Here, we explain what this process is and why it's so important. We also provide tips for those preparing for this level of due diligence.
What is environmental due diligence?
Environmental due diligence is a type of due diligence that investigates the environmental risks and issues affecting commercial property.
This could include a review of:
- Proximity to sensitive environments, e.g. natural habitats
- Building structure and materials
- Standard practices for safe disposal of hazardous materials
- Risk assessments and operational procedures
- Potential soil and groundwater contamination
Why environmental due diligence is importantEnvironmental due diligence is essential for assessing the potential environmental liabilities of a target company. Without this, the acquirer could find themselves with a costly business and no liability protection post-deal.
A large proportion of deals fail due to issues surfaced during the due diligence process. These deal-breakers can be avoided if the sell-side performs due diligence on their own company before the buy-side gets involved.
Environmental factors can be considered, risks assessed, issues handled and preventative measures put in place to ensure the company is more valuable when it comes to deal time.
Tips for environmental due diligence in M&A
Since due diligence is all about identifying and mitigating risk, here are some important questions to ask in order to assess the potential risks associated with a target property:
- Has there been, or is there needed, a cleanup of contamination on owned or leased property?
- Has there been, or is there needed, a cleanup of contamination on nearby property?
- What potential or actual cases are there of bodily injury and/or property damage resulting from exposure to hazardous substances?
- Has there been or might there be any cause for fines/penalties for violations of environmental laws?
- What are the capital expenditures necessary to comply with environmental laws?
- What are the projected costs of demolition or site redevelopment in case of:
- Contamination of the property
- The presence of asbestos or other hazardous materials in site structures
- The presence of wetlands or other sensitive environmental conditions
- Are there any legacy environmental liabilities associated with former operations to be aware of?