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STEEL & OTHER METALS
0.8%
AEROSPACE & DEFENCE
OIL & GAS
0.6%
TELECOMMUNICATION
SERVICES
0.4%
SECTORS
0.2% FTSE 350 AVERAGE

0.0%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Gross (Inherent) Risk

It is no great surprise that the pharmaceutical industry has a high risk
exposure to elements of this risk category through risk linked to animal testing.
But there are other instances of risk from product liability such as:
The anti-inflammatory drug (Diclofenac) is given to cattle and is alleged to be
responsible for the death of 10“14 million vultures in India, Nepal and
Pakistan. This rate of destruction at 30“50% of the species population per
year has been described as ˜the most significant conservation disaster ever in
terms of the number of birds lost,™ according to Jemima Parry-Jones of the US
National Aviary.
Part D “ Overview of the Environmental Aspects of Business Risk
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The food industry is also facing particular shortages as it is estimated that:
Fish stocks worldwide are in serious decline: 48% are fully exploited, 16%
overfished, and 9% depleted, according to the United Nations Food and
Agriculture Organisation (FAO);
Overfishing threatens 20% of the world™s 547 shark and ray species with
extinction (World Conservation Union “ IUCN); and
All species of wild seafood that are currently fished are projected to collapse
by the year 2050, according to Dalhousie University. The scientists warn that
the loss of biodiversity is reducing the ocean™s ability to produce seafood,
resist diseases, filter pollutants, and rebound from stresses such as overfish-
ing and climate change (Environmental News Service, 6 November 2006).
Habitat loss from deforestation, desertification and salinisation already has a sig-
nificant impact on the rate of extinctions of species, some of which are vital for
our survival. Bird extinctions are running at 50 times the natural rate due to habi-
tat loss and other consequences of human activity (State of the World, 2003).
Desertification is a particularly serious problem in some regions of the world.
About 17.5% of China is desert. This figure has been increasing by 2640 square
kilometres every year. The pressure upon this limited resource is mounting and
the indirect impacts upon business costs will also increase exponentially.
Land resources are protected by law from the impact of environmental
incidents in several ways: for example, internationally with treaties and con-
ventions extend to the protection of various sites (including waterfowl habi-
tats), while in the UK there are Sites of Special Scientific Interest (SSSI) which
have been designated to protect over 6000 sites which have a higher value than
their market land valuation.
In the US there is the potential for increased environmental liabilities
from Natural Resource Damages (NRD) as defined in CERCLA of 1980 (the
superfund law) and the Oil Pollution Act of 1990 to include land, fish, wildlife,
biota, air, water, ground water and drinking water. Compensation for NRD is
separate from the costs of clean-up and recovery and costs associated with the
protection of human health or compensation for the lost use of that resource.
Most settlements related to pollution cases have not addressed NRD issues, and
cases could be reopened to obtain further compensation (Donnellon and
Rusk 2005).
The challenge is that in economics rarity increase in value/price which
does not bode well for endangered species. An example is that the once com-
mon Scottish river muscles were almost taken to the edge of extinction as their
natural river pearls became highly prized. They have now had to become a pro-
tected species as market forces made their pearls™ rarity even more prized and
therefore spelt their doom unless legislated against.
There are the beginnings of moves to properly quantify the value of the
˜natural™ world to human society and economic systems. An example of this is
recent research that boreal forests provide US$250 billion a year in equivalent
ecosystem services, like reducing atmospheric carbon and water filtration, but
these values are not largely acknowledged by governments and business.
Chapter 19 “ Aspects of environmental risk 495



Biodiversity and extinctions
Human-caused extinctions have been estimated to range from 600 a week to as
many as 120 000 species being lost a year in The Sixth Extinction, according to
Richard Leaky and Roger Lewin 1995, p. 241. Many species have already been
lost from the ˜developed world™ including the eastern mountain lions (as late as
1890 there was a bounty on them in New York state), the southern states war-
bler (Bachman™s warbler) and the Carolina parakeet. Where humans go large-
scale extinctions occur; in North and South America at least three-quarters of
large species died when humans arrived. North America lost over 30 genera of
large animals. Globally there are only four land animals weighing over a tonne
now, elephants, hippos, rhinos and giraffes.
Organisations can assist with the reduction of their contributions, directly
and indirectly, to the damage caused to flora and fauna and their habitats. The
rate of species loss is estimated to be as high as 120 000 lost forever each year;
our personal and organisations™ activities help this rate of species loss.

Resource and nature conservation
These risk issues are not just about reducing and protecting against species loss
but of efficient and responsible, even respectful use of the natural world around
us. There are short and long term benefits to be obtained, other than just compli-
ance with laws. These might be the: avoidance of public relations disasters, staff
morale benefits and even the more creative and considerate of land stock can have
unforeseen benefits. Potential projects to change organisations™ views of their rela-
tionship with the natural environment might range from businesses and schools
establishing their own kitchen gardens (and finding this has cost, health and social
benefits) to the purchase of large areas of land for setting aside as preserved areas.
EC laws include the 1979 Conservation of Wild Birds and 1992 Conservation
of Natural Habitats Directives. The signature countries to the 1992 Convention on
Biological Diversity should have developed national biodiversity action plans,
which should outline which species and habitats are protected within nations
and therefore within the areas relevant to your organisations™ countries of oper-
ation. Examples of organisational risk include:
There has been refusal to allow renewable energy barriers (like the Cardiff
Bay barrage project) to be built as although there would be numerous benefits
these were weighed up to have been exceeded by the damage to natural
resources once these had had a value attached to them;
Several deep water ports have been denied as these were seen to cause direct
and indirect damage to nearby conservation and protected areas;
Australia and New Zealand went to court and brought a claim against Japan
for breaching of a fishing treaty protecting the southern bluefish tuna;
The US imposed import restrictions on tuna over concerns about the inciden-
tal effect on dolphin populations of tuna fishing methods. The US also
required any country exporting shrimps to the US to prove that their harvest-
ing methods did not endanger sea turtles;
Part D “ Overview of the Environmental Aspects of Business Risk
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Elephants are protected under Nepali law, which provides for jail sentences
of up to 15 years for killing one, since Nepal™s elephant population has dwin-
dled to about 100; and
The Indian Wildlife (Protection) Amendment Act 2006 came into force in
September and aims to save the big cats, whose numbers have fallen alarm-
ingly because of poaching and encroachment of communities and businesses
into their territory.


Landscape management
This is the preservation of a particular distinctive landscape or landscape type
and can even involve the preservation by law of individual trees that contribute
to visual benefits within an area. There are a range of national designations
ranging from National Parks to UNESCO protected heritage sites, through to
environmentally sensitive sites, or areas which have particularly beautiful, aes-
thetic, or scientific value:
Wind farms are having planning consent denied as they will have impacts in
visually important areas.


Contaminated land
Contaminated land has been recognised as an important area of risk in most juris-
dictions. The UK™s Environmental Protection Act 1990 (EPA 1990) has led to con-
taminated land becoming a prominent legal risk for organisations. There is now
retrospective liability for the pollution, and use, of (ownership or occupation of)
contaminated land. Section 78A(2) of the EPA 1990 defines contaminated land as
land which appears to be in such a condition, by reason of substances in, on or
under the land, that:
Significant harm is being caused or there is a significant possibility of such
harm being caused; or
Pollution of controlled waters is being, or is likely to be, caused; and
The guidance in support of EPA 1990 Part IIA defines what ˜significant harm™
is as follows:
Human beings: death, disease, serious injury, genetic mutation, birth
defects or the impairment of reproductive functions;
Living organisms or ecological systems: an irreversible or other substantial
adverse change in the functioning of the ecological system or harm which
affects any species of special interest within that location and which
endangers the long-term maintenance of the population of that species, at
that location;
Property (i.e. crops, domestically grown produce for consumption, live-
stock, game, other owned animals, etc.): substantial diminution in yield or
loss of value due to death, disease or other physical damage; and
Property (i.e. buildings): structural failure, substantial damage or substan-
tial interference with any right of occupation.
Chapter 19 “ Aspects of environmental risk 497



If land is deemed to be contaminated in accordance with EPA 1990 Part IIA, the
˜appropriate person™ is required to bear the cost of remediation for the land. The
appropriate person is in the first instance the person who caused or knowingly
permitted the contamination to occur. If that person cannot be identified, the
current owner of the property may be required to accept responsibility for the
contamination.
Following identification of ˜contaminated land™ and the ˜appropriate per-
son™, the local authority within whose area the contaminated land has been dis-
covered must serve an identification notice and, if voluntary remediation is not
forthcoming, a remediation notice upon that appropriate person.
The impact that new and historic land contamination will have upon the
value of the property is increasing. The UK contaminated land regime although
important is dwarfed by the scale of the US$274 billion superfund clean-up
agreement. The overall effect is that organisations must increasingly consider
the costs involved in remediation of land in respect of which they are deemed
to be the appropriate person. These costs can have a significant impact upon
cash flow and budgetary plans for those organisations that intensively utilise
land resources, i.e. house-building. If required to remediate land, there is also
the risk that the premises will be temporarily shut down or restricted until the
necessary remedial works are completed.


Case studies
GlaxoSmithKline plc: the head of GSK, Jean-Pierre Garnier, has warned that
attacks by animal rights extremists are damaging the sector by driving away
research (Financial Times, 28 July 2004). This follows on from protests for-
cing RMC plc (the world™s largest concrete company) to withdraw their
involvement from a controversial laboratory project. A firebomb has already
caused £150 000 worth of damage and was ˜putting lives at risk™. The Oxford
University scheme has become the focus of attacks by the Animal Liberation
Front (Financial Times, 21 July 2004);
Reckitt Benckiser: there have been several pollution incidents and there are
concerns over the level of animal testing the company conducts. There is a
product boycott call on the company™s products from PETA;
John Lewis Partnership plc: Greenpeace unveiled that Waitrose was stocking
illegally fished toothfish. Illegal fishing in the area of the Southern Ocean
was said to have drowned 15% of some albatross species and the extinction
of the toothfish was to be expected soon, should the fishing continue;
Earth Matters reported that Friends of the Earth was targeting Homebase for
selling peat-based garden products, which threaten previous wildlife habi-
tats in the UK and Ireland;
Unilever have won accolades for their approach to sustainable fisheries;
however, they are alleged to use large volumes of phthalates, which is of con-
cern due to the toxicological potential of DEHP and DBPs. There are also con-
cerns over animal testing, and that they are members of the pro-GM lobby
group Europabio; and
Part D “ Overview of the Environmental Aspects of Business Risk
498



Two college researchers recently presented evidence that the tobacco indus-
try, particularly Philip Morris, experimented with genetically engineered
tobacco as early as the 1980s in an effort to control nicotine levels in cigar-
ettes (Monterey County Herald, 21 November 2002).


Risk management
Companies should also consider the effect that being identified as an appropriate
person (for remediation liabilities) could have upon both their reputation and the
future marketability of both the business and the land in question. It is vitally
important that a company considers contaminated land issues every time it buys
or sells property to ensure that the attendant risks are adequately dealt with at the
pre-contractual stage and in any resultant documentation.
There is the potential for large-scale, high profile projects that benefit the
environment and the reputation of the organisations involved. An example is
that Goldman Sachs have purchased large tracks of land where species have
become endangered and the United Nations and Africa™s Nobel laureate, envir-
onmentalist Wangari Maathai, have launched a project to plant a billion trees
worldwide to help fight climate change and poverty.
To ensure the use of renewable supplies of wood and the preservation of nat-
ural forests, British American Tobacco has since the 1970s sponsored and pro-
moted the planting of over 250 000 hectares of managed renewable woodlands
worldwide, 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 (CSR 2003, p. 90).
Royal Durch Shell publicly reports on all its activities in IUCN category
1“4 protected areas, and Rio Tinto incorporating biodiversity into its risk
assessments for all primary and secondary impacts of projects.
Bryant Homes downed tools after the discovery of slow worms on a devel-
opment (Birmingham Evening Mail, 20 June 2003, pp. 1, 3).



Resource usage risk “ waste generation
Research and analysis into waste generation indicates that:
Waste generation risk is 0.5% of market value of the top 500 EU and US
companies;
This risk exposure has been reduced from 0.9% of market value by good risk
management techniques (the risk reduction/management factor); and
There is generally better than average management of these issues in the
FTSE350. This could be as a consequence of regulation of the waste disposal

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