Businesses encounter a wide range of liabilities every day, and while most companies build comprehensive risk management strategies to prevent disruption to their operations, environmental risks are often underacknowledged. While environmental factors have always posed a threat, the last decade has shown a significant increase in the level of risk environmental factors have on operations. From environmental-related disruptions to government-mandated compliance regulations, it's crucial for businesses to prioritize effective environmental risk management to thrive in today’s world.
Businesses face several environmental risks that could have severe consequences if not properly managed. Though many believe these factors apply to specific business sectors and geographical locations, environmental risks can impact all businesses. Some of the most significant environmental risks businesses face today include climate change, natural resource scarcity, pollution and contamination, and regulatory compliance.
Of all the environmental risks, climate change has become the most paid attention to, and for good reason. In the last decade, the occurrence of natural disasters has dramatically increased and spread to geographical locations that were once considered safe. Across the US, companies have faced weather events such as wildfires, floods, hurricanes, and winter storms. As of 2021, each severe weather event costs on average $4.4 billion US dollars in damages. Regardless of industry or company size, weather risk mitigation should be prioritized as 40% of businesses do not reopen after a severe weather event, and 25% fail within the first year following. This is largely due to the rising cost of materials and real estate, and the amount of financial backing it takes to rebuild extreme property and asset loss. Storms have become more unpredictable and fast acting, so businesses need to prioritize risk management far ahead of an event to be fully prepared.
There is a global shortage of natural resources that can have severe repercussions for businesses that rely on them for standard operations. While these resources are available, scarcity can impact supply chain operations and average costs. In addition, social pressure and government regulation can affect operations and disrupt the overall structure of businesses in sectors like oil and gas, transportation, and food and beverage. Without proper steps taken, such as the use of renewable energy and sustainable business practices, companies may experience financial hardship.
Pollution and contamination are a growing concern for a variety of industries. The main contributor to pollution is the excess burning of fossil fuels, but even more concerning is the increase in pollution events related to toxic waste. The recent train derailment in East Palestine Ohio cost the railroad a staggering $387 million in damages and clean-up efforts. The event could have been avoided should the company had taken property damage control steps and followed industry guidelines. Not only did the event have a massive impact on the community, but disrupted the operations and reputation of the profitable business. While businesses do handle toxic chemicals and waste, there are protective measures to take to ensure the overall safety of operations. These measures should be regarded as the number one priority for companies that face potential pollution hazards.
Government and Federal organizations are cracking down on regulations for environmental risks and hazards. While these regulations benefit the environment and general population, they can lead to higher production costs and a decrease in productivity for businesses who not adjust their operations. Regulations can look like clean water requirements, emergency planning guidelines, pollution prevention, reduction in fossil fuel emissions, and resource conservation. These guidelines require businesses to meet the standards of sustainability set by the government or face hefty fines and potentially, business closure. These standards mostly impact businesses in construction, utilities, oil and gas, agriculture, and transportation, but can affect any industry. With fines per environmental violation ranging anywhere between $25,000 and $1,000,000 per day, per violation, companies need to prioritize proper risk management.
The effects of growing environmental concerns are something companies will need to actively include in their business plans in order to remain compliant and financially stable. While it can be an adjustment, both operationally and financially, the risks are too prominent for businesses to ignore. Luckily, there are plenty of resources to aid businesses in their risk management plans, and generally speaking, integrating sustainable practices, implementing risk assessments, and acquiring proper insurance can help.
With the growing need for environmental care, there is an abundance of sustainable options businesses can utilize to lower than environmental impact and avoid regulatory fees. Switching from fossil fuels to electric alternatives is an optimal route, and as these technologies grow, prices decline over time and can be comparable to natural resource costs. In addition, investing in green projects, reassessing supply chain methods, and managing chemicals properly can all create more sustainable business practices, and decrease your risk of environmental claims.
As the state of the environment continues to change, and government action becomes more strict, having regular risk assessments can ensure you understand the nature and magnitude of potential environmental risks. Working with professional consultants and experts can help your businesses create an effective risk management plan, and throughout the year regular assessments of your practices will determine any areas of weakness. In addition, training on these practices should be given to all employees, and the company as a whole should share a commitment to sustainable practices.
Even with the most robust risk management strategy, risks remain and claims can occur. Proper insurance coverage can help businesses protect themselves against unforeseen risks, and financially recover from damages and settlements related to a claim. Some insurance coverage you can utilize for environmental risks includes:
These coverages in combination with standard insurance policies can ensure your business is properly protected against environmental risks and hazards.
ECBM can accommodate businesses looking to implement more sustainable practices and ensure their risk management addresses all potential risks. Our team of agents and consultants can provide new business with a strong coverage foundation, and improve current policies to address any gaps in coverage. For more information on how we can help your business thrive, contact one of our agents.