Environmental Lender Liability For Commercial Banks

Nowadays, in view of the importance of corporate social responsibility and sustainable development, as well as the perspective of environmental risk management, international financial institutions have changed their criteria for loan or investment from barely considering financial status of the customers in the former times to the present to take the attitude of environmental responsibility. Multilateral development banks, such as the World Bank, have long been pressed to address more seriously the environmental consequences of their financed projects, and lately policy-makers and commentators have increasingly felt that private financial institutions should similarly pay more attention to environmental issues.Generally, private financial institutions, especially commercial banks, have played the important role in the development finance, and can be important stakeholders in the transformation to an ecologically sustainable economy. The traditional role of banks is as financial intermediaries for the receipt of deposits from clients and deploying such deposits by way of loans and investments for development and consumption purposes. Banks play a crucial role in market economies through the mobilization of financial resources for development. It is through their lending decisions that banks wield their greatest impact on the environment. By monitoring the environmental practices of their borrowers, banking institutions could play a pivotal role in how corporate environmental policy is implemented. And also green financing can be advantageous to banks through the creation of new business opportunities. A minority of banks are now developing new products such as ethical loans specially designed for environmental business to capture new market opportunities associated with sustainability and to generate additional revenues.However, it is clear that banks will not be able to function as co-regulators for environmental policy in the absence of governmental intervention. Banks themselves have an obviously conflict of interest. Their first priority is to insure that the project has a cash flow to repay its loan, whereas better environmental standards almost always involve increased capital outlays and sometimes higher operating costs. Without governmental intervention to embed environmental standards in banking regulation, the sector may be slow or unwilling to voluntarily undertake new roles except where it relates to avoidance of potential environmental liabilities.The most instructive evidence of the effect of the environmental inspired governmental intervention into financial institutions into financial markets is Environmental Lender Liability originated in USA, which is the most effective and controversial mechanism. In USA, the lending practices of banks have been profoundly influenced by the implementation of The federal Comprehensive Environmental Response, Compensation and Liability Act 1980 (CERCLA), providing mechanisms for the funding and apportionment of liability for restoration of hazardous waste sites.This thesis is divided into three chapters.Chapter one generally introduces the background of environmental lender liability mechanism, that is the emergence of greening tide and sustainable development need. Chapter two explores the content of environmental lender liability under CERCLA, and analyzes a set of judgment standards established by the practice of U.S. courts and implementing rules formulated by Environmental Protection Agency. In addition, the author works out to establishing a clear-cut standard for practice and interpretation of banks as liable parties. Chapter three analyzes on the China's actual situation, and provides some proposals about the legislative framework for China's environmental lender liability.