A Growing Role: Environmental Risk Management in 1998

Article excerpt

The responsibilities of corporate risk managers are being influenced by a variety of trends and market forces, and environmental issues are playing a role in this paradigm shift in the concept of "good business." There is growing evidence that environmental risk management systems can assist a company in anticipating market demands, distinguishing itself from the competition and gaining commercial advantages that boost shareholder value. Many companies are paying greater attention to the link between long-term environmental protection and the commitment to achieve sustainable development and economic growth.

Among the trends driving the concept of sustainable development are the changing relationships between government and industry, as well as the growing willingness of companies to establish partnerships that enhance such development.

One direct result of corporate restructuring and consolidating is that more environmental risk management responsibilities are falling on the shoulders of corporate risk managers. At the same time, environmental regulatory philosophies are changing from command-and-control, technology-driven prescriptive programs to performance-driven, risk-based decision-making approaches.

These themes become more apparent when we look at some of the issues and challenges facing environmental risk managers today. This article briefly identifies eight central issues that are influencing the way risk managers will address environmental exposures in 1998.

Clearing the Air

Air pollution issues are taking center stage this year in Congress, the U.S. Environmental Protection Agency (EPA) and corporate boardrooms. The climate change debate is likely to eclipse other emerging environmental matters facing risk managers. The December 1997 Kyoto Accord on Global Climate Change directly affects national and multinational organizations that generate greenhouse gas emissions, the sources of which include the burning of fossil fuels, certain agricultural activities and various industrial processes. Utilities, transportation and construction are among the numerous industries that are affected directly by regulations governing the emission of greenhouse gases.

The United States has agreed to cut its greenhouse gas emissions to 7 percent below 1990 levels by 2010, and President Clinton is expected to present a $5 billion initiative this year to reduce those emissions further.

Risk managers will have to address tighter EPA standards for ozone and particulate matter promulgated in 1997 and the agency's proposed efforts to cut ozone transport. The EPA has also reported that compliance rates will increase as a result of the multitude of rules and guidances coming in 1998. The new monitoring and evidence rules will potentially create considerable litigation. This is due in part to the credible evidence rule, which allows the agency to use a wider array of evidence in attempting to prove Clean Air Act violations.

Companies with international operations should look for the creation of an emission trading system for greenhouse gases and an increase in the number of developing countries participating in international efforts to limit emissions.

Superfund

Reform bills introduced in both houses of the first session of the 105th Congress will be debated again in the second session. Comprehensive Superfund reform will be affected by 1998 being an election year, and Congress may produce a more targeted bill that contains tax credits for brownfields redevelopment and liability carve-outs for municipalities.

What is really needed, however, is comprehensive reform legislation. Risk managers whose companies are involved in federal or state Superfund actions will again be faced with an onerous liability scheme and remedy selection process and overly prescriptive cleanup standards. The effort to gain consensus between the White House, industry and the environmental community on Superfund will be challenged by a push by some legislators to pass a stand-alone brownfields bill or to reform the Resource Conservation and Recovery Act (RCRA) Corrective Action program. …