Firms warned not to neglect environmental responsibility
14 July 2008
Major firms are failing to manage environmental risk effectively at a time when the European Union is set to impose a new environmental liability directive (ELD) which will impose a far greater burden on business.
The directive was set to become UK law in April this year, but is now set for implementation in the fourth quarter, with a warning from Lloyd’s underwriting group ACE that risk managers are still unsure of their responsibilities.
Ace commissioned research by the Economist Intelligence Unit (EIU), which found that effective management of environmental risks is being hampered by a lack of certainty about the impact of environmental liabilities and slow progress on international regulatory harmonisation.
When the EU ELD becomes law, firms will face an entirely new liability regime, which will lead to a far greater financial exposure for those firms that are found to have impacted the environment.
Under the rules, the firms will be responsible for damage to land, water and biodiversity, which may well leave them with a huge potential exposure.
The survey of 320 senior global executives revealed that environmental risk management has been neglected by many, with 43% of respondents saying that they either managed it in an ad hoc manner or not at all. And, according to ACE, this suggests that despite media, investor and regulatory scrutiny of businesses’ performance in this area, environmental risk has not yet become part and parcel of the main risk management agenda.
Wayne Harrington, ACE’s Environmental Risk Manager for UK & Ireland, said: “The findings are a wakeup call to organisations to act now to include environmental risks as part of their overall risk framework. Insurance can play an important role in protecting them but, to ensure it is applied to optimum effectiveness, risk managers must first ensure that their risk assessment procedures and reporting lines are clear and robust.”
Harrington concluded: “Environmental risk management is set to rise up the corporate agenda as concerns about climate change, compliance with developing legislation and the overall impact of business on the wider environment increase. While these offer huge challenges to organisations across Europe, they also deliver opportunities both in terms of enhanced reputation and customer satisfaction for those that address the issue.
“The insurance sector is well placed to play a strategic role in terms of the development of products and services to help deal with these risks effectively.”
Last updated on 14 Jul 2008
