Expert Risk Articles

Environmental Liability - International solutions with local approaches

Environmental risks are a global issue. Beginning with the scandal involving the contaminated residential area of Love Canal in the United States in the 1970s and extending to the recent accident at the Kolontár aluminum plant in Hungary, such events increasingly demonstrate that environmental disasters are not simply a theoretical residual risk.

The international call for environmental accountability

In the wake of numerous environmental accidents, pressure for action is mounting among voters in various countries. As Erasmo Ramos writes in his book Brasilianisches Umweltrecht (Brazilian Environmental Law), “Modern environmental law is generally considered to be the answer of the political and scientific communities to the environmental challenges of our time.”

As far back as 1972, the UN Conference on the Human Environment issued an appeal urging “the fundamental right to freedom and adequate conditions of life, in an environment of a quality that permits a life of dignity and well-being” and the “responsibility to protect and improve the environment for present and future generations.” A number of countries have added environmental protection to their constitutions: Japan, Italy, Greece (1975), Portugal (1976), Spain (1978), Switzerland (1987), Brazil (1988), Colombia (1991), the reunited Germany (1992) and Russia (1993).


Despite the growing global desire for stricter environmental regulations, international legal concepts relating to environmental protection vary widely. This is also reflected in the language used to integrate environmental protection into individual constitutions, as a national objective, as an individual right or as a basic duty.

The road to a European directive

A few fundamental environmental principles have emerged as global standards, and were endorsed in 1992 by the UN Conference on Environment and Development in Rio: the polluter pays principle, the prevention principle and the sustainable development principle. On the basis of this decision, the “Lugano Convention on Civil Liability for Damage Resulting from Activities Dangerous to the Environment” on civil liability for environmentally harmful activities involving transnational environmental damage was passed in 1993 and submitted for ratification. It was the first pan-European instrument based on the polluter pays principle.

During the same year, the EU took steps to develop a new comprehensive regulation governing environmental liability. From the very start, decision-makers pondered the question of whether the cost of environmental damage should be assumed by society, i.e. the taxpayer, or by the polluter. The Green Paper on this question that was issued in 1997 says: “Civil liability is a legal and financial tool used to make those responsible for causing damage pay compensation for the cost of remedying the damage. By requiring those responsible to pay the costs of the damage they cause, civil liability also has the secondary function of enforcing standards of behavior and preventing people from causing damage in the future.”


In 2004, following several phases, it approved the directive on environmental liability with regard to the prevention and remedying of environmental damage. By 2010, all 27 EU member states had transposed the directive into national law.

In a report, the EU Commission did criticize the “nonuniform application of the permit defense and the state of the art defense” as well as the “non-uniform expansion of the scope of damage caused to species and natural habitats.” Nonetheless, the polluter pays and prevention principles are central themes of the historical development of environmental liability in the EU.

Global intensification


Business activities produce profits, but they can also have a negative impact that, in turn, affects the parameters governing these activities. The development of liability law is an example of this. Occupational accidents have resulted in employer liability and higher safety standards at the workplace. Damage caused by products has resulted in stronger product liability. And environmental disasters have led to tougher environmental liability.

The strengthening of environmental liability that we are witnessing around the world involves several areas, primarily based on the polluter pays principle, according to Swiss Re. Examples include the introduction of strict liability related to hazardous installations or activities, as well as joint and several liability for more than a single polluter. In legal terms, this would mean that the burden of proof would be reversed in favor of the injured party, resulting in the presumption of guilt being applied to the alleged polluter and a limitation of discharge-from-liability options, which would create a considerably stronger position for the damaged party in a liability case. Furthermore, there is now liability for polluting “free goods” (e.g. biodiversity) and lawsuit options for those not directly affected bythe damage (NGOs) have been introduced.

However, such environmental damage should never occur in the first place. This is what the prevention principle is about. The principle is employed through the requirement of an environmental impact study during the approval process for hazardous activities (e.g. new installations) or requirements placed on a company’s environmental management. This applies globally, no matter whether a project is carried out in Brazil or in the EU.

The globalization of business ties has resulted in the “extended workbench” being turned into markets, and these local markets judge companies on the basis of their local actions. Short-range business optimization aimed at lowering costs, without considering the impact on the local environment, will cause not only local environmental problems, but also global publicity driven by networking, resulting in damage to the company’s image in its domestic markets and the potential loss of product sales.

Major corporations are committed to practicing environmental management not only in their domestic markets, but also around the world. To a French company, environmental damage in Asia is just as big an image risk as it is in Europe. This applies to both subsidiaries and suppliers. For today’s companies, environmental protection is more than a cost issue. It is also one of potential losses from declining sales. For this reason, damage prevention should focus not only on the theoretical probability of a liability case, but also on the potential damage that a theoretically improbable loss (residual risk) could have on global companies’ balance sheets and production conditions.