Pub. 8 2018 Issue 3

4 www.azbankers.org F OR BANKS, ENVIRONMENTAL RISK MANAGEMENT ADDRESSES CONCERNS ABOUT THE PRESENT BY LOOKING INTO THE PAST AND GAZING INTO THE FUTURE. A GOOD ENVIRONMENTAL RISK POLICY LOOKS TO THE PAST TO IDENTIFY EXISTING ENVIRONMENTAL LIABILITIES BEFORE MAKING LOANS SECURED BY COMMERCIAL REAL ESTATE—TO PREVENT EITHER THE BANK OR THE BORROWER FROM BEING HELD LIABLE FOR CLEANING UP SOMEONE ELSE’S ENVIRONMENTAL MESS. 1 THIS SAME POLICY WILL ALSO EVALUATE ONSITE OPERATIONS TO DETERMINE POTENTIAL FUTURE LIABILITY AND WEIGH THE POTENTIAL RISK FOR THE BANK. PRACTICALLY SPEAKING, MUCH OF ENVIRONMENTAL RISK FOR BANKS INVOLVES ASSIGNING LIABILITY WITH REGARDS TO THE TWO MAIN PIECES OF ENVIRONMENTAL LEGISLATION: RCRA AND CERCLA. Pronounced “WRECK-ruh” (RCRA), the Resource Conservation and Recovery Act addresses the disposal of hazardous waste, and the regulation of Underground Storage Tanks (USTs). USTs are most often used to store gasoline and diesel at filling stations, and are frequent sources of environmental contamination. Although established by federal law, state agencies regulate UST activity, including the cleanup of environmental contamination. RCRA con- tains no liability protections, so when making loans on UST sites, banks often require indemnification from sellers for any past envi - ronmental contamination discovered onsite after the transaction. Pronounced “SIR-kla” (CERCLA), the Comprehensive Environmen- tal Response, Compensation and Liability Act, authorizes actions in response to environmental contamination. In CERCLA terms, contamination includes things like paints, pesticides, and chemicals. Generally, the businesses most likely to be CERCLA concerns are The Why and How of Environmental Risk By John Berteau, Associate General Counsel