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It has also been noted that HSBC Markets was one of the financiers of the con-
troversial Three Gorges dam project in China (Probe International, July 2000).
HSBC and other banks are now addressing these risks issues as they have estab-
lished a sector environmental behaviour code, ˜the Equator Principles™;
Scottish and Southern Energy plc was found guilty of polluting groundwater
in 2000. Over 1500 litres of power cable insulating fluid had seeped into a
meadow rich in insect, plant and bird life, only metres away from a river in
Berkshire (ENDS Report, 2001);
Tesco plc: according to the Environment Agency™s ˜Spotlight on Business
Environmental Performance 2002™, Tesco Stores Ltd was listed as being one
of 14 repeated offenders. In September 2001 Tesco was fined £30 000 for cus-
tomers polluting a river with 197 abandoned trolleys between 1999 and 2001
(ENDS Report, issue number 320: In Court, September 2001). The company
was reluctant to install coin-in-the-slot locks because it feared adverse cus-
tomer reaction, yet did so after the prosecution. Tesco received a £10 000 fine
in August 2002 for admitting to polluting groundwater in Dorset with 6000
litres of petrol (ENDS Report 331: In Court, August 2002);
Part D “ Overview of the Environmental Aspects of Business Risk
468



Thames Water has been called upon by the Environment Agency to find a
solution to storm discharges that resulted in 600 000 tonnes of untreated
sewage being released to the Thames on 3 August 2004. These discharges
occur regularly, on average 50“60 times a year (Financial Times, 5 August
2004); and
Unilever plc: according to Unilever™s Environmental Performance Summary
Report 2002, the company received nine fines in 2001 totalling ‚¬19 222 for
infringement of environmental regulations. The Ecologist (March 2001) also
reported that a Unilever site with 7.4 tonnes of toxic mercury (laced waste
from a thermometer factory) had been discovered in India. The dumpsite was
close to a school and a sensitive watershed forest. Company officials denied
and downplayed the site.


Risk management case studies
Governments are able to impose restrictions on a sector, e.g. the suspension of
all single hull oil shipping movements as a result of a single hull oil tanker
breaking up off the coast of Spain, with an eventual ban across EU waters. The
following are examples of positive risk management programmes and projects:
British American Tobacco has developed a positive environmental risk pro-
file for their approach to biodiversity with their afforestation programmes. To
ensure the use of renewable supplies of wood and the preservation of natural
forests, British American Tobacco have sponsored and promoted the planting
of over 250 000 hectares of managed renewable woodlands worldwide since
1970, the equivalent of 550 million surviving trees. The scale of the wood-
lands effectively means the group is responsible for one of the world™s largest
tree-planting operations outside the timber and paper industries (BAT CSR
2003, p. 90);
Rio Tinto incorporates biodiversity damage assessments into their risk
assessments for all primary and secondary projects impacts;
Sainsbury™s and Marks & Spencer have joined with other European food
retailers in their drive to create a genetically modified ingredient-free consor-
tium. Unilever and Nestl© also announce in 1999 that they will remove these
ingredients from their food products;
Shell publicly report on all their activities in IUCN category 1“4 protected
areas and have even gone as far as to say that they will stop exploration in
these sensitive areas;
Bryant Homes have learnt from a previous incident and have taken extra cau-
tion. One example is that of slow worms being discovered on a building site
in Solihull. Work stopped until specialists could be brought in to assess the
environmental risks (Birmingham Evening Mail, 20 June 2003, pp. 1, 3);
Unilever have won accolades for their approach to sustainable fisheries; and
Wal-Mart has established two experimental stores, to test the environmental
opportunities available. Their current goals are:
To be supplied by 100% renewable energy;
Chapter 19 “ Aspects of environmental risk 469



To create zero waste; and
To sell products that sustain our resources and environment.
Charles Zimmerman, vice president of prototype and new format development,
said: ˜We see these stores as moving in the right direction for a more sustainable
future for Wal-Mart. We will continue to lead the way in developing sustainable
building and business practices.™
There are companies that can benefit from environmental incidents, like
those that can win clean-up contracts after environmental disasters, like
Hurricane Katrina, for example Aggreko makes temporary power generators
that would be in higher demand, and this led to a 7.5% share increase shortly
after the storm struck. At the same time these hazardous events can impact
upon value as BP fell 2.3% when it was found that its Thunder Horse oil rig
southeast of New Orleans had been affected by the storms (Financial Times, 13
July 2005).


Historical environmental liability risk
Research and analysis into historical risk liability indicates that:

Historical liability risk is 0.8% of market value of the top 500 EU and US
companies; and
This risk exposure has been reduced from 1.1% of market value by good risk
management techniques (the risk reduction/management factor).

Historical liabilities are defined by SERM as an act of corporate negligence or
wrongdoing where the negative environmental impact is discovered after a sig-
nificant period of time. Examples of historical liability risk include:

Contaminated land, water or air that has been caused by the operations of a
company;
Contamination leading to adverse health implications including, disabilities,
long-term chronic illness, cancers and deaths; and
Prolonged failure to clean/up grade contaminated land or waste disposal
sites, and negligent sale of unclean or contaminated land to ˜high public con-
tact™ industries, such as construction.

Although most US and EU organisations are becoming accustomed to
environmental risk management in accordance with their own legislation, for-
eign countries are increasing their own standards of environmental regulation,
requiring risk managers to familiarise themselves with environmental laws in
countries in which their companies do business. Many countries are now pass-
ing laws similar to the American ˜past sins™ regulations; risk managers should
investigate countries in which they are currently doing business, and countries
in which they have done business in the past to avoid liability for clean-up of a
previously polluted site.
Part D “ Overview of the Environmental Aspects of Business Risk
470



The following graph shows the environmental risk from historical liabili-
ties by sector.
Environment “ Historical Liabilities
4.0%

3.5%

STEEL & OTHER METALS
3.0%
ELECTRICITY
Net (Residual) Risk




2.5% REAL ESTATE
AEROSPACE & DEFENCE
2.0%
MINING
OIL & GAS
1.5%
SECTORS
1.0% FTSE 350 AVERAGE

0.5%

0.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Gross (Inherent) Risk


For example, the EU passed legislation in 2004 mandating retrospective
liability for corporate pollution damage, and environmental liabilities and
environmental insurance is growing in Australia, New Zealand and Japan, as
well as a number of Latin American countries.


Case studies
The World Health Organisation (WHO) says that prevention is the way to
reduce the historical liabilities of the future. For example, the long-term
impacts of pollution upon the brains of children in many parts of Europe are
now being discovered. The WHO claims that lead continues to be a menace,
with up to 30% of urban children showing high blood levels in some regions.
ICI plc is facing a potentially huge historical liability suit in the US, where
large class actions (300 000 litigants from Rhode Island) due to the sale of paint
with lead in it are common.
Another big area of historical liability is contaminated land, which can have
an impact whether owned, previously owned, rented or leased by the company.
The UK has a high population density with high land resource prices, so the eco-
nomic pressures on land resources are higher than in most other countries. This
translates into higher risk levels and greater propensity to disturb polluted sites:
Agrochemicals sites linked with the contamination of groundwater and sur-
face water; and agricultural waste including animal residue, GM sites and old
farm waste deposits;
Chapter 19 “ Aspects of environmental risk 471



Asbestos contaminated sites: there are many risk exposures to asbestos for
companies, as it has been such a widely used material;
Chemical sites: drinking water boreholes can become contaminated. Chemical
sites can have run-off polluting nearby rivers, like the former Mirvale Tarworks;
Industrial sites: agrochemicals sites linked with the contamination of
groundwater and surface water;
Manufacturing: a brownfield site being redeveloped as a council depot was
found to be heavily contaminated with solvents and metals linked to a former
button manufacturing works;
Military: a secret chemical weapons factory at the Royal Air Force Portreath
base (Nancekuke), in Cornwall, closed in the 1960s leaving five dump sites,
which are now causing pollution of groundwater, surface water and the sea;
Oil: there are numerous incidents of leaking diesel and fuel storage tanks.
Indeed, there is an increased requirement to assess liabilities in this field. BP
Amoco/ARCO has received a record fine in the US for underground
water pollution as a result of leaking storage facilities. There have been
numerous incidents of groundwater and soil contamination and residents™
complaints; and
Secondary contamination can also occur as waste is removed from one site
and dumped at another, e.g. the lead contamination of soil at an allotment
site in Southampton occurred due to the importation of contamination from
another site.


Risk management
The cost of remediation of contaminated sites has outstripped the rise in infla-
tion/interest rates and this situation is likely to continue as more individual liabil-
ities are recognised as a result of environmental health incidents. This risk
could be reduced such as in the following examples:

National Grid Transco have over 700 sites, but have a phased plan for the dis-
posal of them at a rate of several hundred a year. A best practice approach
makes sense; and
Wilson Bowden is mitigating their housing development work by building
flood defences at the Gateway Glasgow site. It involves raising the level of the
land and widening the Clyde, which borders the development. As part of the
design exercise, engineers had to prove the flood prevention proposals
would not result in problems being transferred further up or downstream
(Evening Times (Glasgow), 11 April 2001, p. 7).


Air pollution risk “ from production
Research and analysis into the risk of air pollution from production indicates that:

Air pollution emissions from production-related risk is an average of 0.4% of
market value of the top 500 EU and US companies; and
Part D “ Overview of the Environmental Aspects of Business Risk
472



This risk exposure has been reduced from 0.6% of market value by good risk
management techniques (the risk reduction/management factor).

It is estimated that the worst performer could lose 25% of its earnings due to
regulatory compliance costs and the best could make a revenue addition of
11% to turnover. In the Carbon Disclosure Project analysis of 2000 companies
www.cdproject.net
Air emissions are a major cause of air pollution, and in particular green-
house gases are the major cause of climate change. Historically this issue has
periodically made the headlines, with a tax on coal helping Sir Christopher
Wren completing St Paul™s Cathedral, and the great London smog of the 1950s
leading to some of the first pollution control legislation in the world.
The causes of air pollution:

Carbon dioxide and other ˜greenhouse gas™ emissions like methane, which is
emitted from many sources, including the decomposition of organic wastes,
gases from living life forms like herds of cattle, the production of coal and
natural gas and seepage from rotting vegetation from landfill sites;
CFCs (chlorofluorocarbons), as used in solvents, aerosol sprays and refriger-
ation units are responsible for destroying atmospheric ozone which is
essential to life as it absorbs harmful ultraviolet radiation;
Combustion by products like carbon monoxide and PM10s from vehicles as
well as dioxins, furans and PCBs (polychlorinated biphenyls); and
Heavy metals like lead and mercury which placed into the air by engine com-
bustion and industrial metal working and incineration processes.

The issue is promoting political debate as can be seen in the next chapter. Tony
Blair™s statement in May 2004 can only pave the way for future legislation to
control emissions and subsidies to encourage good practice by individuals and
organisations. At the moment many governments are not achieving all their tar-
gets. New reports show increasing emissions, though the UK Office of National
Statistics redrafted a report and omitted to include that since 1990 there has
been an 85% increase in air pollutants from the airline industry and 59% from
freight transport (˜Officials try to hide rise in transport pollution™, The
Guardian, 27 May 2004).
The financial community is expressing concerns about these emissions
and the associated risks associated with air pollution, and in particular global
warming. Clear reporting on emissions and pressure on larger companies to
make their supply chain more efficient is necessary. The UK™s Local Authority
Pension Fund Forum is also attending the AGMs of several FTSE100

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