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Agrochemicals in the EU: Exploring the Future

The world is facing interconnected crises, including climate change, food security, and nature loss due to pesticide use, which mutually influence and exacerbate each other. Regulation plays a crucial role in mitigating these challenges. The EU has implemented regulations, such as Regulation (EU) 2019/1381, Farm to Fork Strategy, EU Chemicals and Pesticides Legislation, and Commission Implementing Regulation (EU) 2022/741, to address these issues.

These regulations aim to reduce pesticide use, promote transparency, protect health and the environment, and achieve zero-pollution targets in the EU's food system. They are gaining increased significance with the implementation of the EU Green Deal, a comprehensive plan introduced by the European Commission to guide the EU towards a sustainable and climate-neutral future.

As we navigate this new regulatory landscape, businesses must be prepared to understand and adapt to these changes. The value chains of various industries, from upstream to downstream operations and product end-of-life, will likely be impacted by these regulations. It is essential for businesses to stay informed and proactively adjust their practices to align with these evolving requirements.

Agrochemicals used in industrial agriculture have both positive and negative effects, and the agrochemical value chain is complex. Some agrochemicals contain polyfluoroalkyl substances (PFAS), which the EU is phasing out except when proven essential and irreplaceable. PFAs are also known as “forever chemicals” due to their persistent nature in the environment. As a result, they are frequently excluded from liability insurance coverage.

In relation to agrochemicals, the EU Green Deal recognises the need for sustainable agriculture and the reduction of chemical pesticide use. To address this issue, the Green Deal aims to progress across four policy areas that include binding and voluntary measures in relation to the production, use, and disposal of agrochemicals:

Zero pollution for air, water, and soil by 2050.
Fair, healthy and sustainable food supply by 2030.
Preservation and restoration of nature and biodiversity, circular economy and eco-design, which have the overarching goals to reduce the use and risk of chemical pesticides and more hazardous pesticides by 50%, and the fertiliser use by 20% by 2030.
At least 25% of agricultural land under organic farming management and significantly increased update of agroecological practices by 2030.

In 2025, significant legislative implementations are anticipated.

These regulations have wide-ranging impacts on business practices, including bans, fines, and cascading effects on upstream and downstream operations. This results in price fluctuations, shifts in consumer behavior, changes in demand for specific chemicals, and impacts on related products. The regulatory framework introduces various risks, such as compliance, operational, financial, reputational, competitive, and strategic risks. Sectors like chemical production, metals and mining, biotechnology and pharmaceuticals, agriculture, food and beverage, aquaculture, retail, and waste management are expected to be affected by these regulatory shifts, leading to financial pressures, operational adaptations, supply chain disruptions, and more.

Environmental Impairment Liability (EIL) insurance is particularly relevant for organisations who have the potential for pollution liability. EIL may become a more valuable tool in the context of the new regulations. Coverage is continuously evolving to address emerging risks, including new hazardous substances like agrochemicals and incremental impacts on biodiversity.

It is important to remember that insurers in the EIL market, as well as in many other areas of insurance, typically exclude coverage for claims arising from willful non-compliance with the law by responsible parties, which include directors, officers, and managers overseeing environmental matters. Additionally, in this particular space, given the complexities and the uncertainties of changing regulations, some insurers are particularly promoting early prevention strategies. This is with the aim of strengthening clients' resilience against both frequent and catastrophic risks while ensuring compliance with evolving regulations.

The new regulations are likely to impact organisations' risk management processes. To seamlessly incorporate the effects of the evolving regulatory framework into risk management best practices, follow these steps:

Stay agile and monitor EU regulations and industry updates on agrochemical changes.
Identify and assess risks associated with changing regulations, including compliance, operational, financial, reputational, and strategic risks; consider impacts on supply chains, product availability, and market dynamics.
Evaluate how regulatory changes may affect your business operations globally, including agrochemical use and availability, identify specific risks across your supply chain, operations, and product end-of-life.
Develop strategies to mitigate identified risks, such as diversifying suppliers, exploring substitutes, investing in sustainable alternatives, and implementing compliance best practices.
Consider both conventional and alternative insurance solutions to mitigate potential financial losses and reputational damage from regulatory changes.
Collaborate with regulatory authorities, industry associations, suppliers, and customers to understand perspectives and find solutions aligned with regulations and business imperatives.
Continuously monitor both regulatory and market landscapes and adapt risk management strategies accordingly.

The regulatory landscape for agrochemicals is growing more complex. To ensure future insurability, businesses must anticipate the impacts of their activities on health, nature, and climate. Our expert team works closely with businesses to assess, manage, and mitigate climate and nature-related risks. This approach bolsters risk management, enhances risk transfer options, and supports sustainability reporting, allowing clients to showcase their commitment to sustainable practices in a rapidly evolving environment.

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Agrochemicals in the EU: Exploring the Future

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Agrochemicals in the EU: Exploring the Future

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Central themes for COP29 and their implications for the insurance sector

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The business case for climate resilience

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