Environmental damage insurance for sustainable business

Abstract

According to Article 11 of the Treaty on the Functioning of the European Union (TFEU), ‘Environmental protection requirements must be integrated into the definition and implementation of the Union's policies and activities, in particular with a view to promoting sustainable development’.Business activity that causes environmental damage should be regulated with reference to the principle of sustainable development, which requires a high level of protection and improvement of the quality of the environment. Environmental damage must be considered to undermine these objectives. Business that causes such damage should therefore be understood and addressed as unsustainable business. With reference to Article 11, this book chapter looks at the example of insurance for environmental damage as a means to support financial liability to be used as an instrument of control for sustainable business, especially as regards operational activities harmful or potentially harmful to the environment. The Environmental Liability Directive (ELD), under which operators of such activities may be held liable should they cause environmental damage or an imminent threat of the same, refers to the use of financial guarantees, such as insurance, by operators to cover their responsibilities under the Directive.The focus in this book chapter is set on risk reduction, through changed business behaviour, by addressing certain functions and components of insurance and by analysing the ELD in relation to insurance. The preamble to the ELD notably states that the ELD aims ‘to induce operators to adopt measures and develop practices to minimise the risks of environmental damage so that their exposure to financial liabilities is reduced’. The preamble is addressed specifically with the purpose of illustrating that the ELD has both the objectives and the potential to support EU environmental policy and make business in the EU more sustainable, and to show how insurance could be used in this context..Accepted Paper Series