2009 was the year of increased awareness is Israel regarding environmental issues.
Towards the beginning of 2009, the Israeli Parliament (Knesset) was requested to consider enacting a new law for the rehabilitation of contaminated grounds. The purpose of this new law was to deal with lands that had been polluted since the establishment of the State of Israel.
In March 2009, the Court issued an order for the first time, that prior to a sale of land which was used for military purposes, the State must conduct a comprehensive survey regarding the possible pollution of the grounds.
The idea that pollution may have an impact on the value of the land has taken additional emphasis.
In June 2009 the Commissioner of Banks issued a directive to all commercial banks in which he demanded that the banks take into consideration their exposure to environmental risks from various aspects of their activities.
The risks may be derogation in the value of the collateral received against loans, or deterioration of the financial situation of a client as a result of expenses intended to answer increased demands raised by various regulations.
Banks are required to acknowledge that identification and evaluation of the environmental risk are part of the risk evaluation for the banking institution, in particular when granting a credit line or in the periodical assessment of extent of the credit to be granted.
By 30th June 2010 the banks are required to establish an environmental risk manager who will ensure that the environmental risks are taken into account as part of the risk management process, including procedures to identify substantial environmental risk when providing credit to a client.
This directive was issued a few years after the Israeli Court ordered two of the largest Israeli banks to participate in the financing of removing toxic waste from a plant which entered into liquidation (motion (Haifa) 04-11288 Electrochemical Industries (1982) Ltd. v. Bank Leumi & Others, the District Court of Haifa).
The said banks were the preferred creditors of the Company (Electrochemical Industries) which went into liquidation.
The Court ruled that the removal of the toxic waste was an immediate need and in the absence of financial resources to finance the project, the banks and the Ministry of the Environment should equally bear the cost as a temporary solution.
Insurance policies as a partial solution for a bank's concerns
The Commissioner of Bank's directive, which is now being discussed by Israeli banks, places the banks in a key position for any future promotion of environmental insurance. Any environmental risk insurance purchased by the bank's client can be used by the bank as collateral and will be taken into consideration as part of the solution for their clients' environmental exposure.
The Commissioner of Bank's directive will also open a new market for insurers which will be prepared to sell coverage to banks themselves which will provide them with the protection needed in the event of discovery of pollution in one of their client's premises, or alternatively, failure to consider property an environmental risk.
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