If you’re a broker offering D&O (directors and officers) insurance, you might want to bring clients up to speed when it comes to environmental prosecution… and new research by Clyde & Co could come in handy.
Citing data from the Environment Agency (EA), the global law firm has done the legwork to shine a spotlight on the liability risk faced by companies and their directors in terms of environmental offences. Figures point to an uptrend in the average fine against offending firms – from £23,731 in 2013/2014 to £147,575 in 2017/2018.
Clyde & Co drew attention to the sentencing guidance introduced in 2014, adding that the most severe cases could mean fines beyond £20 million. It also offered insights into why the number of prosecutions against companies – from 114 to 32 – has fallen amid rising fine values.
“The environmental sentencing guideline has now been in force for almost four years and is biting hard,” said Clyde & Co partner Rod Hunt. “However, we believe the increase in average fine level is not only attributable to the sentencing guidelines but also the fact the EA is effectively deploying its full armoury of enforcement sanctions, and is more readily using enforcement undertakings for less serious offences while typically reserving prosecution for the worst offences and worst offenders.
“This has resulted in a decrease in the number of prosecutions but an increase in the average fine level.”
Hunt’s advice? See to it that businesses are complying with environmental obligations “or risk potentially eye-watering fines in the criminal courts.” He noted the case of Thames Water, whose “big ticket, multi-million pound” fine over leaks “really made its mark” for the 2016/2017 period.
As for company directors, they remain targets in the battle against non-compliance. In fact, the 2017/2018 period saw 22 prosecutions against top officers.
“The data show that directors are clearly still at risk of prosecution,” said Dr Anna Willetts, senior associate at Clyde & Co. “The number of director prosecutions remains very similar to last year and we expect the EA to continue to target those at the top for compliance failures.
“The EA is using everything in its arsenal to crack down on non-compliance. The significant increase in average company fines coupled with the continued targeting of company directors means complying with environmental regulation is, more than ever, a top priority for the boardroom.”
James Cooper, partner and head of FIDO at Clyde & Co, added that the greater the risk of prosecution, the more likely a director would want to access the D&O policy to retain the best legal representation available.
“The potential for larger fines against the entity for environmental failings could trigger claims by investors against the D&Os where the entity’s share price has suffered as a result, or the entity has gone bust,” he said.