Applying the Risk Management Process to Environmental Management

Article excerpt

Environmental issues as a risk management responsibility? Thank goodness that's someone else's problem. Not so fast! Today, good environmental management is everyone's responsibility, from the chief executive officer down to the last employee. The risk manager is no exception.

The basic principles of risk management present ideal tools for management of environmental issues. Today's society seems to seek a risk-free environment. Meeting that demand will require the managers of today and tomorrow to use every resource available to them including the knowledge and skill of the professional risk manager. As with other property/casualty risks, the consequences of failing to recognize and properly treat environmental risks can be catastrophic.

For the risk manager, the key to dealing with environmental exposures is the ability to successfully identify, analyze and manage those exposures. Every organization needs an effective management plan to rate compliance with assure corporate environment laws and provide for the identification, assessment and management of all areas of environmental risk and liability. This process should include the risk manager.

From a risk management perspective, environmental exposures are no different than other property or liability exposures. The same body of risk management knowledge, experience and techniques that professional risk managers utilize every day in their work can be readily applied to the environmental risks their employers face. The goal of this article is to help risk managers begin to think about environmental risks and exposures. At the very least, this article should give risk managers that may not currently have environmental responsibility the ability to identify a significant number of potential environmental risks and show them how to identify and develop appropriate controls.

1. ENVIRONMENTAL RISK IDENTIFICATION AND ANALYSIS

The first step in managing environmental exposures, as with all other risks, is appropriate risk identification and analysis. The following environmental issues are important in this process:

EXISTING OWNED/CONTROLLED PROPERTY. The proliferation and complexity of environmental laws pertaining to real property make the proactive management of an organization's environmental liabilities a necessity. Management of environmental risk should include programs to systematically and objectively review, inspect, evaluate and document the organization's environmental performance. A facility audit or environmental site assessment is a fundamental part of the environmental management process. This audit process should be utilized to identify and quantify the risks associated with specific sites and develop controls and/or remedial actions to minimize the risks and associated expenses.

An effective site assessment program requires assurance that the property use complies with existing state, federal or local permit requirements. Where property has been acquired or leased, laws such as the Resource Compensation and Recovery Act (RCRA) could impose liability for the historic permit violations of the prior operator. This is important since many environmental regulations carry per diem penalties, and violations may expose the entire company and all its operations to closer scrutiny from regulatory authorities with the potential to increase liabilities including damage to public image.

PROPERTY TRANSFERS. Property transfers hold the potential for environmental liabilities that substantially exceed the value of the property being purchased or sold. Caution should be exercised by both parties to a property transfer. From a buyer's perspective, environmental issues should be identified early in the acquisition process so that an informed risk assumption decision can be made and contractual provisions structured to allocate the risk between buyer and seller. From a seller's viewpoint, adequate and timely identification of environmental liabilities will allow management's efforts to be directed at curing the environmental liabilities of a property or, at a minimum, establishing appropriate financial reserves prior to deciding to sell. …