Corporate environmental liabilities in the United States now stand at more than $250 billion. Many remain hidden on balance sheets, only to emerge as surprising and painful charges against earnings. Despite the scale of the problem, most corporations do not manage the environment as an integral part of their everyday activities. Because of legal and technical complexities and the emotional and public relations baggage associated with environmental matters, basic business principles are rarely applied to environmental risks. Instead, the facile mantra of "zero risk, zero violations" echoes in corporate boardrooms across the land. As a result, environmental liabilities are managed piecemeal by lawyers and engineers who lack the training, tools, and incentives to tackle them systematically.

This need not be the case. The solutions to risk management issues are multiplying, permitting unprecedented discretion, flexibility, and effectiveness in the management of risk. The benefits of using the new tools and taking a systematic approach to managing environmental risk are huge. A typical oil or chemical company can avoid creating new liabilities and see its current ones fall by 20 to 40 percent. We believe there are three basic rules for developing integrated environmental risk management:

• Rule 1: Focus on risk,...