Magazine article Journal of Property Management

Beyond Compliance: Environmental Risk Assessments at Industrial Properties

Magazine article Journal of Property Management

Beyond Compliance: Environmental Risk Assessments at Industrial Properties

Article excerpt

A manufacturer continuously operated a machine to punch holes in sheet metal. A portion of the machine was located beneath the floor. For more than 20 years, lubricating oil from the machine's moving parts was released into surrounding soils. When nearby homeowners' down-gradient wells used for potable water were tested, they contained toxic, total petroleum hydrocarbons. They were traced to the "leaking" equipment. The homeowners, forced to hook up to municipal water, submitted claims totaling more than $1 million for hook-up costs, trespass of pollutants, and perceived bodily injury.

Although the leaking machine is an extreme example of what can happen to an unchecked environmental exposure, there is an unrecognized facet of this story. If the site was leased, liability for the exposure may have been co-owned. In some circumstances, the business owner would share cleanup costs with the property owner, even if the property owner had no dealings with the manufacturing operations. Facility managers, as well as property owners, cannot afford to overlook such environmental risks.

Supplementing regular compliance audits with an Environmental Risk Assessment Survey (ERAS) is a highly effective method of identifying potential exposures associated with a facility's operations and procedures. The ERAS helps a company move beyond the checklist approach of finding out what is wrong to the active approach of making things right. When applied as a clause in a site leasing agreement, in cooperation with a tenant's risk management efforts, an ERAS helps protect a property owner from environmental liabilities.

Proactive Loss Control

The strength of an ERAS lies in its proactivity. While a compliance audit simply measures if and where regulations are being met, an ERAS measures compliance, identifies significant and subtle areas of risk, and then recommends an appropriate risk management program, such as who to contact in the case of a spill or what steps to take to prevent contaminants from spreading to surrounding areas and incurring further liability.

Depending on the site-specific situation, a similar event at two different facilities could produce dramatically different losses. For example, the catastrophic rupture of an above-ground storage tank containing methanol at a facility utilizing an impermeable secondary containment structure will have minimal impact on the facility's soil. But that same ruptured storage tank, minus the secondary containment and situated on a site that is sloped toward a recreational waterway, will have a devastating impact on the waterway's environmental condition. It is the environmental and/or plant manager's responsibility to minimize the exposures associated with their particular operation. Identifying and minimizing risks can be done by conducting an in-house assessment, retaining a third-party assessment firm, or employing a combination of both.

ERAS Components

The ERAS is structured to evaluate existing standard operating procedures and facility programs for their effectiveness in reducing or eliminating both potential catastrophes and gradual events. This is accomplished by assessing various areas of an operation.

Corporate organization. Initially, the risk management consultant gathers information on the overall company philosophy. Does management appear to be proactive or reactive when addressing potential environmental exposures? Is management committed to implementing recommendations for reducing existing exposures? At the outset, management may indicate its commitment, but its attitude can change at budget time.

Environmental setting. Who are the surrounding tenants or neighbors? What are the underlying soil and groundwater characteristics at the site? Where are surface water bodies located in relation to the site? Is the groundwater or surface water used for potable purposes? Resources should be allocated to protect environmentally sensitive areas. …

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