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The Need for Environmental Due Diligence – Part 1

30 November 2016

Conducting Environmental Due Diligence is the best way to understand the current environmental performance of an existing business or new investment, and its associated environmental risks. It acts as a proactive approach to risk management and ultimately prevents legislation breaches and prosecution. After all, there are nearly 300 individual pieces of legislation that UK businesses must comply with.

The Importance of Environmental Due Diligence

Environmental concerns are now taken much more seriously. In recent years, the environment has become a much more prevalent issue in the public eye. This has led to the development of new, more stringent environmental legislation, and has increased the severity of punishments for legislation breaches. Risks are now high for those who are unwilling to or fail to address environmental issues. Environmental Due Diligence is extremely important for investments in facilities and in acquisitions. Environmental Due Diligence audits provide investors with a more informed view of the “state of play” of an organisation or facility by evaluating current environmental risks or legislative non-conformities. Mitigating these risks or rectifying legislative non-conformities is a potentially costly issue and can devalue the worth of an investment. Environmental Due Diligence essentially acts to reduce risks, and prevent unnecessary expenditure. The Environmental Damage (Prevention and Remediation) Regulations adopts a “polluter pays” principle to address the issue of legislation breaches. This legislation essentially looks to prevent and repair environmental damage caused by industrial activities. In particular, this has increased the importance of maintaining legal compliance, and in turn has amplified the importance of Environmental Due Diligence. Moreover, this type of legislation has traditionally only been applicable to larger manufacturers, but SME’s are now accountable for their actions too. Going forward the importance of environmental legislation and the requirement for Environmental Due Diligence is likely to increase further. As time passes, legislation becomes more complex and targeted in order to fulfil its goal: minimise damage to the environment. In the United Kingdom especially, the government constantly raises the bar for environmental targets, and the EU also adds to this with their environmental goals.

Commercial Property & Environmental Risks

Commercial properties can present a multitude of environmental risks. Unfortunately, many new investors are unaware that when they purchase a new property or facility they inherit existing environmental issues, illegalities and clean up liabilities. For example, on site pollution is one of many key issues. A commercial property may be polluting the local environment without a permit, and moreover the property owners or new investors may be unaware that this is happening. As previously mentioned, compliance with legislation is another issue. Lack of compliance with relevant environmental legislation could mean that commercial facilities are operating illegally, and could potentially be at risk of being fined or prosecuted.

Environmental risk management and staff training is becoming a bigger focus. If staff are untrained and unaware of how to deal with environmental risks, this can pose a serious concern. All of these environmental issues may act as a bottleneck for the organisation, creating hidden limits to current or future operational capacity. In general, operating unaware of these factors can cause large remedial bills and fines down the line, and devalue the worth of a potential investment.

It is important for business owners and investors to take time to consider Environmental Due Diligence. Next week’s blog will look at deploying Environmental Due Diligence and the cost of inadequacy.

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