Demonstrating your ESG credentials
For decades, proactive environmental improvements have been seen as a good thing to do but were low on the list of financial priorities.
This has fundamentally changed in the last few years. Due to pressure from funders and insurers, organisations are being rated for their Environmental, Social and Governance performance. ESG is becoming an essential requirement for thriving in business.
All organisations from large corporates to SMEs need to address environmental liability risks as part of their ESG strategies.
The high cost of pollution
Many companies make promises to comply with environmental legislation in their Environmental or Sustainability policies, however accidents and pollution incidents do happen and the financial and reputational stakes are extremely high.
What is the point of well intentioned ESG statement, if a non fault pollution incident can result in a million pound fine and negative publicity as “polluter”?
Examples of UK fines
- Thames Water – sewage river pollution – £20 million
- Valero Energy – explosion – £6 million
- ConocoPhillips – chemical leak – £3 million
Under the Environmental Permitting (England and Wales) Regulations 2016 there can be unlimited fines and imprisonment for water pollution offences. In 2018 Tesco was fined £8m for petrol spills at a forecourt in Lancashire which resulted in river pollution and a large fish kill. £5 million of this fine related to breaches of health and safety legislation.
Environmental liability regimes
Companies and individuals can be targeted under several environmental regimes – Part 2A EPA 1990, s161 WRA 1991, EPR 2016 and EDR 2015. The liability rules are wide and many innocent businesses face significant clean up liabilities and fines.
• Owning or controlling a storage tank can make you a causer
• Reading an environmental report can create a knowing permitter liability
• Owners and occupiers can become liable for historic contamination
In addition to criminal liabilities, polluters can face multi-million clean up bills.
In Sandridge, a chemical company and developer have been undertaking groundwater remediation works for over two decades and the clean-up bill is estimated at over £16 million. The developer was liable as “causer” simply by removing tarmac during the site enabling and construction works. After the soil was exposed, heavy rain, washed chemical contaminants into the chalk aquifer.
Pollution risks for SMEs
With less investment in environmental management, SMEs face the same strict environmental legislation so need to pay special attention to oil storage tanks and drainage systems.
Pauls Malt was fined £131,000 following a storage tank leak into the soil. The fine and clean up costs could have exceeded £1million if groundwater or surface water had been impacted.
Empress Car Company (Abertillerty) Limited was found liable as “causer” of water pollution after vandals opened the taps of a diesel tank pipe.
Environmental liability management and pollution prevention
The spotlight shines the brightest on polluters, so action needs to be taken by both large companies and SMEs.
An example of a proactive environmental liability management programme is www.spillinsure.com
- Risk management with environmental legal advice, site inspection and insurance protection.
- Pre-loss site inspection with advice on oil storage tanks and pollution prevention.
- An annual insurance policy protects against operational incidents (accidents and spills from storage tanks) and historic contamination liabilities.
Keith Davidson is the founder of ELM Law, a specialist environmental law firm that specialises in environmental liability management . Rob Latimer is an environmental insurance broker at specialist environmental insurance consultancy EDIA Limited.