Need To Hold Enterprises Accountable For Environmental Damage

In recent times, there is not only increasing sensitization about the environmental consequences of corporate actions, but also a deepening realization that there is only one environment that the whole human race shares. In these times, the calls for protecting national entrepreneurs from environmental regulations abroad are fast losing appeal, and giving way to a more responsible posture...
Need to Hold Enterprises Accountable for Environmental Damage
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Environment & its ability to assimilate

The challenge of global warming and climate changing that we are facing today, has been in the making since the advent of industrialization a few centuries ago. Its roots lie in the mass production of goods manufactures for sale using technology. These processes invariably gave rise to significant pollution of environment, affecting in particular air, water and soil, all of which are commonly shared by humanity. In particular, it is the air or the environment that belongs to the humanity as a whole. It is also the air pollution, by emission of green houses gases

that is the worst offender when it comes to environment and climate changes.

During the initial part of the industrialization, the pollution was relatively small, and could be absorbed by the environment. For instance, when burning of fossil fuels increased, to some extent, they could be absorbed by the forests and trees in a manner that net outcomes were negligible. However, as mass consumption of fossil fuels went on a rampage, the ability of the environment to assimilate excess pollutants gradually got saturated.

Thus, a tipping point in the history of environmental pollution was reached, unnoticed by humanity, or the enterprises and consumers that were driving it.

Negative Externalities and Market Failure

Enterprises take all private costs into account while determining the price of the goods that they produce or supply to the consumers. However, they do not take into account the social costs of their activities, which are a cost to the society as a whole. In economic theory, such costs, as resulting from air pollution, is considered a negative externality, and the failure of the market to account for it in pricing is considered a market failure. This market failure justifies policy interventions.

There are different kind of policy tools that can be used by the State to counter such market failure. One is a quantitative restriction on the enterprises, aimed at keeping the negative externality at a level that can be assimilated by the natural ability of the environment to assimilate pollutants. Another policy tool consists of tariff barriers or taxes, with the expectation that rise in price of the products as a result of taxation will limit their demand to a level that would be closer to the social optimum. A different policy tool, which as been in practice, are the emission permits, that can be bought and sold across a free market. Unfortunately, none of them have been able to bring about the desired changes in the corporate or consumer behavior.

Legal Measures & Penalties

Law begins with policy, and ends with procedure, with the code of law connecting the two. With markets not really being able to adjust to the necessities of regulating pollution, and policy tools not being fully effective either, more radical measures come into consideration. These include liabilities and penalties for the enterprises failing to stick to environmental standards.

This can happen only if the countries have a policy of holding their enterprises accountable in the first place. Legal liability of a company needs to be there in both the developed as well as the

developing countries, as a matter of policy, to ensure that Multi-national Enterprises, who are residents there or operating therein, are prevented from actions that would be detrimental to environment.

Need for Consensus for Effective Measures

Today, the human world is faced with a very important challenge of preserving our environment before it is too late. This environment is shared by all of us, and each one of use have a duty to ensure its integrity. The cost of environmental damage is an externality for a company, and so most companies are prone to add to the environmental damage, because the costs of such damage are borne by all while they restrict themselves to the profits from those activities. The results are failure of free markets to regulate themselves, thereby needing government intervention, which in this case need to be provided by way of making such companies liable in American courts.

After all, we have only one planet and only one environment, and so there can be no difference between environmental consequences of actions taking place on within or outside a country’s territory. Thus, countries need to have effective laws to address this. However, since this involves matters of trade and taxation, as well as territorial nexus, strong global consensus is required to enable countries, especially in the developing world, to be able to take strong measures.

Once policy is clear, there needs to be a clear Act or Code, i.e.. the law, to ensure that such a policy is implemented. The courts can try a company for environmental consequences of their actions abroad, only if the law of the state specifically provides. Although the courts, specially the higher court can interpret the existent laws too in a manner that will enable courts to try some companies, it would be much better if the laws themselves allow for such companies to be liable for trial by local courts for actions with environmental consequences anywhere in the world. Unambiguous laws and code will make things simpler and enable the courts to target such companies.

Lastly comes the procedure and the question of territorial nexus. Even though local courts are usually given specific jurisdiction to try such companies, it would still be a challenge to investigate an action that has taken place on a alien territory, and such investigation is essential to prove the matters in a court of law, and establish the actions of the company as having any actual environmental consequences. Then there will be some needs to allow foreign investigating agencies, and courts to play a role in identifying, preserving and transferring such evidence to the local courts.


Another option could be an International Convention, which seeks commitments from all countries to hold their enterprises accountable for environmental consequences of their actions.

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