Date Published: July 28, 2016

What are Environmental Bonds?

Environmental bonds help contractors meet federal regulations. They ensure remediation projects and hazardous materials are fully covered within the bond and that the bond is in line with federal standards. and allow contractors to do projects that may be potentially harmful to the environment and that harm could become a liability. The risk management for environmental contractors can be very difficult because of the long term liability they can pose because environmental contractors face unique risks and they can be very difficult to bond because of the collateral they require and the length of some of the bonds.

Surety Companies and Environmental Bonds

Many surety companies won’t write environmental bonds because of the liability they can create. The hazardous materials that environmental contractors often must deal with can lead to prolonged periods where the bond is effective and at risk for claims. All surety companies require current proof of insurance in order to write any kind of environmental surety bonds. Asbestos, underground tank removal and lead contamination are generally pretty easy for surety companies to write, but contracts that involve mold can be much trickier. Surety companies worry that if mold returns that people could filed claims on the bond’s warranty. Surety1 knows how to add language to the bond form or contract that minimizes the surety’s exposure but maximizes protection for the public.

Who Needs Environmental Bonds?

Any contractor that does projects that could have environmental consequences need environmental bonds, especially when fulfilling federal, state or municipal contracts. People or entities that may need environmental bonds are:

  • environmental firms doing remediation or clean up for the Environmental Protection Agency
  • petro-chemical clean-ups funded by state programs
  • fuel tank removals funded by state programs

Remediation is a term that will show up often in environmental contracting and its defined as the remedy, removal or reversing of environmental damage. Remediation contractors essentially just remove pollutants from the environment. Remediation contractors always need to get environmental bonds before they start projects.

What are the Different Kinds of Environmental Bonds?

There are bid, performance and payments bonds required for environmental contractors, just like any other contractor. Environmental contractors have to post bid, performance, and payment bonds for the same reasons as contractors, but what makes environmental bonds different is they have to cover more liability and contractors have to post more collateral.

Bid, performance and payment environmental bonds are always required for projects that include remediation and contaminated property. Examples of environmental projects that general require bid, performance and payment bonds are:

  • asbestos removal
  • lead
  • the construction and removal of underground storage tanks
  • remediation of soil, ground water, brownfields and mold
  • landfill construction

Projects that generally require environmental surety bonds include:

  • environmental excavation
  • the disposal of contaminated materials
  • mining rehabilitation
  • soil stabilization
  • demolition of contaminated facilities

Environmental Bonds are not Green Bonds

Green bonds are becoming significantly more prevalent in the United States and Europe as companies try to find more sustainable business practices. As climate change becomes more of a threat and more well known, companies can get green bonds to help them invest in environmentally friendly efforts. Apple’s $1.5 billion dollar green bond is a high profile case of corporations trying to invest in green solutions. Apple will use part of the $1.5 billion to convert the company to 100% renewable energy. While green bonds are also good for the environment, they should not be mistaken for environmental bonds.

Environmental bonds, as covered above, encompass the bid, performance, and payment bonds that contractors need in order to do projects that have environmental elements. Environmental bonds are surety bonds. Meanwhile green bonds are a tool companies and corporations can use to invest in green solutions. Green bonds are not surety bonds because there is no obligee requiring them and they do no guarantee anything. They exist to encourage companies and corporations to develop sustainably, but they are not construction surety bonds.

While both the green bond and the environmental bond are important for caring of the environment, contractors looking for projects only need to worry about environmental bonds.

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