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How to Prevent Corporations From Profiting Off Environmental Disasters

Environmental bonds guarantee corporate payment for clean-up and encourage more cautious use of land.

At 3:30 p.m. on November 5th, 2015, the Bento Rodriquez dam in Mariana, Brazil, sprung a leak. The dam protected 1.9 billion cubic feet of poisonous mud—refuse from an iron ore mining operation run by Brazilian corporation Samarco—from flowing free. At approximately 4:20 p.m., the dam broke for good, unleashing a toxic tsunami that wiped out two villages and killed 17 people.

The sludge soon wormed into the Rio Doce river and, over the next two weeks, cut a 400-mile course to the Atlantic Ocean. Its red path of destruction—killing wildlife and polluting the region's ecology as it flowed—was visible from space. Scientists predict it will take decades for the area to return to normal.

Between July and December of 2016, B.H.P. Billiton, the parent company of Samarco, made a net profit of $3.2 billion.

B.H.P. Billiton is not an outlier in this matter. Corporations that cause massive  environmental disasters regularly earn massive profits in their wake. British Petroleum made a profit of $115 million in 2016, six years after the Deepwater Horizon oil spill. Imperial Metals made $374 million in 2016, two years after its dam spilt 4.5 million cubic meters of oil and gold slurry into a British Columbia lake. ExxonMobil made $7.8 billion in 2016, 25 years after its tanker, the Exxon Valdez, spilled 10.8 million gallons of oil into the Pacific Ocean.

The reason why corporations are able to quickly recover profits after environmental disasters is simple: They're rarely forced to pay back the cost of the destruction they've caused.

A study in the journal Ecological Applications estimated the damage caused by the Samarco dam disaster at $521 million per year, not counting the loss of human life and socioeconomic tolls. This price is roughly six times higher than the fine Brazil levied on the corporation. Other payments for deaths and clean-up are still being negotiated.

"Fines, especially in Brazil, are often unpaid," says Letícia Couto Garcia, a professor of botany and ecology at Universidade Federal de Mato Grosso do Sul in Brazil and one of the study's authors, in an email. "Moreover, agreements and suits take quite a bit of time to execute."

If post-disaster fines don't recoup the costs quickly and fully, what could? One possibility, highlighted in the study, is the use of environmental bonds, which force corporations to place funds in an account held in escrow until either a disaster takes place or the risky operation ceases. This strategy not only allows governments to more quickly access the money needed to clean up disasters, but also decreases the likelihood that the disasters happen at all.

"This instrument can incentivize land users, industries, and companies to improve monitoring and management systems," Garcia says.

Currently, companies are financially rewarded for the act of mining, and for subsequently using those mined materials for greenhouse gas-emitting activities such as shipping. As a result, they focus on extracting profit over protecting the environment. Environmental bonds merge these two competing interests—potential savings and environmental protection—into one.

Another tool for incentivizing corporate stewardship of the environment would be longer jail sentences for executives—or the forced dissolution of companies—in the event of environmental disasters. But governments have proven feckless when prosecuting such laws, likely because such actions place them at a disadvantage when soliciting companies to bring work to their countries. "Brazil has a broad legal framework regarding crimes, however, processes are long and bureaucratic," Garcia says. While environmental crime laws call for jail time, "there is a mismatch" when it comes to enforcement of those penalties.

While some countries, including the United States and Canada, have started to introduce environmental bonds in a limited way, there hasn't yet been an aggressive, international effort to standardize their use. As long as governments have different levels of public health they're willing to risk for corporate profit, multinational corporations will continue exploiting the legal divisions of borders.

The longer we try to piecemeal an approach to get corporations to care about the environment, the more disasters we'll be forced to clean up.

"Any event [similar to the Samarco dam collapse] could have severe social-environmental consequences," Garcia's study reads. "We estimate at least 126 mining dams in Brazil are vulnerable to failure in the forthcoming years."