The accountability of lending institutions for environmental damage under the lender liability principle

Abstract

The environment as we know it today may not be the same for the next generations if this generation does not take positive steps to ensure its protection. This is simply to say that the fate of future generations lies on the ability of this generation to put in place measures that protect the environment. The most common measure installed is the “polluter pays” principle (PPP), which entails that whosoever is responsible for polluting must bear the burden of remediating the pollution. After decades of applying this principle, it is clear that this principle alone will not achieve environmental protection. There is therefore a need to extend the scope and applicability of the principle to include those who are not ordinarily covered by it. One such principle that extends the PPP is the lender liability principle. This principle extends the scope of polluters to include those who are not ordinarily regarded as polluters under the PPP, such as lenders. The work of lenders is generally regarded as “clean” in that they do not produce toxic fumes or cut down trees, but the effects of lending can barely be regarded as being clean. The projects which they finance are the vehicles by which ultimate environmental damage is achieved. There is therefore a need to institute measures to avert the environmental damage caused. The principle of lender liability advocates and gives the lender a mandate to consider the environmental implications of their actions as a real risk. It creates a causal link between lending and environmental damage, creating a framework that holds lending institutions accountable for environmental damage