While I was pursuing my studies in the United States, I had picked up a daily habit of waking up early and going for a walk for about half an hour. Going for a walk helps clear my mind and prepares me for a typically hectic day as a law student. It has proven useful as I breathe in the fresh air and let oxygen seeps into my every cell and become more energetic as a result. I hoped to continue this habit when I come back to Thailand. But that hope ran afoul of the reality.
Last Monday, I woke up early, as usual, to go for a walk. But something seemed and felt different. My nose was runny, and my eyes were itchy. I suddenly checked my phone to look for the air pollution index, from which I learned that Bangkok on that day was the sixth-highest air-polluted city in the world. I abruptly walked into my room, turned on every air purifier, and sighed in disappointment.
The experience had brought back an unpleasant memory of when I was a practicing lawyer. As an environmentally conscious attorney, I had found myself, once or twice, at the center of a dilemma. Clients would engage lawyers, such as myself, to help with their funding of a project. Some of these projects have the potential of damaging the environment, ranging from industrial waste to air pollution. Informed of the problems, they proceeded with the funding, indirectly fueling the polluting activities. It appeared that the concerns paled in comparison to what these clients stood to gain.
From then on, I realized that the Thai environmental law regime still lacks adequate incentives to promote environmental responsibility. Corporate investors involved in a contaminating activity should be more sympathetic with this environmental issue. After all, they derive their gains at the expense of society at large. They should be on the lookout for outcomes their commercial decisions could have on the society, be it directly or indirectly.
The core legislation of environmental protection is the Enhancement and Conservation of National Environmental Quality Act, B.E. 2535 (1992). The law reflects a narrow concept, whereby the responsibility for environmental compliance and liability for noncompliance rest solely on the site owner or possessor. This one-dimensional statutory framework serves to distance the corporate investors from exercising precautions in preventing environmental destruction made possible by their financing.
My proposed strategy to address this institutional indifference involves imposition of potential liability on corporate investors granting financial support to companies which fail to comply with environmental obligations.
This will encourage the investors, through fear of liability, to be more cautious in their lending and to use their influence on the companies, as the site owner or possessor, to minimize environmental fallout resulting from their funding. Below, I propose a two-pronged legislative approach: broad imposition of liability preventing undesirable behavior, coupled with a safe harbor encouraging desired business practice.
First, Thai legislators should amend the environmental law to incorporate the concept of “indirect polluter”; the concept adopted in Brazil. Any party could be subject to a joint remedial liability. These indirect polluters are not limited to the owner and possessor of a contaminated area or facility. In other words, companies funding the contaminating activity, such as providing of funds, could be considered an indirect polluter.
This liability scheme may be effective in discouraging funding companies from getting involved, even indirectly, in the projects that may lead to environmental contamination. However, if enforced without regard to their culpability, it may discourage lending to industrial borrowers altogether, which will ultimately harm the economy.
This is where the second prong of the approach – a safe harbor – comes into play.
A safe harbor should be available to lenders who exercise due care in ensuring the regulatory environmental compliance of the financed project, before funding. This would include environmental due diligence to ensure no hazardous substances are, or will likely be, released into the environment from the borrower’s facility.
Those failing to take such precautionary measures would be excluded from the safe harbor and thus exposed to a higher level of scrutiny if the question of culpability arises. Given that the financing company’s liability is on a strict, joint and several basis with the borrower, and also the cost for environmental clean-up is typically higher than costs associated with precautionary measures, a reasonable lender would be incentivized to ensure the borrower’s environmental compliance from the outset.
As supported by a UN economic study, when lenders’ potential liability exceeds precautionary costs, they will likely adopt precautionary measures in order to enjoy legal protection, which will eventually prevent borrowers from damaging the environment.
Banking practices integrating environmental governance form part of sustainable finance – a significant issue facing the world today. Unfortunately, Thailand still does not have any legislations in place specifically addressing this issue. As part of the global community, Thailand should take a more proactive approach in keeping up with international developments and norms.
By Pongnut Thanaboonchai