Don’t Let a Lenient EPA Increase Your Risk

The Environmental Protection Agency (EPA) inspected fewer industrial facilities in 2018 than in any other year over the past decade. These latest numbers, released last month, are a new low in a downward trend – largely due to budget cuts and an ever-changing political climate.  

According to the Environmental Integrity Project, in President Obama’s first year in office the EPA collected $81 million in fines. In the same amount of time, his predecessor, George W. Bush, collected $70 million. Under President Trump’s administration, only $30 million has been collected.

The EPA under Trump is trying a different approach – working collaboratively with organizations to find and address matters of potential concern while scaling back on inspections and enforcement where possible.

While tempting for some of the hardest hit industries, such as manufacturing, to reallocate resources and funds from regular self-audits and remediation efforts, it’s important to remember how quickly things can – and likely will - change. The pendulum will soon swing back the other way, leaving your business vulnerable.

How could you be vulnerable? Businesses are accountable to more than just the government. People today are more environmentally conscious than ever before, resulting in real reputational and bottom line effects for non-compliance, which can touch every aspect of your organization. It’s critical that, regardless of the current regulatory state, you remain vigilant.

For those looking to buy and sell, the issue remains top of mind. Private equity firms seeking out opportunities in the market will remain savvy. Buyers should be requesting very tight indemnity clauses to protect themselves from incurring costs of a mess they did not create. This does not remove all risk completely and buyers still need to beware. Not adhering to high-bar environmental codes leaves you open to numerous risks beyond and including EPA regulation.

There are two pernicious misperceptions about environmental insurance policies today.

1. They cost a lot of money
2. They don’t offer enough coverage

While categorically untrue, these widespread beliefs cause many businesses to take the risk in-house, and that can be a potentially costly rounding error in many transactions. Avoid this temptation to go it alone; instead look to environmental carriers to spread your risk. When compared with workers’ compensation coverage or auto claims, the cost of effective environmental risk management is relatively small. Properly manuscripted policies will provide indemnity and valid coverage for regulatory fines, M&A issues and more.

Don’t let your environmental standards ebb and flow with the country’s political climate. Protect your business with smart risk management.

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Connect with the Risk Strategies Environmental team at environmental@risk-strategies.com.

Email me directly at jquarantello@risk-strategies.com.