Press Release Summary: Risk managers of all organisations must now view environmental risks as part of their core risk management, according to Aon Global directors Bob Martin and Marcel Steward, speaking at an environmental risk management workshop at the AIRMIC conference on 6 June.
Press Release Body: Risk managers of all organisations must now view environmental risks as part of their core risk management, according to Aon Global directors Bob Martin and Marcel Steward, speaking at an environmental risk management workshop at the AIRMIC conference on 6 June.
Aon believes that environmental risks can represent the largest, yet often unquantified and unrecognised, potential liability for many companies. The fear that this may be the case is currently dissuading many companies from taking even the basic steps of any risk management process, to identify and assess these risks. A frequently perceived barrier to managing these risks and openly sharing the potential impact with the stakeholders, is the potential complexity and diversity of the contributing elements. The general lack of experience on how to work through the initial risk management stages in such a scenario only serves to exacerbate these perceptions.
Utilising the 'how do you eat an elephant' principle, Aon demonstrated how an apparently daunting task can be broken down into 'bite size' pieces. Each 'bite' can then be tackled with the help of an appropriate specialist environmental risk management and risk finance advisor (internal and/or external), utilising the widely accepted risk management standard approach advocated by AIRMIC and the IRM. Aon advocates this approach in combination with its 'twin track' strategy, which is followed as a first step in order to 'divide the elephant-sized task' into two smaller, more manageable parts. This sub-division then focuses on the pre-existing contamination in isolation to the potential 'new' pollution issues, either known or unknown.
Having identified and evaluated the risks, Bob and Marcel advised that physical measures and contractual conditions need to be considered as potential solutions before attention is turned to risk finance measures. They then dispelled many of the myths and misconceptions that are propagated by non-specialists in regard to environmental impairment liability insurance covers, going on to outline where these can then be used in a cost efficient manner to minimise premium spend.
The workshop leaders went on to advise risk managers that environmental risk management could well be their 'key' to the boardroom door, as there is an absolute need for directors to take a top-down view of internal control systems in accordance with the Turnbull guidance. With the EU's proposed Environmental Crime directive advocating up to 10 years imprisonment for directors who are responsible for legal non-compliance, Marcel expressed the view that risk managers were likely to find a receptive audience for their message.
Marcel added: "With the flow of new environmental law showing no sign of abating, risk managers are living in a fool's paradise if they are still using costs of claims or regulatory issues from the past to justify their expectancy of similar minimal costs in the future, or why they are not taking any action on environmental risk management."
Picking up on this theme, Bob highlighted this point with respect to the Environmental Liability Directive, which is now law in the Member States, and the proposed Soil Directive to follow later this year or next. As such, justification for spend on environmental risk management must be viewed as a meaningful and necessary investment into a company's future, as opposed to a mere short term cost.
Both agreed that companies who procrastinate about environmental risk management were heading for a rude awakening. Bob explained: "A company could persuade itself that the voluntary approach of corporate governance disclosures did not necessitate them looking at their real, potential and perceived environmental risks at this time. They could even raise a credible argument to ignore these aspects as far as the Accounts Modernisation Directive and Financial Reporting Standards (FRS 12/IAS 37) are concerned, but the clock is still ticking and it is becoming louder and louder. It cannot be ignored for much longer.
"The ELD goes some way to empowering regulators to take action and there are moves afoot in Europe to promote a Sarbanes-Oxley mandatory approach to corporate governance and related disclosures. This is likely to be accelerated into a reality if the current voluntary basis does not result in the basic disclosures to stakeholders, enabling them to make sound investment decisions."entertainment and media liability insurance
Bob and Marcel concluded that the evidence showed that investors favour green investments and so those who invest in environmental risk management will reap a real financial benefit, both in the immediate short term and continuing into the future. They encouraged risk managers to take up the challenge of environmental risk management, as the reality may be far less frightening than their employers' perceptions and the apparent future legal consequences and commercial realities may suggest.
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2025
