Banks may block loans to potential polluters

BANKS warned yesterday that they may not lend to businesses whose operations are potentially hazardous to the environment.

The British Bankers' Association said the risks that banks may have to pick up the costs of cleaning up after their customers could lead to difficulty in raising finance for firms in industries such as dry cleaning, printing, petrol retailing, farming and agrochemical supplies.

Against the background of proposed new European Community legislation extending liability for environmental damage, Tim Yeo, the environment minister, told the banks last week that they could not expect protection from the Government.

He made clear the Government regarded the banks as potentially liable for pollution costs along with companies, public authorities and landowners.

The BBA, representing 330 members, said: 'Lenders should not be regarded as environmental policemen nor face unlimited liability for contamination caused by others.'

Banks should not become the 'deep pockets' behind polluters who, for one reason or another, cannot pay for clean-ups or compensation. Mike Pummell, of Barclays, chairman of the BBA's environment group, said the banks wanted their potential liability related to the amount they lent.

In the United States, banks have become targets of environmental damages suits because, after a polluting company goes bust, they may be the only organisations with the resources to pay.

In the UK, banks are also awaiting the outcome of a key case, Easter Counties Leather, which will show whether a company's own environmental liability can be made retrospective. If this happened, it would make the company's own liabilities hard to quantify and make it difficult to assess creditworthiness when granting loans, Mr Pummell said.