Blog: The Environment Act – does it mean business?

After two years of discussions in Parliament, the UK’s new Environment Act came into force in November 2021. Nick Scott, Knowledge Broker at the Centre for Climate Engagement, considers what the Act means for the boardroom and how it relates to climate policy and regulation. 

The new Environment Act sets the framework for how the UK will regulate environmental issues post-Brexit, covering a wide range of environmental issues and impacting stakeholders across multiple sectors. Secretary of State for the Environment George Eustice asserted that the Act will help the UK deliver the “most ambitious environmental programme of any country on earth”. The accuracy of this bold claim is not entirely clear – the Act is a piece of enabling legislation that sets a framework through which specific regulations and rules will operate, so doubt remains as to whether the government will effectively implement the Act’s provisions. Nonetheless, even this broad framework indicates certain implications for UK businesses.  

Key provisions and principles  

Under the Environment Act, the government must identify long-term legally binding targets on biodiversity, water, air quality, resource efficiency, and waste management. To meet these targets, the government will also put into place non-binding interim targets, expected to be set by late 2022.  

Another key provision of the Act is the creation of a new Office for Environmental Protection (OEP), a government watchdog which aims to ensure that authorities are compliant with environmental regulations. Though some question the extent of the OEP’s independence, it could be a vital tool for ensuring that current and future governments and public bodies are a positive force for the environment. 

The Act enshrines five key principles of environmental governance that are included within EU treaties, to which the UK was bound prior to Brexit. These are: 

  1. Integration principle: environmental protection should be integrated into all government policy.  
  2. Prevention principle: it is better to prevent environmental damage occurring in the first place than to repair damage later.  
  3. Rectification at source principle: environmental damage should be addressed at its source.  
  4. Polluter pays principle: those who cause environmental damage should pay for the cost of the damage. 
  5. Precautionary principle: a lack of scientific certainty about the environmental impact of a product or activity should not prevent action. 

The government may well differ from EU bodies in its interpretation of these principles, which could have significant impacts on environmental regulation. For example, the precautionary principle may be ‘strong’ or ‘weak’. A stronger interpretation may see the UK continuing the EU’s stringent regulation of genetically modified organisms, whereas a weaker interpretation could see the UK loosening regulations. Each interpretation will have different environmental risks and opportunities, which highlights the importance of the government’s forthcoming final policy statement on these principles.  

Why the Act matters to boards   

Much of the Environment Act outlines how the government and public bodies must protect the environment, but many businesses will also need to change their behaviour in line with the new framework. Though precise effects will depend on implementation, certain business implications are already clear. 

Businesses with a significant impact on the environment, such as water utilities and those in waste management, may face stringent regulations and the prospect of significant penalties. The Act also requires that new development planning applications provide a ‘net gain’ in biodiversity – a measure that could impact businesses across every sector.  

Building on international efforts to reduce deforestation announced during COP26, the Act will disallow businesses from using certain commodities gathered by illegal deforestation. This means that businesses will need to understand their own supply chains and, since a commodity’s legality is determined by the jurisdiction from which it is sourced, ensure they understand local environmental policies in relevant countries and regions. As part of its focus on waste and resource efficiency, the Environment Act requires new standards which are likely to impact any business that sells physical products.  

In short, the Act sends a clear signal that businesses should be more accountable for their impact on the environment, even where this is indirect. Of course, the stringency of these various measures is not yet clear, and may well dictate whether the Act is truly “world-leading”. This will also depend on the targets set by the Government in accordance with its new obligations. According to law firm Ashurst, “If well-chosen, the targets have the ability to catalyse improvements to the UK’s environment. If set poorly, they have the ability to legitimise and exacerbate environmental decline”.  

The Environment Act and climate policy 

There are clear parallels between the Environment Act and the Climate Change Act, including the requirement to set legally binding targets and the establishment of government watchdogs (the Office for Environmental Protection and the Climate Change Committee). That said, there are key differences between the way that the government usually compels businesses to address climate issues and the way in which it regulates broader environmental issues. Understanding these differences may help in knowing whether climate regulation will mirror this broader environmental framework.  

If implemented effectively, the Environment Act could lead to clear restrictions on business activity that impacts environmental qualities such as biodiversity and air quality. By contrast, climate regulation tends to focus more on procedural aspects of business operations, for example by requiring reporting and disclosure; and often uses market mechanisms or incentive schemes to compel behaviour rather than command-and-control measures.  

There are several reasons for this difference in approach. Tackling climate change requires fundamental changes to essential parts of modern life such as energy, agriculture, and construction. Since strong restrictions on these types of activities may not always be feasible, the government tends to play a more facilitative role in shifting the industrial transition to net zero. Another potential reason is the complexity around the causes and effects of climate change. It may be easy to identify one major source of pollution in a river, but climate change is caused by countless different actors with no geographical boundaries. This means that harm caused by climate change is harder to attribute to any single actor, which has made it difficult to hold emitters to account using traditional legal doctrines. This can at least partly explain why relatively few businesses have faced successful climate litigation thus far, though trends suggest that this may be changing.  

One final reason for this difference in approach is that climate law and regulation is still in its infancy. Traditional environmental regulations have existed for decades and generally grown stronger, whereas laws and policies directly targeting climate change have been developed since the late 20th century.  As climate law and regulation matures, the impacts of the climate crisis become even more clear, and low-carbon alternatives becoming increasingly viable, it might therefore be reasonable to expect a similar tightening of standards. Government policy supports this notion – commitments such as the plan to ban new sales of fossil-fuel powered vehicles by 2030 mark a significant shift towards stronger climate regulation, and the Environment Act itself aims to tighten regulations on activities such as deforestation, which is a key driver of climate change.  

Taking account – time to act 

Though there are reasons to be sceptical about whether the Environment Act, once implemented, will truly be a world-leading example of environmental regulation, it sets an important framework for how environmental issues will be regulated in the UK. If the Act is indeed effective in holding businesses accountable for the impact of their products, operations, and supply chains, this could serve as an insight into the future of climate regulation – and a warning to businesses that are lagging on climate action.  

Uncertainty around the implementation of the Environment Act should not make businesses hesitant to act. Given that the areas of focus are clear, businesses should assume that restrictions will be stringent and act now to minimise their impact on water, air, waste and deforestation. This will ensure that a business’ activities are compliant with future regulation and give businesses time to devise and deliver ambitious environmental strategies. Even if the Act’s implementation ends up weaker than hoped, businesses can still mitigate other transition risks by understanding and addressing their broader environmental impacts. Of course, regardless of regulation and financial risks, British businesses’ influence and potential for innovation gives them the capacity, and indeed the responsibility, to lead the transition away from environmentally harmful practices