'Corporate accountability' bringing more attention to environmental liability.Now that CEOs are required to certify their companies' financial statements, the phrase "corporate accountability" is taken literally - corporate America must account for every dollar on its balance sheet or face federal prosecution and shareholder suspicion. This increased attention to detail means, for example, that publicly-held financial services firms must properly account for every liability, including environmental exposure on commercial real estate loans. Loan officers for banks and financial institutions are focusing more attention than ever on environmental liability, which is risk associated with commercial real estate collateral if a loan defaults and environmental problems arise. These exposures, which can cost a lender millions of dollars in clean-up costs, are now under the microscope of wary investors dissecting financial statements for "accounting tricks" and "hidden costs." "New regulations and public scrutiny over corporate integrity have ratcheted up the drive by publicly-held lenders to be as fully disclosed as possible," said Charles Perry, president of Environmental Warranty, Inc., one of the nation's largest environmental insurance brokerage firms. "Without intending to, environmental risk Environmental risk The risk associated with economic or administrative consequences of slow or catastrophic environmental pollution. officers can dump their company's board of directors in hot water if they don't recognize the exposures in this area. A lot of them are not even aware of a new environmental risk transfer tool that some lenders are now using." The risk transfer Risk transfer The shifting of risk through insurance or securitization of debt because of risk aversion. aspect of environmental insurance is a positive in this economic climate, according to Perry. This kind of insurance covers a lender if there is a default on a commercial real estate loan and environmental contamination is discovered. Unlike a standard Phase I site assessment report, environmental insurance allows a loan officer to assure his institution's shareholders that if such a loan defaults, the bank's bottom line will not be affected by remediation and liability claims. "The uproar caused by recent corporate scandals should encourage loan officers, credit officers, and environmental risk officers to inform senior management of this alternative," said Perry. "The borrower pays for environmental insurance, as he pays for a site assessment, and the loan can often be approved much faster. So the upside is great, and the downside has now gotten worse under the microscope of accountability. The extent of shareholder, government, and public scrutiny of this area is not yet known, but why take a chance?" |
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