Environmental Due Diligence
April, 2018
By: Claudia Meléndez, Lawyer & Environmental Consultant of Zone
Before carrying out commercial operations such as mergers, acquisitions or financing, it is appropriate to carry out a prior review of the environmental management of the companies involved. This in order to have enough elements to ensure an adequate risk assessment, but mainly, the sustainability of the operation in its environment.
This investigation and analysis process is known as the Due Diligence process. The due diligence process in environmental matters aims to determine in a quantitative or qualitative way, the impact that the activities of a company may have on the environment. In fact, one of the main objectives of this study and analysis process is to determine possible environmental contingencies associated with both the company's activities and the property in which it carries out its activities, helping to prevent environmental problems from reducing the value of your business or property, as well as avoiding possible contingencies or responsibilities for obligations acquired without prior knowledge.
An Environmental Due Diligence is a type of investigation that ideally should not be limited to documentary analysis and review; but accompanied by field visits to learn first-hand the real state of the company's operations, circumstances that can hardly be evidenced by simply reviewing the possession of the permits issued by the regulatory institutions, these field visits help to qualify or value the amount of investment necessary to adapt a site to environmentally accepted criteria, which has a significant influence on the appraisal of the amount of the transaction.
Environmental Due Diligence studies are developed in different phases, the depth of each one will depend on the scope determined by the client. In general, the preliminary phase includes documentary review, verification of the existence of permits applicable to the company's activity, a preliminary analysis of the site and verification of compliance with the applicable legal framework. In the second phase we can include specific studies and analyses, collect evidence of inadequate environmental management and environmental legal implications. Finally, the remediation phase, which includes taking actions to clean up the contamination and estimating the time and costs that these measures will require.
We can consider that including the environmental issue within the environmental due diligence process is extremely important since it allows:
- determine and quantify the current and potential environmental responsibilities, as well as the risks that can be assumed as a result of this transaction,
- establish an economic amount that covers environmental risks, of the current or future operation, which can significantly impact the establishment of the transaction price,
- allows knowing the economic investment necessary to adapt the property or company in question to environmentally reasonable criteria
- verify compliance with current and applicable regulations.