Shenzhen Establishes Pilot for Mandatory Environmental Pollution Liability Insurance

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In line with China’s drive to address its pollution challenge, Shenzhen released the Shenzhen Compulsory Environmental Pollution Liability Insurance Pilot Business Catalog. It effectively establishes Shenzhen as one of China’s pioneering local pilots for mandatory environmental pollution liability insurance, following the examples of Guizhou and Hainan. The Catalog specifically names 1,066 Shenzhen-based companies across ten industries including electroplating, oil depots, dangerous chemicals and printed circuit boards that will be required to purchase environmental pollution liability insurance by September.

The concept of using commercial insurance to combat pollution and hold companies accountable for their impacts on the environment is not new and has long been in the works in China, and more specifically in Shenzhen as well. Internationally, the U.S., South Korea, and the EU have all implemented mandatory insurance schemes. China began to test environmental pollution insurance in 2007 on a voluntary basis and estimates indicate that more than 130 billion yuan in coverage has been provided for Chinese companies. Under this voluntary scheme, about 1,000 Shenzhen companies purchased the insurance, accounting for 10% of the total nationwide and its insurance premiums totaling over 17.5 million yuan from 2014 to 2017.

Last year, China released plans to make environmental pollution liability insurance compulsory for companies that fall under eight categories of companies including companies engaged in petroleum and natural gas extraction, the gathering, storage, utilization and disposal of hazardous wastes, and the production of active pharmaceutical ingredients. The Ministry of Ecology and Environment released a draft for consultation of the Management Guidelines on Mandatory Environmental Pollution Liability Insurance this past June, but there has been no timeline published for its official issuance nationwide.

As Shenzhen switches from voluntary to mandatory environmental pollution liability plans, it will be interesting times ahead to survey the effectiveness of this policy shift. Further, as China plans to introduce environmental pollution liability insurance widely on a mandatory basis, Shenzhen will set an example for best practices and highlight challenges that will need to be addressed.