Repeat offenders

The environmental risk which needs to be managed in a company is primarily the risk of being prosecuted in a criminal court.

This happens in two ways. Either the company is prosecuted or the individual officers or directors end up in court. The second concern must be the risk of being sued in a civil action – either by a regulator trying to recover clean-up costs or by an aggrieved third party, possibly a neighbouring landowner or resident, seeking to recover damages for property damage or interference with the use or enjoyment of the property or even for personal injury.

From the lawyer's standpoint, this means considering not only the relevant statute law (which is already complex), but also common law, especially common law nuisance and the rule in Rylands v Fletcher.

In order to manage the risks in a company, you have to identify them.

In any industrial operation, the first step is to recognise there is a risk of breaching those environmental laws relevant to that type of operation. You also have to identify those laws, otherwise you cannot know whether you are complying with them or not.

For example, pollution of a watercourse could result in prosecution by the National Rivers Association and a fine; the recovery of clean-up costs by a regulatory authority; the suspension or tightening up of conditions in the licence; and being sued in the civil court by the local angling club.

However, it would be an unfortunate company that had all of the above happen as a result of a single incident.

The downside ranges from a fine of thousands of pounds to damages of millions of pounds and tighter restrictions on the plant's operations.

Perhaps the most perverse aspect of any form of risk management in the industrial world is that the same organisation often makes the same mistakes on a cyclical basis. Corporate memory is surprisingly short – about eight years – and fades as managers move on. A well structured environmental management system can help to alleviate this problem.

The greatest need is for senior management to recognise that there is a risk to the company from environmental liabilities. Once that step is overcome, it has to formulate a policy on how to deal with it, and to implement that policy, through an environmental management system.

As well as a clear statement of the company's policy, top management must also demonstrate overt support, including assigning appropriate resources, both in terms of manpower and money. The system must encourage communication within and between departments in the company. Checks on the effectiveness of the system are essential, including information gathering, internal discussions, effective record keeping and a programme of auditing and review.

Environmental auditing is only one part of an environmental management system and is a means of checking that the system is working, rather than an end in itself.

There is also the question of how to deal with the results of an audit and other documentation. The danger is that audit reports could come to light at a future date, possibly during litigation, and could be highly damaging if they revealed relevant matters which were neglected.

A 'points to consider' list, or even an oral report, are simple alternatives to a full report.

Standards need to be implemented, both for environmental auditing and for the company to follow on a day-to-day basis. The most basic standard is compliance with relevant environmental legislation.

In addition, a knowledge of relevant forthcoming legislation is essential so the company can make appropriate investment decisions and then vary its operations if necessary. However, many companies will want to go further than compliance with legislation and will want to meet the common practice standards in their industry.

For example, it would be unusual to find a modern chemical factory without bunds around their storage tanks, yet there is no legal obligation to have them. Some companies have developed their own internal standards to meet this type of requirement, often referred to as 'best practice' or 'state of the art' standards. These are usually comprehensive and cover the day-to-day operations of the plant.

In a multi-national company, there can often be internal conflict between a foreign head office seeking to impose its version of internal standards and a local subsidiary which does not see the relevance to the local situation. It is in this situation that the voluntary EU Environmental Management and Auditing Scheme (EMAS) may help a subsidiary in the EU to develop more relevant standards.

What is good practice today often becomes a legislative requirement tomorrow. It is only by identifying at an early stage those environmental risks which are most relevant to a company's operations and dealing with them that it is possible to contain the risks and associated costs.

Trevor Adams is a partner at Ashurst Morris Crisp.