Environmental Due Diligence
Projects
Environmental Due Diligence Definition
Environmental Due Diligence is the process that evaluates the environmental conditions and risks associated with a property. The process can be at the request of land developers, lenders, attorneys, or private owners who intend to purchase, refinance, or occupy a property.
Environmental Due Diligence can include reviews of:
- Potential soil and groundwater contamination
- Presence of hazardous and nonhazardous waste
- Presence of Asbestos Containing material
- Presence of hazardous materials in the buildings
Furthermore, the following tasks are included in a EDD:
- To ensure that hazardous materials and contaminants in the field are correctly and comprehensively recorded, that they are managed in a rational way and carry the appropriate permits, without posing an environmental risk.
- To ensure that natural resources such as water, wetlands, endangered species, historical sites, etc. in the research area will be properly and comprehensively identified, and that they are protected in accordance with applicable licensing from field activity.
As a general best practice before buying a plot or an industrial facility within a broader buying and selling / corporate mergers (Due Diligence), it is strongly suggested to perform an environmental investigation of subsoil and groundwater.
The assessment of the environmental status of the subsurface allows accurate planning and budgeting of possible rehabilitation measures, for as long as they are deemed necessary.
Those studies should also include a list of all identified hazardous and non-hazardous waste that need special treatment. Furthermore, the detection of asbestos (friable or not) particles in building materials or equipment is an integral part of this study. The overall results will determine the total cost of environmental remediation (soil, groundwater, waste, asbestos) which could in many cases be deducted from the total cost of the transaction.
Why is Environmental Due Diligence Important?
It is a form of proactive environmental risk management. It is an essential measure of protection against legal liabilities arising from environmental liability when purchasing a property. Without carrying out an environmental Due Diligence investigation, one cannot know the environmental responsibility and obligations one undertakes towards the Law and the protection of the environment after purchasing a property.
Unfortunately, many projects fail or are delayed due to legal proceedings, fines and environmental remediation obligations. Without carrying out an environmental Due Diligence investigation, one cannot know the environmental responsibility and obligations he undertakes towards the Law and the protection of the environment after purchasing a property.
What Type of Environmental Liability Could a Land Developer Have?
Contamination Cleanup
When contamination is found on a property without a detailed EDD (Environmental Due Diligence) investigation taking place, the landowner becomes directly responsible for its cleanup. A contaminated site landowner also becomes liable for neighboring properties where that contamination has spread. In addition, it is his obligation to manage correctly and in an environmentally sound manner all waste (hazardous and non-hazardous) that will result from decontamination actions in the field or found stored within the field.
Civil Liability
If claims arise in cases of adverse effects on human health (injuries, illnesses, deaths, medical treatment, hospitalization) or due to material damage due to aggravated environmental conditions, the owner becomes liable for tort. Tort can lead to costly civil or criminal lawsuits and high fines.
Fines
Fines and penalties may be imposed for non-compliance, violations of environmental laws, permits or approvals, and costs may be incurred for projects agreed to as part of a non-compliance settlement. New landowners who do not comply with applicable environmental laws and regulations may be required to pay civil or criminal fines and penalties. The range for fines and penalties can range from modest amounts to millions per violation.
Should Land Developers Perform Due Diligence Before They Buy Land?
Yes, land developers should perform environmental due diligence before considering buying land to understand any potential environmental concern. Initiating the environmental due diligence as early as possible will provide enough time to conduct any necessary steps to eliminate potential problems and liabilities. Proper environmental due diligence and environmental risk management help reduce the chances of grave financial and legal risk and a project falling behind schedule.
Who Performs Environmental Due Diligence?
The task of performing an Environmental Due Diligence (EDD) is usually outsourced to external environmental consultants. Environmental consultants combine scientific knowledge, understanding of legal requirements, expertise to identify and minimize risks that can lead to legal adventures or fines and ensure compliance with applicable laws. By carrying out research, environmental consultants deliver to clients detailed reports on the findings and recommendations for the best solution of the environmental problems that may be recorded.
INTERGEO Hellas – EDD projects
INTERGEO Hellas has been involved since 2000 in the most major transactions in Greece by conducting the Environmental Due Diligence study concerning the soil and groundwater assessment, Hazardous waste and Asbestos Containing Materials (ACM) recording.
INTERGEO Hellas has competed numerous Environmental Site Assessments Phase I and Phase II in industrial sites and free plots in the frame of Due Diligence projects in Greece, Cyprus, Egypt and in the Balkans (Serbia, Bulgaria, Albania). In the last 15 years INTERGEO Hellas has completed successfully over 40 big Due Dilligence projects for various multinational clients (Industry, Environmental consultants, Real estate, financial investors etc).
Below as case study is presented the following project:
Hellenic Petroleum SA Acquisition of the business and assets of BP Pl’s Greece Ground Fuels Marketing Business (May – June 2009)
Hellenic Petroleum SA Acquisition of the business and assets of BP Pl’s Greece Ground Fuels Marketing Business
INTERGEO Environmental Technology participated as part of HP’s consultancy Group during the period of May-June 2009. The framework of this project was a Due Diligence process for the Acquisition of the business and assets of BP Pl’s Greece Ground Fuels Marketing Business.
Dr. Stylianos Papadopoulos General Manager of INTERGEO Hellas and Dr. Christos Vatseris (Chief Technical Officer), having more than 30 years of experience in the environmental field, led a highly specialized working team that consisted of 8 experienced environmental auditors and engineers with a long-standing employee relationship within the company.
Since 1995, INTERGEO has had an intensive working relationship with Hellenic Petroleum in Greece in the field of Soil and Groundwater Investigation and Remediation. Since 2000, INTERGEO additionally provides to HP, services for the management of hazardous waste. During this same time period INTERGEO has a long standing working relationship with BP in Europe.
The performance in Due Diligence projects is always a very delicate issue due to the complexity of the procedure. Besides the legal and financial aspects one must consider the environmental issues which arise mostly from the possible presence of contamination either in retail sites and/or in Depot terminals. Furthermore, it cannot be overseen is the Petroleum Company’s obligation to properly manage its hazardous waste that is produced and stored at these facilities and thus becomes automatically the legal ` responsibility of the pending purchaser of the subject facility.
Therefore, the challenges in this particular project were:
a) The identification and assessment of the actual environmental risk of all facilities (Stations and Depot) in total based on the available information within the available timeframe, which in most cases is very short. For this specific case the available time was less than a month.
b) The determination of the existing environmental risk of each field / facility separately in most cases without carrying out a full environmental investigation program and/or on-site visit to the subsoil.
c) Calculation of the cost of decontamination actions in each field separately for the soil and groundwater based on the best and worst. This assessment must be made based on environmental information for the subsoil and groundwater which in many cases is missing. Therefore, the consultant must make the best possible approximation of the cost given the lack of relevant information.
d) These calculations were performed taking into account applicable environmental laws of the country and also the actual environmental risk encountered in each facility/field.
e) The definition of a common framework of understanding and approach with the environmental consultants and experts on the Seller’s side which would ultimately lead to mutual trust and then to the agreement of the amount of the expected environmental liabilities.
Based on the significant relevant experience and its expertise INTERGEO managed to overcome these challenges in a satisfactory way.
The in-depth knowledge of the possible environmental risks arising from soil and groundwater contamination together with the relevant experience of INTERGEO Hellas in the completion of similar projects in Greece, the company’s previous work experience with BP Hellas and ELPE in various environmental projects and the trust gained over the years, contributed positively to the acquisition agreement between two major international oil companies avoiding any recorded frictions.
As the worldwide environmental authorities continue to develop/ and revise soil and groundwater limit concentrations / guidelines, and recognize the impacts that arise from the land contamination, the necessity to include the environmental issues in Due Diligence projects will significantly increase in the immediate future. This is already common practice of most petroleum multinational companies. In such cases it is very important for the involved environmental consulting companies to follow a fully developed and clearly specified policy which identifies the real environmental conditions, using general accepted evaluation approaches/practices and objective criteria. Only then will they gain the mutual trust and general acceptance in the market that will lead to successful contribution to unbiased and non disputable transactions.
