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Environmental Due Diligence

( Article Type: Explanation )

An environmental due diligence exercise or audit is carried out to identify the extent and nature of environmental risk involved when companies are bought and sold.

Environmental due diligence audits have developed in response to the numbers of situations where chronic contamination of factory sites and land became a significant factor in determining sales prices, due to the enormous costs of clean up.

The issues that tend to arise include: 

  • illegal or unauthorised toxic or hazardous waste dumps - often consisting of waste chemicals, off-specification products, and hazardous wastes that were deemed too costly to be disposed of by professional waste contractors
  • workers suffering from occupational illnesses due to poor or non-existent preventative programmes or equipment
  • unlicensed or unregulated boilers, chimney stacks, waste treatment works, effluent disposal methods or other methods and procedures that impact negatively on the health of the neighbours or the surrounding environment.

 Most modern sale agreements that involve land or 'environmentally unfriendly' processes now include the requirement for environmental due diligence audits as well as clauses that protect the buyer from clean up costs of residual contamination if reported within 12 to 24 months of purchase.