Implications of recent changes to the EMAS and ecolabel regulations for the financial services sector

In recent years some scholars and policy makers have begun to focus on the potential of the financial services sector as an instrument for reinforcing government environmental law and policy. The financial services sector encompasses a wide range of organisations, and the principal entities are banks, insurance companies and institutional investors. These organisations often hold a strategic presence in the market economy, providing the development finance and risk management services that are indispensable for corporate growth. Through a combination of fiscal incentives, improved information and other indirect regulatory techniques, governments may be able to enhance financial organisations' sensitivity to environmental considerations in their lending, investment and insurance decisions. This potential has been recognised by European Community (EC) policy makers, such as in the Fifth Environment Action Programme (1992-2000). For example, by mandating environmental insurance for companies that engage in risky activities, governments can empower insurance companies to become more involved in supervising corporate environmental practices. Alternatively, making banks vicariously liable for the environmental harmful developments they fund may encourage banks to factor environmental risks more carefully and systematically into their credit assessments and loan conditions. So far, government reforms to create the appropriate conditions for stimulating financial organisations' engagement with environmental issues have generally been lacking in most countries. Ad hoc initiatives in individual countries enable us to glean some of the potential of this new approach to environmental law reform, but more systematic improvements are necessary. A promising breakthrough, however, has recently occurred in the EC where significant changes have been made to the Ecomanagement and Audit Scheme (EMAS) Regulation 1993 (No. 1836/93, OJ L168/1) and the Eco-label Regulation 1992 (No. 880/92, OJ L99/1) that enable these schemes to apply to the financial services sector. The European Commission's recent Sixth Environment Action Programme (2001-2010) describes the EMAS and Eco-label Regulations as 'the backbone of the Community's environmental protection policy', a claim perhaps justified in the light of the recent amendments.