Environmental due diligence is the systematic identification of
the environmental risks and liabilities associated with an organisation's sites and operations. This investigation is usually undertaken before a merger, acquisition, management buy-out, corporate restructure or similar transaction.

Environmental due diligence services fall into two categories depending on which party commissions the audit.

Pre-acquisition audit

This audit provides the acquirer with a detailed assessment of the historic, current and potential future environmental risks associated with the target organisation's sites and operations. Such risks can arise from:

  • existing contamination caused by past operations at a site
  • ongoing or planned operations
  • third party claims for environmental damage

Once identified, the risks are prioritised and recommendations made to eliminate, reduce, manage or transfer them. This process ensures that the valuation and contractual terms properly reflect the organisation's environmental risks.

Pre-divestment audit

This is essentially the same as a pre-acquisition audit, however it is designed to provide the vendor with a defence against aggressive bargaining by a potential acquirer. The report may also be used to pass on liability to an acquirer under a "sold with information" defence.

A typical due diligence exercise involves risk identification and assessment:

  • review the environmental setting and history of the site
  • assess the site conditions, operations and management
  • confirm legal compliance and pollution incidents from regulatory authorities
  • review contractual and other associated risks
  • prioritise and cost risks and risk treatment:
  • provide costed recommendations to eliminate, reduce and manage risks
  • review availability and cost of insurance to deal with risks
  • advise on warranties, indemnities, dowries and reserves

Investing in an environmental due diligence investigation may result in substantial savings in the purchase price of a company. Our Risk Consulting team can provide a range of environmental services including due diligence investigations.


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