• Home
  • Latest
  • Tackling the climate crisis through good corporate behaviour

Tackling the climate crisis through good corporate behaviour

Posted on 31 March 2021

Measures like the UK Bribery Act are beginning to change corporate behaviour in respect of corruption. As the climate crisis becomes more urgent, has the time come to apply the same model to environmental crime?

Environmental crime – a term which is used to cover everything from pollution, illegal logging or mining, and the trafficking and dumping of waste and chemicals – does profound harm to the planet, damaging eco systems, depleting natural resources, and, in some cases, accelerating the pace of climate change.  

According to the most recent report from INTERPOL and the United Nations, environmental crime is worth up to $259 billion per year, with an annual growth rate of 5-7%, however, this figure takes no account of the cost to the environment caused by environmental crime.

The damage wrought, which has such significant consequences for us all, means that a robust and effective response is increasingly urgent, but it is inevitably a cross-border issue and establishing criminal liability – particularly when multi-national corporations are involved in facilitating or directing the harms – can be extremely challenging for law enforcement.

Although not without its own challenges, the UK's experience in responding to serious financial crime may yet present a viable model for use in this context – it is an untested idea in environmental crime, but it could act to force those corporates involved to take responsibility, driving real change by  the investigation and prosecution of this offending.

Underwhelming record

As it stands, the UK's approach to environmental criminal law is an antiquated patchwork of legislation with minimal cross-border application and an underwhelming enforcement record. For example, the latest figures show that the Environment Agency obtained thirty-five convictions in 2020, with the largest fine being £800,000 against a Midlands water company for the release of sewage locally.

The fundamental issue with the UK's current legislative response to environmental crime is that it doesn’t properly address extra territorial harms – the most serious environmental harms typically occur overseas, often in countries with a weak rule of law. In addition, fines are typically low and there is seldom personal liability for directors of companies, diluting any deterrent effect.

Financial crime

In the last decade, the UK has experienced a fundamental shift in the approach to corporate criminal liability for some serious financial crime, expanding liability across borders and, placing responsibility on corporates for the prevention of crime within their business operations.

The best example of this trend is the Bribery Act 2010, which imposes criminal liability on any company carrying on a business in the UK that fails to prevent a person (including an agent, employee or subsidiary) acting on its behalf, from bribing another person anywhere in the world. There is a compliance-based defence available to corporates if they can show they had put in place adequate procedures to prevent corruption from occuring in  their operations.

Similar measures targeting other pernicious forms of international financial crime are found in the UK, such as the failure to prevent the facilitation of foreign tax evasion for which there is a similar compliance-based defence available to companies. We also have reporting based defences available in cases involving money laundering. The collective effect of these statutes is that they have forced corporates to assess their operations and to put in place the proper systems, training and controls to tackle these aspects of financial crime.

Although there are issues with these models in practice, their relative success from a policy perspective is that they apply extra territorially and force corporates, some of whom may otherwise be reluctant, to take preventative action in advance in order to mitigate the worst outcomes.

Applying the model to environmental crime

The application of a similar model of liability to environmental crime in respect of companies doing business in the UK, would mean they could be held criminally liable if they failed to prevent environmental crimes by someone acting on their behalf anywhere in the world. This may seem a leap, but the direction of travel is already clear and there is little time to be lost.

For example, the Supreme Court has twice ruled recently (once in relation to oil spills in Nigeria, and once in relation to toxic emissions in Zambia) that UK parent companies should face potential civil liability under the common law for environmental harms alleged to have been caused by their overseas subsidiaries.

The UK government is also already in the process of introducing legislation that would introduce civil sanctions for companies that use products obtained through illegal deforestation. Furthermore, corporates that use forest products like cocoa, rubber, soya and palm oil will be required to undertake due diligence on how the products had been obtained. In addition, the French government has introduced similar legislation to address supply chain issues more generally, and the German government is considering introducing a Due Diligence Act with a similar aim.

However, although important steps, none of these developments treat the conduct as a crime, which necessarily reduces the deterrent effect of such measures. The civil penalties applied in the event of a breach run the risk of simply being converted into the cost of doing business, and, if so, will not bring about better corporate behaviour; which in turn is bad for us all.  It also means that the proceeds of illegal deforestation, for example, will not necessarily be treated as the proceeds of crime for the purpose of money laundering legislation and will be allowed to move within the financial system without triggering red flags.

Change

The last few years have shown that there is real willingness on behalf of corporates to put in place Environmental Social and Governance (ESG) measures to mitigate the risk of a company becoming involved in environmental wrongdoing. Unfortunately, change often occurs slowly unless there is a punitive sanction for non-compliance, and whilst Parliament will be loath to increase the burden on business, there really is nothing more important than climate crisis. Unless there are criminal sanctions arising for companies that fail to prevent environmental harm, change will not occur quickly enough. 

The model proposed above – that the UK introduces legislation, backed by criminal sanction, to hold corporates liable for the failure to prevent environmental crime on their behalf anywhere in the world is not unprecedented and would bring about the quickest and most meaningful response to tackling the climate crisis.

It is inescapable that the criminal law will become an increasingly useful tool for policy makers worldwide seeking to drive behavioural change in this area, whether by way of the introduction criminal sanction for excessive carbon emissions, or the introduction of more serious penalties for existing environmental crimes.

For now, the UK has the opportunity to act boldly. It could set the global standard for law enforcement, as it did with the Bribery Act, by introducing a new model of corporate liability for environmental crime – a chance to drive real change, at home and abroad.

How can we help you?
Help

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

COVID-19 Enquiry

I'm a client

I'm looking for advice

Something else