We know that, every year that passes, there are more and more obligations from the Administration in various economic activities. From Data Protection to working day registers… and we have been noticing this for some years now, also in the environmental area.
Since the Law 26/2007 came into force, new initiatives have been generated to protect our nature. Today we talk about the obligation that, since October 16, 2022, is implemented in poultry farms and pig farms, and the formulas to solve it.
Where is environmental risk regulated and what requirements does it impose?
At the time, we already wrote an article where we explained the type of environmental liability that applies in Spain. The Law 26/2007 on Environmental Liability arose with the purpose of regulating the liability of the operators of:
- prevent,
- avoid and
- remediation of environmental damage
This is in accordance with Article 45 of the Constitution and the “polluter pays” principle.
In turn, Order ARM/1783/2011 establishes the order of priority and timetable from which the preparation of the ARMA and, if applicable, the constitution of the financial guarantee will be required. The purpose of this financial guarantee is to respond to possible damages caused to the environment.
Livestock production (poultry, pig farming, etc.) is regulated as priority level 3. This priority level indicates that, before October 2022, an Environmental Risk Analysis (popularly known as ARMA) must be prepared. This is an analysis prepared by specialized environmental consulting firms that will measure: the natural environment, the activity, the means used for the economic activity and, in short, the potential economic damage that can be caused to the soil, water or biodiversity.
Based on this analysis, there are 2 options:
- If the potential damage exceeds €300,000 in repairs (or €2M if you have an environmental management system), you must have a financial guarantee to cover the damage.
- If it does not exceed it, a “responsible declaration” must be made to the Autonomous Community, without the financial guarantee being essential.
How is the financial guarantee and why is insurance the best option?
There are 3 formulas, in case of having to have a financial guarantee, to be able to carry it out:
- A bank guarantee
- A technical reserve (i.e., having funds available on the balance sheet in a fund created expressly for this purpose to respond to environmental damage).
- Environmental insurance
Of these three options, the only one that externalizes the risk (which, if something happens, prevents the company from assuming all the costs involved in causing environmental damage), is taking out insurance. This option represents a fixed annual cost deductible for corporate income tax purposes, and allows us to know what costs we assume from year to year.
What coverages are included in environmental insurance?
The guarantees included in the insurance depend, as always, on where they are contracted. There are several insurers that work in the form of an “insurance pool”. They join together to generate synergies between them and offer a joint insurance solution.
This “pool” has somewhat limited guarantees, with sub-limits for certain coverages such as legal defense and some exclusions such as subway tanks and others, which must be well controlled to avoid surprises.
Our recommendation is to opt for specialized companies such as Berkley, Zurich, among others, which have their own specialized teams, and will allow you to have coverage such as:
- Stoppage of activity
- Crisis management and emergency expenses
- High sum insured limits
If you are in any of these situations and want to study your environmental insurance, PIB Group Iberia can help you to study it and compare different options. Remember that although the ARMA does not detail that you must have a mandatory financial guarantee, it does not mean that it is not convenient to have insurance, since the risk exists anyway.
Do you want us to help you protect your company’s environmental liability and potential pollution? Trust the specialized team of PIB Group Iberia. Being an insurance brokerage, we can offer you different insurance options and find together the one that best suits your needs.
