Manufacturers looking to protect their reputation – which, in turn, protects their bottom line – need to be progressively more watchful of various environmental exposures when expanding their global operations into new markets, a new report suggests.
A white paper by insurer ACE Group discusses the growing trend of companies expanding into emerging global markets without first considering important environmental risks, a possibly dangerous maneuver as environmental laws continuously evolve and tighten throughout emerging markets.
By understanding environmental challenges, businesses can take measures to protect their investments and reputations by securing appropriate coverage, according to the analysis, titled Protecting against Environmental Risk in the Global Marketplace.
“The reason we did this white paper was to provide a knowledge base for North American companies that are expanding their manufacturing footprint globally,” Craig Richardson, Senior Vice President, ACE Environmental Risk, tells Leo Rommel of Industry Today.
Richardson authored the white paper with a pair of colleagues: Karl Russek, Senior Vice President, Environmental, ACE Overseas General; and Frank Westfall, Vice President, ESIS Health, Safety and Environmental Services.
“We want to help businesses understand the potential environmental regulatory risks involved when opening or expanding their global operations,” he says. “We want to help them understand their environmental exposures so that their global operations are in accordance with local environmental laws and also global best practices.”
He says that includes helping them sidestep environmental slipups that would cast the manufacturer’s name in a negative light, like on the front page of the newspaper, or make them pay substantially steep fines and penalties on top of cleaning up and mitigating the disaster.
Richardson says it’s imperative that manufacturers are “cognizant” of environmental challenges so that they can obtain the appropriate insurance coverage and protect their investments from potential pollution incidents and exposures.
Likewise, he says it’s common for companies to assume that a pollution incident – like a spill or release that affects the business’s property or affects their neighbor’s property, or one that causes bodily harm or requires claim – is covered under a standard umbrella or commercial general liability insurance program.
However, Richardson says, often times it’s not.
“It doesn’t protect them from ongoing or future problems, which could be a spill or release that could affect their property or affect their neighbor’s property,” Richardson says. “You could have bodily injury associated with the pollution release. It could require cleanup. All those things I just referenced may or may not be covered under their standard insurance program. Ultimately, what they’re trying to do is protect their balance sheet so they can remain a financially viable entity. That’s the main reason.
As a result, manufacturers need to consider premises pollution policies that provide coverage for first-party costs of environmental remediation in addition to the potential third-party liabilities arising from on-site incidents.
“Let’s say you have a North American manufacturing firm that’s expanding its operations into a European country,” he says. “More than likely, you’re going into an industrial area that has had operations prior. Make sure you have a current environmental status as a baseline of that location. Then, understand your requirements under that country’s current environmental regulatory standard.”
His coauthored report also discusses, in remarkable detail, how working with the right resources on environmental assessments, such as regulatory and operational controls, is key.
More than anything, operations that expand into other countries may require additional due diligence, he says.
“Just as a rule of thumb, you should use the same business model that you would use in the U.S.,” Richardson explains. “Go in, do environmental due diligence, and thoroughly understand a baseline of the location you’re going into and understand the current status of that property. Is it a clean property? Does it have impact? What is the impact? What are the implications of that?”
Richardson adds, “Then, make sure you integrate environmental protection as part of your new business operation. Use the basic guidelines from the States over there. That’s a good benchmark.”
However, properly evaluating future environmental exposures should include the help of experts who are deeply experienced in evaluating and mitigating overseas environmental, health, and safety exposures, he says, adding that they often provide a specific guideline businesses must meet to maintain compliance with that country’s current regulations.
“I just think they, like ACE, provide the professional guidance you need to stay on top of the changing environmental regulatory environment and make sure you’re following all those regulations, all the way down to if you are running the business in a proper fashion that minimizes and mitigates exposure,” he says.
About ACE Group
ACE has been a pioneer in developing advanced environmental risk insurance solutions designed to minimize bottom line impacts and provide hands-on management for those liabilities. ACE’s Environmental Risk divisions in the U.S. and abroad offer a full range of specialized environmental and sustainable property and casualty insurance products and services, promoted as “ACE Green,” including coverages for premises-based exposures, contractors’ and project pollution liability, and renewable energy and environmental cleanup projects.