Do you have this insurance in green?

green insurance.jpgMost of the stories about China in the Chinese English-language news services have all the analysis and objectivity of a press release. The articles concerning the recent introduction of China’s “green insurance system” by SEPA were no exception. Did any reporter consider asking “what’s so ‘green’ about industrial accident insurance?” It’s no greener than your automobile insurance. This particular insurance product will cover “environmental pollution accidents,” but that just means the insurance company and not the government will ultimately pick up the tab for compensating those injured by the accident (the operating assumption is that the corporate polluting entity will have declared bankruptcy in the wake of the accident). Its impact on ensuring environmental compliance is less clear, and, in fact, it could, perversely, lead to less corporate focus on environmental issues. SEPA acknowledges this fact, and Pan Yue is quoted as saying that merely having insurance in place “doesn’t mean polluting companies can rest assured to pollute as the insurance premium is in proportion to a company’s pollution risks.” The premium had better be set at a level significantly above the cost of compliance or the motivational power of this insurance will be nil.

The policy has only been rolled out in a trial phase and is not scheduled for nationwide implementation until 2015. First up for insuring are those “companies that produce, sell, store, transport or use high-risk chemical products” and “petrochemical industries and dangerous waste disposing enterprises that are prone to heavy and serious pollution accidents”. “Enterprises and industries having caused serious pollution accidents in recent years will be specially targeted,” Pan Yue said. I should hope so, but shouldn’t they have been specially targeted by the enforcement authorities already.

I am skeptical about the efficacy of this policy. If a company is already ignoring environmental laws, why would it now decide to comply with this directive? At most, this program will only impact the largest, most sophisticated entities-the ones, as I have noted before, that should already be in the vanguard of environmental compliance. “Green” insurance seems to be part of a suite of initiatives, including “green listings” discussed previously, that SEPA is in the process of rolling out. Structured correctly these initiatives shouldn’t do any harm, and may be marginally helpful. It seems somewhat strange, however, that given the scope of the environmental compliance challenges in China, SEPA is concentrating on implementing relatively sophisticated financial regulations. This phenomenon is simply a function of the fact that SEPA only has real authority at the macro level, and thus, its policies tend to be directed toward or, as a practical matter, only impact those corporate entities that by their size come within the purview of national regulators. But wait a minute, isn’t that the real problem here: SEPA’s lack of effective local authority? Fix that problem and there may be real progress toward meeting China’s environmental compliance challenges.

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Filed under green finance, SEPA

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