Environmental liability

Businesses that have operations with the EU are now being required to take a more proactive approach to environmental risk management in order to comply with the requirements of the EU’s Environmental Liability Directive (ELD). Companies are now required to prevent significant environmental damage from occurring wherever possible, and they will be held liable for the costs of remediation where significant environmental damage is caused. The ELD is based on the Precautionary and Polluter Pays principles with a view to protecting the environment, and is in response to concerns about the potentially significant impacts of business on the environment as a whole, biodiversity and human health. As the ELD becomes progressively embedded into the national legislation at an individual Member State level, the resource, risk management and financial implications for operational businesses under this new regime become clear. Primarily, businesses operating in any countries within the EU are reassessing their responsibilities and potential liabilities as a result of the new definitions of environmental damage, preventative actions and an expanded definition of remediation under the ELD.

The development and roll-out of the ELD requires all operators to take a far more responsible approach to the protection of the environment, and in addition to review the potential for significant environmental damage caused by their operations. For example, where an imminent threat of environmental damage is envisaged, the operator is required to take action to prevent the occurrence of an incident that would cause the significant environmental damage, whilst also being required to notify the regulatory authority (the Competent Authority) where such a threat needs to be eliminated.

The ELD also requires the remediation and restoration of any significant environmental damage that has been caused and this must be undertaken in a timely and comprehensive manner. The enhanced definition of the term remediation is a major consideration for operators as the scope and type of remediation required has been expanded. The ELD requires that the operators accept the concept of a baseline condition, such that the effective quality of the environment on and around the site of operation should be assessed and documented. Once the baseline condition has been described and accepted, it will be this standard which will be used to determine the requirements for clean-up should environmental damage occur. Hence, it will be important to undertake sufficient studies to describe the environmental quality of the site of operation and to work with the local authority to determine the condition of the environment in the immediate vicinity around the operational area.

As and when significant environmental damage is perceived to have been caused, then remediation will be required. In relation to damage to water and protected species and natural habitats, the restoration of the environment to the baseline condition by way of primary remediation will be a statutory obligation. Where remediation back to the baseline condition is not possible, or where primary remediation is expected to take an extended period of time to complete, then complementary and/or compensatory remediation may be required. The three types of remedial activity defined in the ELD are described as follows:

– Primary remediation is any remedial measure which returns the damaged natural resource and/or impaired environmental service, to, or towards, the baseline condition.
– Complementary remediation is any remedial measure required in relation to natural resources and/or environmental services that are required to reimburse for the fact that the primary remediation to be undertaken will not result in the restoration of the damaged resource or service to the baseline condition. Complementary remediation can be achieved through the provision of a similar level of natural resource and or environmental service, including, as necessary, improvement works to be undertaken at an alternative site or sites. Where possible and appropriate, the alternative site for restoration and improvement should be geographically linked to the damaged site, taking into account the interests of the populations damaged by the incident.
– Compensatory remediation is any action taken to compensate for the interim losses of natural resources and/or environmental services that occur from the date of damage occurring until primary remediation is achieved. Compensatory remediation will consist of additional improvement works to natural habitats and protected species or water at either the damaged site or at an alternative site.

In defining the remediation required for a particular environmental damage event, consideration will be given to the requirements to restore, rehabilitate and replace the natural resources and/or impaired environmental services that have been damaged, or to provide an equivalent alternative to those resources or services. Remediation of the environmental damage, in terms of damage to water or protected species or natural habitats, also implies that any significant risk to human health being adversely affected is also removed.

While remediating any environmental damage caused, both the direct and indirect effects of the damage needs to be considered. The ELD acknowledges the choices of remedial options available considering several factors such as the use of the environmental resource, the likelihood of success of the remediation alternative, the cost if implementation of the remedial alternative, the time required to achieve the desired outcome, the geographical link to the site where environmental damage has occurred etc. It also focuses on the use and importance of the natural habitats by the general public, and the importance of complementary ad compensatory remediation in this regard.

In a situation where the operator is unavailable to take action to prevent or remediate environmental damage, the ELD gives the competent authority the right to implement the necessary measures considered appropriate and to recover all expenses from the operator.

The ELD has bought into sharp focus the requirement to assess and manage the risk of causing significant environmental damage from the business operations and requires companies to take a proactive approach to environmental risk management. The enhanced scope of measures required for the prevention and remediation of environmental damage means that businesses must now undertake additional work to quantify the likelihood and significance of potential environmental damage and to put into place procedures to reduce the imminent threat for damage being caused. Businesses must also ensure provisions are in place to remediate significant environment damage where caused. Businesses operating within the European Union are being required to reconsider their position in respect of the potential to cause damage to the environment.

Hakan Kayganaci is the leader of Marsh Risk Consulting for Turkey and Central Eastern Europe. For more information: hakan.kayganaci@marsh.com

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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