Should Officers and Directors Pay When Their Firms Destroy the Environment?

The polluter pays. That is the principle of the European Union's Environmental Liability Directive, a law that officially went into full effect in 2010, but has yet to be widely implemented. One controversial element of the directive is that directors and officers are responsible for reporting to authorities any damages their employees have caused the environment, and failure to do so can result in steep penalties of the individuals, as well as the company. 

The directive's aim is to hold corporations accountable for restoring any biodiversity damaged. For example, should a manufacturer pollute a local stream, they are responsible for not only cleaning up the mess, but replacing any fish and wildlife harmed by the damage and any costs to local municipalities and business related to the pollution and remediation. Such a process can be enormously expensive. 

Some countries, including Spain and Portugal, require any company doing business in their countries to have financial security plan - including insurance - specifically for such damages. Some firms may assume that their exposure is too small to justify the cost associated with the multiple insurance products for this purpose. However, many corporations - and their managers - are unprepared for the exorbitant costs that can stem from such a case, said Scott Taber, Vice President, Senior Assistant General Counsel, Zurich North America. "Companies tend to underestimate the risk associated with the Environmental Liability Directive (ELD) - or that they don't have the resources to assess what their exposure is," Taber said.