Lenders and Investors Environmental Liability
How Much is Too Much?

Working Paper

Authors: Antonio José Maristrello Porto    Erica Diniz    Laurine D. Martins Lopes    Rômulo S. R. Sampaio   

Published By: UNEP Inquiry    Getulio Vargas Foundation (FGV)   

Date: Apr 2016

  • Share with:

Lenders and Investors Environmental Liability

This working paper presents an overview of Lender Environmental Liability (LEL) and Investor Environmental Liability (IEL) regimes and issues. Environmental harm and degradation is often irreparable. Therefore, our assumption is that precaution is the main objective of any international and domestic environmental legal regime. The paper explores the conditions under which LEL/IEL can be effective tool to promote precaution. To illustrate our premise, we created a model based on Nash’s game theory in an attempt to universalize some basic concepts in the design of these systems. By using Nash’s game theory we aim to answer the question presented in the title of our paper: how much is too much environmental liability for a financial institution to bear?
We argue that full environmental liability (where financial institutions bear unlimited liability) may have the perverse effect of incentivising them to internalize any duty of care, in case they bear full liability.

Copyright © United Nations Environment Programme. All Rights Reserved. Contact us