Back in May, the European Union’s environmental liability directive was officially put into place, exposing European risk managers to greater liabilities for environmental damage caused by companies that pollute as part of their normal business operations.

But not all of the EU’s 27 member states are taking charge of their new responsibility. Spain, for one, has shown a lack of awareness when it comes to environmental risks, legislation and avenues of protection available. According to the Business Environmental Liability study, more than half of the 700 businesses studies in Spain did not have environmental liability coverage.

The survey also revealed that of those companies that said they had cover in place against environmental damage, only 10% had a policy that conformed to established regulations (Law 26/20071). Companies cited their multi-risk policy/financial guarantee, public liability and general business insurance policies as providing environmental risk protection. However, these products do not conform to the requirements of Law 26/20071 on Environmental Liability.

It seems apparent that many businesses in Spain do not fully understand the implications of the EU’s environmental liability directive. In fact, a whopping 65% of companies surveyed said they were unaware that the Spanish government has the ability to make it a requirement for these companies to have a fund, collateral or insurance to cover them from possible environmental damage.

Though numerous insurers jumped at the chance to offer environmental liability coverage to the EU market, a lack of demand has been evidenced from the beginning of the directive’s establishment.

Risk managers don’t seem to be “aware of how much of a strict regime is now in place and the cost of responding to that regime if you have a problem,” said Simon White, London-based environmental branch manager for XL Insurance.

Why is Spain a laggard when it comes to this topic? If the country’s businesses don’t get on board soon with the EU’s environmental liability directive, it will affect not only their bottom line, but also their reputation.

The above article is reprinted from the Risk Management Monitor - the official blog of Risk Management magazine.