The environmental assessment which is a part of a due diligence process mainly aims at identifying any claims or liabilities generated by environmental degradation, such as potential soil and groundwater contamination resulting from current or historical activities performed on the site which is subject to the transaction process.
Also, another objective of an environmental due diligence (EDD) is the estimation of associated remediation costs, which may affect the closing of the transaction; if such costs are identified, they can serve as an efficient negotiation tool for the parties involved in the transaction and they can ultimately be turned into commercial advantages.
The Environmental Due Diligence (EDD) Process
An EDD process may vary according to the transaction type, property type (i.e. greenfield sites, operational sites, brownfield sites) or the environmental risk associated to the property. Consequently, there are several types of EDD: Environmental Screening, Phase I Environmental Site Assessment and Phase II Environmental Site Investigations, EDD Audit Protocols etc.
EDDs can be requested by the vendor as well as by the buyer. Generally, an EDD is developed by independent consultants, which ensures the objectivity of the assessments and the observance of the international best practices related to EDD development. The following international standards for performing an EDD are generally accepted: ASTM E 1528-14: Standard Practice for Limited Environmental Due Diligence: Transaction. Screen Processor; ASTM E1527 - 13 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process; ASTM E1903 – 19 Standard Practice for Environmental Site Assessments: Phase II Environmental Site Assessment Process.
EDD at Auditeco GES
AUDITECO GES has acquired an extensive experience in developing EDDs, being one of the first Romanian consulting companies involved in these types of evaluations. The company offers technical assistance to its clients during the whole transaction process, identifying the associated risks and proposing optimal risk mitigation measures.
A Phase I Environmental Site Assessment is a necessary component of many real estate transaction. This assessment aims to identify the potential presence of contamination, based upon visual observations, official documents, reported incidents, site history, interviews, satellite images and so forth. A Phase I Environmental Site Assessment does not quantify risks and does not involve intrusive field investigations (i.e. drilling works, sampling, etc.). Moreover, this type of assessment does not address all site conditions and potential compliance issues.
A Phase II Environmental Site Assessment is the next necessary step in a real estate transaction, should the conclusion of a previously conducted Phase I Environmental Site Assessment indicate that further actions are required. A Phase II Environmental Site Assessment involves the collection of soil and/or groundwater samples for chemical testing, it aims to determine the nature and extent of potential contaminated areas as well as the risk associated with the contamination. Moreover, a Phase II Environmental Site Assessment can provide preliminary estimative clean-up costs, together with relevant legal steps which have to be followed by the potential buyer.
An environmental due diligence process is especially useful in brownfield transactions, but also in greenfield transactions. Based on known site history and available documents, a due diligence report can be adjusted to fit the needs of a specific client and/or of a specific type of property, thus providing a balanced cost-benefit alternative.