Environmental controls have become such a large part of all operational businesses in nearly all jurisdictions that it is a sector of expertise that we have developed in house as it is required in every due diligence study that we conduct. Often the chemical and mining sectors present the most difficult environmental challenges but many businesses have been slow to realize their obligations. Electronic waste is one example of a “problem” that was ignored for so long that separate legislation has been introduced in many jurisdictions to cover these specific waste streams. The Environmental sector can be divided into a number of activities:
Control and Compliance is what most people first think of when they are completing of due diligence activities. We have to ask ourselves the question, “Does the target have adequate management controls in place to ensure that they comply with the regulatory standards required of them?” In any review we will concentrate on not just the history of environmental compliance but also the awareness within the organization of their consent limits and the likelihood that the organization will take the correct actions in response to a breach of consent limits.
Cradle to Grave is a type of study that considers the entire lifecycle of a product from raw material sourcing through to disposal of the final product at the end of its useful life. Many businesses are looking for opportunities to cut waste and to improve recycle of raw materials as part of the product design stage. Any review should look at the feasibility of techniques that can be implemented within the factory as well as those that can be expected to be implemented in the wider society once the product is outside the control of the business.
Carbon footprint studies are being requested for existing operations and proposed investments. Agricultural businesses have come under increasing scrutiny to confirm that what is often thought of as a benign and natural process is really carbon neutral. In many cases, like the intensive farming of corn, the farming techniques require so many high energy inputs that the carbon dioxide released by the cultivation exceeds carbon captured by the growth of the crop. Any review should start looking at the cultivation technique and balance the expected crop yield with the energy inputs. Techniques such as “low till” or “no till” can significantly reduce the energy inputs needed in the crop cycle whilst having minimal effect on the net crop yield. Any review from farming to heavy industry needs to start with agreeing the study envelope which affects the carbon balance. This should include understanding the raw material supply chain as well as the product distribution to the final customer.
Remediation, plant closure and baseline studies center on identifying the obligations of the business to remediate the land on which the operational assets have impacted. The purchase of any potentially contaminated asset needs to determine the transfer of liabilities. This is normally achieved by completing a baseline study whereby the state of any controlled substances that may represent a potential future liability is measured and documented. Once this has been agreed the potential cost for remediation will be estimated. Our review will start from the environmental context of assessing the best techniques at not excessive cost that can be applied to reducing the contaminants to the accepted consent levels. Often this requires negotiation with the regulatory authority who has different priorities from the business owner. Finding an elegant solution that can meet the regulators justifiable concerns whilst nullifying some of the political elements can often be the difference between profit and liability or a deal closing or not. Reliance on the seller’s representations and warranties without confirming their adequacy can be costly.