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Insight

Envi­ron­men­tal Audits Minimise & Limit Transaction Risks

by Christiane Jung Business development manager
Anyone who nowadays buys a company or property will usually carefully verify financial, tax, market and competition as well as legal risks. Envi­ron­men­tal risks such as a cont­a­m­i­nated site or other risks with an exposure path to human health also play an important role. The value of a company or a property depends not least on possible liability risks. An Envi­ron­men­tal Due Diligence is advan­ta­geous for both buyers and sellers.

Since 1985, the number of company acqui­si­tions and mergers has risen tenfold. At the same time, the effort of nego­ti­a­tions before a transaction have also risen with the financial and economic crisis. The process of inves­ti­gat­ing all facts, conditions, rules, laws, regulations, financial consid­er­a­tions, or any other such matters that would affect one's decision to purchase property is called due diligence audit.

Although such an audit is not legally required, anyone who acquires a company or a property from which envi­ron­men­tal risks arise is also liable for this. Strict compliance guidelines and the more deliberate handling of money and assets do their utmost to ensure that the due diligence audit is becoming more and more important.

It is important to consider not only the actual situation but also to check whether the transaction corresponds to future laws and regulations, in particular EU Directives.
Christiane Jung, Business development manager

As an increasing number of potential buyers evaluate the legal, fiscal and financial situation, the envi­ron­men­tal situation of the company or the property is often neglected. This however becomes even more crucial, as the value of a company or property is signif­i­cantly dependent on its envi­ron­men­tal situation and the liability risks it is exposed to. For company or property trans­ac­tions, it is, therefore, important to take a close look at possible envi­ron­men­tal risks and the resulting monetary risks within the scope of the due diligence process. At the time of the transaction foreseeable changes to the legislation are included in the evaluation. Possible envi­ron­men­tal risks or the elimination of envi­ron­men­tal damage can thus be directly integrated into the agreement and reflected in the purchase price.

An envi­ron­men­tal due diligence audit (EDDA) is also relevant from the vendor's perspective. For this reason, in addition to the buyer's due diligence (Acquisition DD), the seller's due diligence instrument (Vendor DD) is recommended. This serves to document the envi­ron­men­tal risks or damage at the time of the sale from the vendors point of view. The Vendor DD thus represents the starting point for the sales nego­ti­a­tions and forms the opposite of the Acquisition DD.

Transaction Services Grafic EUInter­na­tional Standards

CDM Smith prepares audits using procedures that apply across the globe while taking into account local require­ments specific to a country or region. Our portfolio includes the following inter­na­tional standards:

  • Property Transaction Services/Mergers & Acqui­si­tions
  • Envi­ron­men­tal Liability Directive (2004/35/EC)
  • ASTM 1527-13: Standard Practice for Envi­ron­men­tal Site Assessment Process: Phase I Envi­ron­men­tal Site Assessment Process
  • ASTM 1528-14: Standard Practice for Limited Envi­ron­men­tal Due Diligence: Transaction Screen Process
  • ASTM 1903-11: Standard Practice for Envi­ron­men­tal Site Assessments: Phase II Envi­ron­men­tal Site Assessment Process
  • ASTM E2107-06 (2014): Standard Practice for Envi­ron­men­tal Regulatory Compliance Audits
  • ASTM E2365-14: Standard Guide for Envi­ron­men­tal Compliance Performance Assessment
You can rely on CDM Smith as a competent partner through all EDD phases.

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