The rise of environmental risk and how to manage it

In February this year, an Indigenous community in the New South Wales south coast launched a class action lawsuit against the Department of Defence over the use toxic firefighting chemicals that have allegedly leached into the water and soil of their land and impacted their livelihood. 

DANGEROUS CHEMICALS

The chemicals, perfluoroalkyl and polyfluoroalkyl (PFAS), have been in the spotlight in recent times for the significant risks they pose to the environment — and to the organisations that fail to manage them.

The lawsuit is one of a spate of recent class actions addressing the environmental risks of PFAS. 

To date, the Federal Government has agreed to pay out more than $200 million in compensation to communities affected by PFAS contamination. 

The chemicals were long used as part of firefighting on defence bases and have been shown to enter ecosystems and accumulate in animal and human tissue, including the liver and blood.

HEDGING RISK

However, PFAS is not the only source of environmental risk facing both the public and private sectors. 

Sponsored by the Hong Kong Confederation of Insurance Brokers (CIB), an upcoming ANZIIF virtual seminar for the Hong Kong market will explore the implications for the insurance industry as more organisations seek to hedge their risk in the face of widespread environmental regulations and growing public concern.

Amber Lepparde, National Environmental Practice Leader Australia at Marsh, will be sharing her insights during the seminar. 

Her role includes advising clients of their environmental risks and how they can best transfer those risks to insurance via products that may protect against pollution liabilities, for instance, or indemnity for clean-up costs incurred as a result of third-party claims.

CLEAN UP COSTS

Lepparde says most environmental claims tend to be related to first-party clean-up costs as a result of a clean-up order from an Environmental Authority following incident notification.

'There has been a lot of media around PFAS contamination in recent times,’ she says. ‘The other area where we are seeing a lot of insurance claims is related to waste material or soil that is meant to be clean but in fact contains asbestos.

'As an example, a contractor brought capping material onto a company’s site. It was meant to be a clean-fill capping material, but it was actually contaminated with asbestos. 

'The company had to remove and dispose it as a result of a clean-up order from an Environmental Authority, so the loss that they incurred was first-party cleanup costs to remediate that material.’

ASBESTOS DEATH TOLL

Asbestos products were widely used in Australia from the mid-1940s as a building material for fireproofing and insulation. 

In the 1980s, it was phased out due to soil and groundwater contamination and its links to health conditions such as asbestosis, lung cancer and mesothelioma, which is a rare cancer caused by asbestos exposure.

As of December 2013, Australia has had a total ban on all forms of asbestos, but exposure is still common, particularly during renovation and refurbishment projects. 

More than 10,000 Australians have died from mesothelioma since the early 1980s and an additional 25,000 are expected to succumb to the disease over the next four decades.

WIDESPREAD EXPOSURE

James Barwood is NSW Manager of Environmental Earth Sciences, which works with a range of organisations to help mitigate the financial, regulatory and legal risks associated with contaminated land groundwater and waste. 

He will also be presenting at the ANZIIF environmental risks seminar and says asbestos remains a significant environmental risk in Australia, despite its ban.

‘While PFAS is currently headline news due to recent class actions, the extensive use of asbestos historically across Australia has resulted in it being more widespread in soils, hence impacting a greater number of properties, especially in urban areas, where multiple phases of development may have occurred,’ he says. 

‘Recent experience on developments has shown that asbestos-impacted soils can pose one of the most significant financial risks to projects due to the costs associated with safety protocols, management and/or disposal costs.'

SOUND PRACTICES

Sound environmental practices can help mitigate risk, but Barwood says exposure can occur unexpectedly

‘For example, in a lot of former rural areas now being developed, waste, including asbestos-containing materials, was often buried on site rather than taken to landfill,’ says Barwood. 

‘This was a more frequent past practice, because people were either not aware or educated of the risks, or where the cost to dispose was prohibitive.  

'So, it's not unusual to find pockets of contamination on many sites, however, these risks can be managed with detailed investigations of sites at an early stage and clear unexpected finds processes during development.  

'Preventing the spreading or mixing of contamination with otherwise clean soils can significantly reduce the financial cost to projects.’

BUILDING AWARENESS

Lepparde notes that some industries have a greater awareness of environmental risks than others.

'Property owners and developers, for example, will generally be aware of the risk of buying a contaminated site and will often conduct their own environmental due diligence before buying a site,’ she says.

‘But other industries may be less aware of the environmental risks they might be exposed to. 

'For example, I’ve seen an example of a landscaper bringing asbestos contaminated mulch onto a property, which is an environmental risk that could apply to anyone hiring a landscaper and is a risk that many companies may not have considered.'

THE ROLE OF AUTHORITIES

When an organisation experiences an environmental incident at their site, they are required to report it to an environmental authority, such as the Environmental Protection Authority in their state. 

The authorities have a range of enforcement powers, such as issuing costly clean-up notices.

A challenge for business — and for broader insurance industry — is keeping up with the evolving regulatory environment.

‘There's a mixture of federal, state and local environmental laws and they're evolving all the time,’ says Lepparde.

‘Victoria, for instance, is currently undergoing huge reform to its environmental laws. It has recently passed the Environmental Protection Amendment Act 2018 to be implemented in July 2021, with a complete overhaul of licensing regimes, new general environmental duties and how environmental risks should be managed.’

ONGOING CHALLENGE

Barwood says that without ongoing education, alignment and ease of understanding of waste and environmental guidelines, there will always be a significant gap between perceived risk and actual risk to human health and the environment. He says this will present an ongoing challenge.

‘Just because soil has asbestos in it, for instance, doesn’t necessarily mean it isn’t suitable for onsite use.  It’s about how the site will be used and how the material is managed.  

'Often, early planning in a project, which includes good quality environmental investigations, clear understanding and communication of the sites future use will result in a more cost effective development with reduced risks both to the end site users and the surrounding environment.’

MITIGATING RISKS

Environmental exposures are a significant business risk that require a sound management plan.

Barwood says environmental risk management plans includes identifying the source of contamination and the pathway for getting it to a receptor, such as a human, flora and fauna or the general environment.

'If you remove either the source, the pathway or the receptor, then you remove the risk,' he says. ‘In most cases, you can’t remove the receptor, because it may be the surrounding environment, so the question is, can you break the pathway or can you remove the source? 

'It varies from site to site how risk is managed and monitored to ensure the controls are in place to mitigate risks.’

EVOLVING LANDSCAPE

The evolving regulatory environment and growing stakeholder pressure is causing more organisations to be attuned to these risks.

‘From an insurance perspective, we don't tend to see frequent losses in regard to environmental risk,’ says Lepparde. ‘It’s more about the infrequent catastrophic incidences that occur. 

'We are seeing a much greater focus on environmental exposures and I expect this to grow.’