ABSTRACT

Potential environmental liability is a growing influence in the banking industry. In response, banking institutions are increasingly adopting environmental risk management programs. One drawback is the lack of accurate and comparable information that can be used by the banking industry. Because banking operations by themselves are not highly pollution-intensive, pollution from their own operations is not the primary environmental concern of most banks. Their focus is on derived environmental liability through debt and equity transactions and derivative exposure through foreclosure and temporary asset management responsibility. There are several guidelines, standards, and regulations to help lenders limit their environmental liability. Post-transaction monitoring is an important feature of the ideal environmental risk management program. After environmental site assessments and screening criteria, contractual covenants are the primary tool employed by banks for managing and controlling environmental risk. The intent is to allow investors access to information on any impending environmental liabilities.