Environmental Risk
Environmental risk can have serious negative effects on an organization's financial well being and its ability to achieve its business objectives.
Existing and forthcoming legislation and regulations — as well as governance and accounting trends of environmental risk and liability — can influence an
organization's financial performance,
reputation and brand, cash flow, and shareholder value.
Corporations and their directors and officers are at increasing risk of facing criminal allegations and serious financial penalties imposed for not properly
addressing environmental issues. With an increase in the U.S. Environmental Protection Agency's (EPA) enforcement activities, new environmental reporting requirements
and uncertainty regarding climate-change laws and regulations, financial assurance and other emerging issues, most industry sectors are seeing an increase in their environmental exposures.
The experience the professionals in our Global Environmental Practice have gained advising thousands of clients has reinforced our understanding of the need to bring a multidisciplinary approach to solving environmental risk issues.
The Marsh Global Environmental Practice comprises some of the best and most diverse talent in the environmental risk and environmental insurance industry. Marsh professionals have backgrounds
in diverse disciplines such as engineering, law, accounting, insurance broking and underwriting, finance and environmental science.
The experience our professionals have gained advising thousands of clients has reinforced our understanding of the need to bring a multidisciplinary approach to solving environmental risk issues.
Types of Environmental Risks
An important question in risk research is whether we can identify different types of risk that differ in the way in which they are perceived and evaluated. We distinguish environmental risks with respect to their causal structure, i.e., by the type of their causes and consequences.
Many environmental changes are anthropogenic, i.e., caused by human activities. Since the natural environment provides a resource for human living conditions, environmental changes, in turn, affect humans. An example is the ozone hole that is caused by the human use of CFC's and leads to an increase in skin cancer.
Hence, environmental risks are characterized by a causal chain that goes from human activities via environmental changes to negative consequences for humans.
Humans are both perpetrators and victims with respect to environmental risks. Perpetrators and victims are not always the same people. Sometimes people are affected that have not contributed to the problem. Environmental risks therefore touch upon ethical considerations.
We take the Human-Environment-Human chain as a vantage point and distinguish three types of risk according to their causal structure:
(1) Environment-Human-Risks are naturally caused environmental changes that put humans at risk.
(2) Human-Environment-Risks are anthropogenic risks that do not necessarily cause negative consequences for humans, but cause major changes in the environment.
(3) Human-Environment-Human-Risks are anthropogenic environmental changes which in turn jeopardize humans via alterations of the environment.
The distinction between anthropogenic and natural causation on the one hand and between consequences for humans and those for the natural environment on the other exerts a major impact on risk perception.
Anthropogenic causation allows for the ascription of responsibility, which affects anger reactions and coping strategies. The target of potential consequences, on the other hand, influences fear reactions and remedial behavior.