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Comparing environmental laws in Latin America

It used to be that in Latin America environmental problems were accepted as a part of doing business--if they were thought of at all.

But most countries today have strict environmental regulations designed to protect the land, soil, water, and biological resources. Most also have laws requiring that communities and the public be informed about new development projects, and have the opportunity to air their views and even influence final decisions.

Where there are laws, there are lawyers, and a group of experts on environmental legislation recently met with IDB experts at the Bank’s Washington, D.C., headquarters to discuss the latest trends in this rapidly changing field. The attorneys were members of law firms belonging to the Inter-American Network of Environmental Law Specialists, a group formed to share information among themselves and with international organizations and governments. Also addressing the meeting were representatives from the Export-Import Bank of the United States and the U.S. Overseas Private Investment Corporation.

Experiences varied considerably from country to country, and were not always predictable. In Brazil, for example, environmental issues don’t always pit polluters against the public. “It’s amazing how some companies are taking their environmental responsibility seriously,” said Fernando Tabet, an attorney from São Paulo. In some instances, he said, private banks are insisting that borrowers adopt environmental standards that go beyond those established by law.

“Brazil has almost all the environmental laws it needs,” said Tabet. But the problem is enforcement. The institutions charged with the task often are not capable of carrying out their responsibilities. Tabet called on the IDB to support programs to strengthen these institutions and train lawyers in environmental law.

Ecuador has only recently developed a body of environmental legislation, according Jaime Zaldumbide, an attorney from Quito. Being a latecomer has enabled the country to adopt legislation and regulations that reflect the latest trends. In Ecuador, every project with a potential environmental impact must include an impact statement and a management plan--and these documents must be published. Any project that will exploit natural resources must provide for consultation with affected communities.

In Argentina, the courts often get ahead of the government in establishing strong environmental regulations, according to attorney Gabriel Macchiavello. He cited two cases—a gold mining project and an oil and gas line project--in which courts rejected government-approved environmental impact statements and sided with local communities in their allegations that the projects would cause harm.

Can commercial banks be held liable? Participants examined the often murky subject of the legal responsibility of commercial banks in the environmental impact of the projects they finance. The issue is most pressing for international banks, that provide capital for the large-scale extractive projects that have the biggest environmental impacts, according to Juan Carlos Urquidi, an attorney from Santiago, Chile. Such lenders often refrain from asking too many questions about environmental impacts of projects they finance for fear of what they would find, preferring to limit their role to lending. But such a “see no evil” stance can have serious consequences, said Urquidi. Punitive measures for environmental infractions can result in loss of assets and frozen cash flows for the borrowing company. In some cases, the lender could be forced to assume the costs of the debtor’s environmental liabilities.

In the case of Costa Rica, a lender can become criminally liable by omission—that is, if it learns of an environmental infraction and does not denounce it—said Carlos Echeverría, an attorney from that country.

Lender liability laws in the United States hold a bank liable for the actions of a borrowing company if participates in decisions affecting the company, according to Robert Montgomery, who heads the Environmental and Social Unit of the IDB’s Private Sector Department. But other questions remain. If a company that receives financing from a Latin American branch of a U.S. bank is sued for environmental damages, can the parent bank be held liable?  In any case, the parent bank would be susceptible to potentially significant reputational risk.