Fines for companies that pollute the environment are increasing. Laura King looks at the role of the sentencing guidelines released in 2014 and whether the upwards trend is set to continue.
Over the past few years, headline-grabbing fines for environmental pollution incidents have hit the news following successful prosecutions by the Environment Agency (EA). The first spate of high financial penalties was in early 2016 when Thames Water, Yorkshire Water and Powerday all received fines of £1 million or more. Later in the year, Southern Water followed suit with the dubious accolade of a record-breaking £2 million fine after flooding beaches in Kent with raw sewage when its treatment works were unable to deal with heavy rain.
However, 2017 saw them all resolutely knocked off their top spots. This time, Thames Water took centre stage when it was hit with a £20 million fine for polluting the River Thames and surrounding land with an unprecedented 1.4 million tonnes of untreated sewage. Tesco was also found to be culpable to the tune of £3 million (plus an additional £5 million penalty for health and safety offences) after approximately 23,500 litres of petrol escaped from a petrol station in Haslingden.
What are the sentencing guidelines?
In England, the EA is responsible for enforcing environmental regulations and permit conditions. In most cases, the sanctions for breaking environmental laws allow for the prosecution of an individual or a company through the criminal courts with penalties of a fine and/or prison sentence.
Since March 2015, uncapped fines for serious environmental crimes can be issued by both the magistrates’ and crown courts (previously only the crown court could issue an unlimited fine). To help sentencers decide on the type and length of the penalty, guidelines are produced to outline the factors that should be considered.
New sentencing guidelines were published for environmental offences in 2014. These introduced a 12-step process that sought to ensure that sentences matched the seriousness of the crime as well as to help introduce consistency. However, as well as trying to standardise the approach, the guidelines were also explicitly intended to make the courts consider how to ensure that any fine given had real consequences.
Impact on companies
Quite specifically, the guidelines were aimed at making sure serious offences committed by large corporate offenders resulted in a large enough fine to make top management sit up and take note of their environmental obligations. In all, the guidelines gave legitimacy for penalties to have real teeth.
Indeed, the guideline states: “The combination of financial orders must be sufficiently substantial to have a real economic impact which will bring home to both management and shareholders the need to improve regulatory compliance. Whether the fine will have the effect of putting the offender out of business will be relevant; in some bad cases this may be an acceptable consequence.”
The guidelines are, however, designed to be fair and proportionate, and so they establish a sentencing process that defines “starting points” for fines which are based (among other things) on the turnover of the organisation. Accordingly, for a large organisation that is found to be negligent for a category 1 offence (for example, causing major adverse effect or damage to air or water quality, amenity value, or property) the starting point for a fine is £300,000, with a suggested range of £140,000–£750,000. For the same crime, a small, micro-company with a turnover of less than £2 million has a starting point of £15,000 with a suggested range of £1500–£30,000.
Has it worked?
Apart from the eye-catching headlines, in its analysis of the sentencing guidelines in 2016, the Sentencing Council reported that: “For organisations, the guideline appears to have had the effect anticipated … as some organisations have received higher fines since the guideline came into force.”
Since 2014, fines certainly appear to be going up. In 2000, the average penalty for a registered company was just under £10,500. In 2015, this had rocketed to £57,841. By 2017, the average fine was over half a million. Admittedly, this figure includes the £20 million that Thames Water was forced to pay, but when this figure is removed from the calculation, the average sum is still 10 times higher than in 2000, sitting slightly shy of £125,000.
Although the Sentencing Council’s report also suggested that the same effect had not yet been seen for individuals, this too appears to be changing.
The EA does not disclose full details for individual fines, however, in its 2017–18 Annual Report it stated that it: “stopped a large number of waste sites from operating and … made 93 successful waste crime prosecutions ...” Notably, the Agency reported that the courts had issued some of the “highest fines for individuals”. (See our Case Reports section for some examples).
What is next?
It is likely that this is just the start. Currently, many of the higher fines have been imposed on water companies. However, in her speech to the Manchester Green Summit in March this year, Chair of the EA, Emma Howard Boyd, called for “higher fines and custodial sentences for waste criminals” and it is expected that the EA will be targeting illegal operations, especially now it has additional powers to block access to illegal sites and can force the clean-up of all waste.
Water companies, too, are unlikely to be in the clear just yet. In its 2018 The State of the Environment: Water Quality report, the EA outlined that serious pollution incidents to water were still continuing at a rate of around one per week.
“The sector is not doing enough to reduce serious pollution incidents and ensure compliance with discharge permits,” Ms Howard Boyd said, warning that the EA would “take tough action against any company or individual who causes significant pollution and damage to the environment”.
Despite fines rising, there has still been criticism that it is not enough. The Thames Water fine, for example, was reported to be worth around two weeks’ profits. As a consequence, Ms Howard Boyd has regularly promoted the concept of penalties for pollution incidents to be high enough for board members to not see pollution as an operational expense.
The State of the Environment report also stated that agriculture was now the largest sector causing pollution incidents. In an article for The Times, Ms Howard Boyd called for higher financial penalties for farming operations found to be damaging the environment, and also for guilty farmers to be stripped of government grants in any upcoming change to agri-environment schemes.
With such a strong message and pressure from the top, it is unlikely that fines will come down. Companies need to be aware of this and understand their environmental responsibilities. Along with the EA’s “name and shame” policy leading to bad publicity, it is now also increasingly the case that any fine received will be financially relevant.
Many of the topics in the Croner-I subscription can help with conducting an audit of environmental responsibilities and compliance against obligations. For example, the topics in the Environmental Management Systems and Reporting section include information on carrying out a baseline review and how to manage environmental impacts.
Last reviewed 18 September 2018