Monday, March 16, 2009

environmental risk (1)

most businesses incur some risk of their activties polluting the environment in some way. This risk impacts on lenders in three main ways-direct,reputational and indirect.
1- direct risk :in some countries alender may incur direct lagal liability for cleaning up contamination that has been caused by an insolvent borrower.In the UK ,for example ,the Environment ACT 1995 imposes aduty on local authorities to identify contaminated land and to serve upon the 'appropriate person' a'remediation notic' secifying the work that is required to clean up the contamination .if the lender has taken possession of the land through enforcement of security ,responsibility can fall on the mortgagee in possession . lenders need to evaluate the environmental risk before lending or taking possession of security .
2- reputational risk : lenders are increasingly wary about being associated with projects that might be deemed environmentally damaging .projects like new dams or nuclear power stations may well be capable of being financed by banks within the law and without legal liability for environmental damage ,but they carry other penalties for lenders in terms of bad publicity ,potential customer boycotts and being shunned by 'etical investors'.

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