The Environmental Liability Directive and Liability of Parent Companies for Damage Caused by Their Subsidiaries (‘Enterprise Liability’)

Abstract

This article discusses whether parent companies can, and, in light of opportunities for regulatory evasion and developments in corporate group liability, should be held liable under the ELD for environmental damage caused by their subsidiaries. Depending on the facts, a parent company could qualify as an operator of its subsidiary’s activities, but an extensive application of the operator definition to parent companies could have adverse effects on corporate risk management. Parent company liability could also be viewed as a remedy for the lack of mandatory financial security, but would not appear to meet a clear need and is unlikely to be the preferred policy option.

Trends in corporate liability, however, may result in broader exposure of parent companies under the ELD. Outside the realm of the ELD, current developments and new thinking on corporate groups and supply chain liability may also exercise an influence on the way courts construe the ELD or other laws applicable to environmental damage. Several trends may join forces to inspire authorities to adopt creative approaches to construing and applying the ELD. First, the concept of limited liability is being questioned, either in general or as applied to corporate groups. Theories of enterprise liability or efficient investor liability are, to varying degrees, inconsistent with limited liability. Second, under the theory of corporate social responsibility, corporations are believed to have obligations towards society and the environment beyond their legal obligations. These moral obligations could easily become legal obligations once a sufficiently egregious case presents itself. Third, under the theory of supply chain responsibility, corporations increasingly have obligations towards their suppliers, customers, and business partners. Such responsibility may ground liability if damage arises and deep pockets are required to remedy the damage.

Thus, even if the ELD remains unchanged, developments in corporate group liability in general may exercise influence on the way the ELD or related laws applying to environmental damage are construed. In the hands of authorities and courts deeply concerned about the deteriorating environment, the ELD’s limited scope might prove to be a weak barrier against the incoming tide of expanded corporate and supply chain liability.