Environmental Risk Is Financial Risk

Currently, U.S. Environmental Protection Agency (EPA) regulations are under pressure. Greenhouse gas emission standards for motor vehicles have been weakened. Other regulations, including those for PFAS, might be rescinded.

However, a loosening of federal oversight doesn’t mean that businesses are now less vulnerable to environmental risks. They remain vulnerable due to a complex mix of state and local regulations, non-governmental lawsuits, evolving regulatory requirements, and risks through relationships.

State and Local Environmental Regulations

Many states enforce environmental requirements that exceed federal EPA standards, including stricter permit requirements, increased monitoring and reporting frequency, and steeper penalties for noncompliance. At the same time, local jurisdictions may impose their own ordinances, zoning laws, and wastewater requirements. This creates a challenging and highly variable regulatory landscape for businesses operating across multiple states and municipalities.

Non-Governmental Environmental Lawsuits

Maintaining strong environmental practices is also important due to the risk of non-governmental litigation. Environmental exposure can lead to third-party bodily injury or property damage claims resulting from pollution released into the environment. This can result in civil lawsuits that could lead to large financial losses for a business.

Evolving Environmental Regulatory Requirements

In addition, emerging contaminants and regulatory variability pose potential environmental risks. Regulation changes can lead to previously unrestricted pollutants becoming heavily restricted. As a result, businesses may face liability for remediation efforts and damages associated with contamination, even if the substance was not regulated at the time of release.

Environmental Risks Through Relationships

Environmental risk can also arise through business relationships. Lenders, investors, and property owners increasingly require environmental due diligence as a condition for financing, leasing, or acquisition. Businesses may be required to assess, manage, and mitigate environmental exposures to meet these expectations.

How Should Businesses Respond?

To protect their finances (and reputations), businesses should maintain high safety standards, following best practices and implementing internal policies that exceed minimum regulatory requirements. Organizations should take inventory of their individual pollution risk exposures and formulate pollution prevention and risk reduction strategies to manage these business vulnerabilities. Carrying environmental liability insurance is a good way to transfer environmental risk to cover unknown pollution events.

Environmental compliance helps businesses maintain a good public image. Being known as an environmentally friendly company builds customer trust, investor confidence, and competitive advantage. Poor environmental compliance, in contrast, can decrease company and property values, affect mergers and acquisitions, and lead to costly, long-term environmental cleanups. These risks underscore the importance of maintaining strong environmental due diligence and compliance regardless of the regulatory climate.

Ultimately, environmental risk is a financial risk, regardless of whether there are stringent federal environmental regulations.

Related Reading: Understanding Environmental Liability Exposures for Businesses

The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.