights the example of Ireland, “which has increased the level of provision required to cover the risk of environmental disasters happening”, adding: “In 2015, the Irish Environmental Protection Agency revised guidelines for financial provisions for environmental risks, requiring any holder of an environmental permit to put aside higher financial provisions in case any damage is caused to the environment.”

Apparently bucking the global trend is the US, where the Trump administration appears to be reducing environmental regulation at federal level and reducing America’s international commitments. But according to the report: “The majority of this has not filtered down to individual states, which continue to maintain higher levels of environmental regulation. In fact, by contrast, individual states have continued to increase their environmental regulation in a number of circumstances, going against the trend set by the federal government.”

Neil Beresford, Partner, Clyde & Co, said: “There has been a significant tightening of environmental regulation around the world and this is now the biggest environmental risk faced by organisations. Not only that, but organisations operating globally are faced with an extremely wide range of regulations and enforcement regimes that add complexity to their risk management and mitigation processes.”